I’ve been working as an insurance agent for a couple of years. I’ve learned just about every way to save on insurance, but some aren’t worth it. Don’t become victim to these insurance pitfalls; it can cost you more in the end.
1. Switching Companies
Beware when shopping around. Some insurance companies will offer you a lower rate but with lower coverage. Have your current policy in hand to note each coverage as you speak with other companies. Have the company email you the quote and double check it.
Online companies can also cost less, but if you have a question, or need to file a claim, you'll be dialing a 1-800 number. Ask these companies how they deal with claims, and search for ratings and reviews. Start looking a couple of weeks before your policy renews. A lot of companies offer discounts for customers who shop early!
2. Decide on Liability vs. Full Coverage
First, find your vehicle’s current value by checking the Kelly Blue Book. It is smart to keep full coverage until your car's value is low enough to replace it out of pocket without any financial strain. It's a good rule of thumb to keep enough in savings to cover your deductibles, or the cost of your vehicle.
Full coverage is also good to have until it costs about 25% of the value of your car. For example, if your comprehensive and collision coverage costs $400 a year, and your vehicle is only worth $1600, then you would have paid the total cost of your vehicle in 4 years. It’s impractical to pay for insurance that will cost close to the amount of the vehicle. However, this percentage is just a guide; compare your own numbers against your current financial situation.
3. Minimum Liability Coverage May Be a Risk
If you are in an accident and your limits aren’t high enough, you will be sued for the remainder. The other person's insurance company will pay for the damages upfront, but then they will go back to you for reimbursement. This is called subrogation; it happens when coverage is inadequate.
Understand what minimum coverage means. Most states have minimum liability limits around 25/50/25. These numbers stand for $25,000 in injury coverage for each person, $50,000 in injury coverage each accident, and $25,000 in property damage per accident.
Injury coverage: 25/50 would cover small fender benders, but anything more and you'll be in trouble. Costs add up quickly if there is more than one passenger with an injury or if the person injured does not have health/medical coverage. Example: a simple broken arm needing surgery, without health insurance, can cost over $20,000!
Property Damage: Again, minimum limits would cover small fender benders. But accidents involving more than one vehicle or involving damage to property would create big repair costs.
The difference between minimum coverage 25/50/25, and good coverage 100/300/100, could be as little as $75 a year. Some insurance companies will give you discounts or lower premiums for having higher limits. Not only will this keep you covered, it will cost you less in the long run.
4. Choose a Low or High Deductible
Comprehensive Coverage: Go for a low deductible. Most comprehensive claims are lower in cost. You'll be paying out-of-pocket for these expenses if your deductible is too high. For example, the total cost to replace my windshield was $350, but my deductible was $500. Even though my insurance would have covered it, I had to pay out-of-pocket because my deductible was too high.
Collision Coverage: Aim high. Most repairs caused by a collision are pricey. Just make sure you have the deductible in an emergency fund.
Homeowners: Go for a high deductible. Two of the most common causes of damage to a home are fire/smoke damage inside the home, and wind/hail damage outside. They cause damage that is pricey to repair. Having a higher deductible can save you money in this case.
5. Homeowners Insurance: Reconstruction Costs vs. Dwelling Amount
Reconstruction cost: What it would cost them to rebuild your house from the ground up.
Dwelling coverage: The dollar amount of coverage on your house.
Every year the insurance company will re-evaluate their reconstruction costs. They might lower the reconstruction costs but will not lower your dwelling amount. You can call your insurance company and make sure your numbers match.
Say you start your homeowners policy with ABC Insurance Co. They estimate your Reconstruction cost on your home to be $150,000, therefore your Dwelling coverage is $150,000. The following year ABC Insurance Co. re-evaluates this cost due to changes in the economy. Your reconstruction cost is now $125,000, but ABC Insurance Co. didn’t change your Dwelling amount which remains at $150,000. You can simply ask your insurance company to lower your Dwelling coverage to match your Reconstruction cost, saving you anywhere from $20 or more, depending on the variance.
This has been a guest post by Jessica from Wilmington, IL
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