It's a good idea to purchase insurance for all sorts of needs. However, insurance agents are quick to play on our fears and ignorance to pressure us into buying more coverage than we really need.
By re-examining your coverage in key areas, you can determine whether you're adequately covered, or flushing money down the drain. Here are the top seven areas where people tend to go overboard when it comes to protecting themselves. You can save yourself considerable money by eliminating unneeded or excessive coverage.
1) Homeowner's Insurance
Find out how much it would cost to rebuild your home. You may get different assessments from different insurers, so do your homework ahead of time. You can make the estimate yourself (often for free) by doing an online search for "online replacement cost calculator."
If you're covered for more than the amount needed to rebuild, you're paying too much. To improve your cash flow, also consider increasing your deductibles. Even though you'd be promising to pay a little more if there were ever an incident, you'd lower your monthly premium (what you pay every month to guarantee your continued coverage).
2) Aging Life Insurance Policies
People harbor this misconception that they can buy life insurance and then put it on auto pilot. Not so. Life insurance needs to get lower as you get older and (hopefully) accumulate more in assets which can be used to replace a policyholder's income should anything happen to them.
So how much life insurance do you actually need? The most commonly used rule of thumb is between eight and ten times your current wages if you plan on retiring in the next 20 years -- ten to twenty times the amount if you won't be retiring for another 40+ years. However, if you want a more detailed estimate, I recommend doing an online search for "Bankrate life insurance calculator."
If you discover that you currently have more than necessary, you have options. For example, you can surrender your life insurance policy back to the insurance company for cash, or sell the policy to a third-party company. [To learn more about this morbid trend, read What to Do About that Old Life Insurance Policy.]
3) Insuring an Old Automobile
Read the fine print of your auto policy! You'll probably find lots of areas where you're getting soaked. Here are three quick places to check:
a) If you're driving an old car that's worth less than $5,000, eliminate comprehensive and collision coverage. The car already has a low "Blue Book" value -- why pay a lot when you can replace it for only a little?
b) As with homeowner's insurance, consider increasing your auto policy deductibles to lower your monthly premium payments.
c) If you're driving a newer car, get rid of unnecessary coverage such as towing -- the chances of a new car breaking down aren't high enough to justify it. These superfluous items often are tacked onto a policy without you even knowing it.
4) Duplicate Health Insurance
You'd be surprised at how many spouses each have their own health insurance policy through their separate employers. This is a huge waste of money. Be sure to consolidate your family's health insurance into one policy. It's simpler, saves on paperwork, and will score you volume discounts.
5) Changes in Your Family Situation
If living arrangements change in your household, calibrate your insurance accordingly. For example, if your kid moves out of the house to attend college and consequently no longer drives the family car, immediately take him or her off your automobile insurance policy.
Keep in mind, you can temporarily remove children from auto insurance while they're away at school, and then quickly put them back on when they return home for the summer. It usually just takes a phone call to your insurance broker. Younger people are more costly to insure, so this tip can save you from squandering a lot of dough.
6) Using Too Many Insurers
Many insurance carriers provide one-stop-shopping for all of your insurance needs. And yet, it's common for people to buy different kinds of coverage from different companies. Insurance companies typically offer substantial discounts to customers who buy multiple policies from them. At the very least, shop around and inquire about discounts.
7) Credit Insurance
This type of insurance is such a waste of money, it borders on fraud! Here's how it works: When you obtain a new loan or credit card, the lender will attempt to sell to you credit insurance, promising you that should anything bad happen to you -- e.g. unemployment, illness or death -- the insurance company will pay off the remainder of your debt.
Some lenders push this type of insurance really hard, using the fear of passing mountains of debt along to loved ones as a selling tactic. Don't fall for it. The statistical odds are that nothing will happen. Moreover, the insurance in question is usually way overpriced. If you're interested in this sort of protection, there are other types of insurance (such as disability or term life insurance) that can accomplish the same goals for a lot less.
It's worth looking at all of your insurances policies at least once a year to re-evaluate your coverage amounts, shop around for lower rates and/or consolidate plans to as few insurers as possible to get the maximum discount. Spending just an hour or two on this could end up saving you hundreds of dollars every year!
Three More Ideas to Help You Save Hundreds of Dollars Every Year:
1. Free yourself from credit card debt. Learn how to pay 0% on your balances for up to 21 months in The Top 4 Balance Transfer Credit Cards for 2019.
2. Pay off your mortgage to free up an extra $1,000 to $2,000 every month. Check out 3 Ways to Pay Off Your Mortgage 15 Years Early.
3. Shrink and eliminate your car payments. If you're paying 6% APR or more, it's time to know The Top 3 Reasons You Should Refinance Your Auto Loan.