Before you cut back insurance, consider discounts, adjustments
— -- Cash-strapped families might be tempted to let insurance policies lapse or, at the very least, reduce auto, home and life insurance coverage.
That may be possible in some cases, but making dramatic changes may not be necessary to save money. "Families should consider whether a short-term saving is worth the long-term risk," says Roger Sevigny, president of the National Association of Insurance Commissioners.
As you consider ways to cut corners on your insurance, you should start by shopping around. Many people stick with their policy for years without comparing prices and may be missing a much better deal. And if you rely on different insurers for your home and auto insurance, bundling them together with one company could save you money.
"In many cases, that simple act of bringing together your auto and home insurance can save you hundreds of dollars a year," says Paul Ballew, a senior vice president for Nationwide.
Keep in mind that price is not the only important factor. "When you see a price that you like, you want to make sure that you're not buying from a company that also gets more than their fair share of complaints," says Amy Danise, editor of Insure.com. Most state insurance departments release annual rankings that show the relative number of complaints for insurance companies.
Some other belt-tightening tips:
Car insurance
• Increase your deductible. Comprehensive and collision insurance coverage usually has a deductible, which is the amount of money you pay before your policy kicks in. You could raise it from $200 to $500 or even to $1,000. That could lower your cost by 15% to 40% or more, according to the Insurance Information Institute. "Even a very, very high deductible — even higher than $2,000 — is better than having inadequate insurance, because you're in some way capping your loss," says Jeanne Salvatore, senior vice president of the Insurance Information Institute.
• Consider dropping collision and/or comprehensive coverage if you've had your car for four or more years. You can check the National Automobile Dealers Association's used car guides to see what your car is worth, Danise says. It may not be cost-effective to continue insuring a car that is worth less than 10 times the amount you pay for coverage, the Insurance Information Institute says. That's because you may receive a claim payment that would not substantially exceed your premiums minus the deductible.
• Ask about discounts. Your agent may not go out of his way to offer discounts. He also may not know that you are eligible for some discounts.
You may qualify for a discount if you are a safe driver, have lower-than-average mileage and recently added a car alarm. There are even discounts for teenagers with good grades.
• Ask about benefits. Bad credit can cause insurers to charge more, although some states don't allow it. If your credit score has improved, you should ask if that can lower your premiums.
"And some people aren't aware that marital status is part of the underwriting process for car insurance," Danise says. "They believe that you are more responsible if you are married."
•Eliminate extras. If you are paying for towing coverage or rental reimbursement, you may want to drop them and save some money.
Homeowners insurance
• Follow some of the same steps that you can take to lower auto insurance costs. Consider raising your deductible. You should also ask about discounts. For example, if you are 55 or older and retired, you may qualify for a discount, says the Insurance Information Institute.
• Take advantage of improvements that you have made. If you have modernized your home, you may get a break. If you haven't made any recent changes, consider upgrading electrical, plumbing and heating systems. They improve safety and will reduce premiums, Sevigny says.
• Don't lower your home insurance for the wrong reason. The price of your coverage is based on the cost of rebuilding. Too often, people wrongly believe they can lower their coverage because the value of their home has declined.
However, if construction costs in your area have gone down, you may be able to safely reduce your coverage. Ask your insurer to help you determine if rebuilding costs have changed.
• Review any riders. You may have asked for additional coverage for jewelry, silverware or artwork when you set up the policy. If you no longer own those items, remove the riders.
Life insurance
• Consider the value of life insurance. Many people don't have any life insurance and consider it too expensive. But it can be a smart idea during tough times because it will provide financial security for your family at a relatively low cost.
Even if you have coverage, you should re-evaluate it to see if you need to supplement it. "Especially if you have children and you want to cover them through college-tuition years, it's a good time to see if it's enough," Danise says.
• Term life is an affordable choice. It pays if death occurs during the term of the policy. The premiums for term policies are lower today than they have ever been, Salvatore says.
But keep in mind that your rate is affected by your health and lifestyle. Fortunately, today even someone with high blood pressure or high cholesterol can get fairly affordable insurance.
• Look into group policies. If your employer offers a group policy, it may be a cost-effective way of buying life insurance. But life insurance usually isn't portable if you leave the company.
• Don't rush to cash in whole life insurance. (Unlike term insurance, whole life has a savings component as well as a death benefit.) If you have a whole life policy, and you need to raise money, you may consider surrendering it. But that could jeopardize the long-term financial security of your family, the Insurance Information Institute says. Another option: Ask your agent if you can borrow against the cash value of your policy.