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Buying insurance is like buying a ticket to a lottery that you never want to win. As painful as paying the premiums might be, being uninsured is like taking up rock-climbing and being too cheap to buy the ropes.. So here are the key points to make sure that you spend your insurance money wisely.
Make sure you compare the policies carefully, and pay particular attention to the exclusions section, which as the name implies, outlines what’s not covered. The insurer’s definitions makes the difference between comfort and calamity. Check out the declarations page, which outlines the limits of your coverage.
For home insurance:
- get reliable estimates of the real cost of rebuilding your home, rather than guessing, and update annually, to allow for fluctuations in labor and material costs and changes in building regulations. “Guaranteed Replacement Cost’ means that you’re covered in the event that building costs balloon after a major disaster, and insure for 100% of cost.
- only insure the contents you would actually want to replace. If you equipped a home gym but never use it, are you sure you want to spend your insurance budget on it? (Better yet, sell it all and use the money for something you love). If you are keeping an item for sentimental reasons, it’s irreplaceable anyway, so why try to put a monetary value on it?
- set a high deductible, and keep that money in an emergency fund.
- limit your liability, especially if you have dogs, children, household and maintenance staff or frequent visitors.
- review your insurance carefully to see what items are covered, both in and out of the home. Mobile phones, laptops and jewelry are often included in household policies, but you can buy inexpensive stand alone policies which means you can avoid claiming on your home insurance policy.
- only use your home insurance as a last resort. In the US, part of the discovery process when selling a home includes any insurance claims. Lenders look at this when valuing the property, and it can affect the property value, loan amount, and even the interest rate offered in extreme cases. So for more minor mishaps, handle the replacement costs yourself.
- Choose service over cost. No discount in the world can replace good service in the event of a claim, so get recommendations from consumer guides or trusted contacts.
- Keep excellent records. Keep a journal, take photos, make notes of time and discussion of phone calls, keep receipts of costs incurred (including medical, home-care and baby-sitting) and track costs of living expenses.
- Update regularly.
For health insurance:
- Review your existing health needs – medical services you currently use, and policies that include those. Preexisting conditions are not insured by every provider, so don’t assume that you are automatically covered. If you have a chronic condition, support groups usually have recommendations for their favored insurers.
- Check which insurance your preferred healthcare providers accept.
- Establish how often you use healthcare services – the less you use the services, the higher your co-pay can be. But be aware that a co-pay is levied for each part of the treatment/visit/investigation, so for non-routine exams, the bill can rise quickly.
- Know what your annual and policy limits are. 80% of bankruptcies in “middle class‘ America are due to medical bills, so discuss how much care your insurance dollars would buy in the event of chronic or catastrophic illness.
For auto insurance
The majority of your auto insurance premium goes towards insuring you against the damage that you can cause with an automobile, rather than the cost of the vehicle itself. Bear this in mind when you buy; cars and behaviors considered to lower the insurance risk can substantially reduce your costs.
Most minimum coverages are too low to protect the assets of most motorists. Buy at least $100,000 of coverage per person; $300,000 per accident.
- Property damage. The average car in the US costs $25,000, so insure for at least $30,000 if you don’t want to end up out-of-pocket. In other countries, the same rule applies – always insure for more than the average vehicle replacement cost, especially in areas with high levels of public transport vehicles.
- Uninsured and Underinsured coverage protects the other people traveling in your vehicle for bodily injury coverage – buy at the same level as your own bodily injury coverage.
- PIP (no fault) covers medical, rehabilitation, funeral and home care costs, but is often just duplicating coverage provided by your health and disability insurance, so buy the minimum if this is the case.
- Collision and comprehensive damage – essential if you still have a loan on the car, but become less important as your car’s value declines below $5000, especially you carry a high deductible.
- Optional extras such as windscreen replacement, rental car, and towing are often either more expensive than they are worth or already part of your auto club or credit card benefits, so check before you add them to your policy.
- High risk drivers. Adding points to your license, filing a claim or adding teen drivers to your insurance policy all mean a big jump in premium payments. Ways to minimize the cost of these include traffic school to avoid points for a first traffic citation, keeping a high deductible and only filing a claim for higher cost incidents, and adding your teen to the least powerful, lowest cost vehicle. And not buying them a Corvette for their birthday..
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