Inflation Relief: Where You Can Cut Corners on Insurance (and Not) To Save Money in 2023
The end of the year, or the beginning of the new year, is always a good time to look at your budget and see where you can save money to meet your financial goals. As the cost of groceries and other everyday essentials continues to rise with inflation, it’s more important than ever to look at your other expenses and find ways to save. Insurance is one cost you might be able to reduce.
“Comparison shop both home and auto insurance rates if you have not done so in the last six months,” advised Michael Orefice, senior vice president of operations at SmartFinancial.
Experts recommend shopping online to get the best rates without having to spend time calling multiple carriers. As GOBankingRates recently reported, digital insurance companies are one option, but they’re not available in every state and might offer fewer coverage options.
“Use an online insurance agency or broker to get quotes from multiple insurance companies. They will present you with the one or two lower-priced options that fit your needs,” said Andrew Schrage, CEO of personal finance site Money Crashers. “This approach works best for auto and property insurance — renters or homeowners. These are the two types of policies where it really pays to shop around frequently.”
In addition to comparison shopping, you may be able to save money by staying with the same carrier but changing your coverage.
“Spend time reviewing your current policy to see if it offers adequate coverage for your needs. You may find you are either under- or over-insured. If you’re over-insured you could find savings by cutting back on coverage,” Orefice told GOBankingRates in an email interview .
But where is it safe to reduce coverage, and when should you max out your protection?
Make Sure Your Homeowners Insurance Meets Your Needs
The average cost for a homeowners policy ranges from $999 to $1,655 per year, according to data from Progressive. Before changing your policy to save money, you want to make sure you have the right coverage levels.
“Homeowners insurance is intended to rebuild your home more than pay for small repairs,” Orefice said. “There are several things to keep in mind when deciding how much insurance you need to keep and what you can cut.”
He said that you should make sure your policy will cover:
- Damages or injuries that occur at your home (liability)
- Rebuilding your home
- Reimbursing living expenses if your home is uninhabitable
- Replacing personal property
Increase Your Deductibles
Rather than cut back on coverage to save money, you may consider increasing your deductible to lower your home insurance premiums. “Your deductible is the amount of money you pay out-of-pocket in the event a covered loss occurs. Only after you’ve paid the deductible will your insurance kick in and cover the rest. The idea is the higher your deductible, the lower your monthly payment,” Orefice said.
Likewise, you can save on car insurance by increasing your deductible. But this tactic comes with a caveat: “Increasing your deductible can lower your monthly premium significantly but we recommend this only for safer drivers,” Orefice said. “If you’re accident prone, you may face steep out-of-pockets costs if you are in a wreck.”
To avoid coming up short in the event you need to file a claim, set aside enough emergency savings to cover your deductibles.
Consider Your Car Insurance Liability Coverage Limits
When you’re looking at your coverage limits, or how much your insurance will cover if you are in a car accident, you want to make sure you meet state mandates for liability. But, in some cases, it might be worth it to increase that coverage beyond the state minimum requirements.
“If you’re buying liability only and have an older car that’s not worth much, being underinsured could lead to disaster if you cause an accident and your liability limit is too low to cover repairs or even replacement of the [other driver’s] car,” Orefice said. “You may pay a little more for extra coverage, but it’ll be thousands of dollars less than if you have a bad accident.”
Re-Evaluate the Coverage You Need If You’ve Paid Off Your Car
If you lease or finance a car, you’ll need to invest in collision and comprehensive coverage in addition to liability insurance. Some lenders may require gap coverage, too.
If your car is paid in full, decide if it’s worth it to maintain this full coverage. “Even if you own your car outright, maintaining full coverage may be beneficial until the cost is equal to or exceeds your car’s value after depreciation. It may save you thousands of dollars if you’re in an accident,” Orefice said.
However, if your car is worth less than $4,000 it might be worth it to drop full coverage. Orefice recommended checking your car’s value in Kelley Blue Book, or even getting a professional appraisal to find its current market value.
“If the cost of purchasing these coverages is less than or equal to your car’s value plus your deductible, then you may be better off with a cheaper liability-only policy,” he said. “Do the math before you make insurance-buying decisions.”
Consider Putting Glass Coverage on the Chopping Block
If your car is paid in full, you may be able to save money by eliminating your comprehensive coverage, which includes glass damage and replacement. However, if you do a lot of highway driving, where a stray rock can crack your windshield, or if your region experiences frequent, severe hailstorms, this coverage is worth keeping, according to the experts.
“If you live in a moderate climate, this one may be an easy one to knock off to save a little,” Orefice said. However, he pointed out that comprehensive coverage doesn’t cost a lot. “If you feel it’s unnecessary you can get rid of it, but you won’t be saving much and [will be] digging into your own pocket if the worst happens,” he said.
Pay in Full
You may be able to save money by paying your car insurance in full for the year or six months — and reap extra savings with credit card rewards. For instance, if your insurance company offers a discount for paying in full, plus you have a credit card with rewards, you can save money with the insurance discount and earn cash back on the credit card. Just be sure to pay off the balance to avoid interest charges. If you’re unable to do that, a payment plan with the carrier is a smarter choice.
It might even make sense to dip into savings to pay your car insurance, as the discount is likely to be more than the 1% to 3% interest your savings account is earning. But you want to be careful about depleting your cash reserves, especially if it might mean using higher-interest credit cards if an emergency crops up where you need money fast.
Bundle Policies — or Not
Conventional wisdom typically presents bundling home and auto insurance as a good way to save money. But Orefice warned that’s not always the case.
“In today’s economy it’s best to shop for both separately and see if there’s still a greater savings by bundling,” Orefice said. “Some insurers have tightened their purse strings, and it may pay to buy home from one carrier and auto from another.”
Enjoy a Windfall If You Switch Home Insurance Carriers
After you’ve done the research, you could experience an added benefit if you decide to switch homeowners insurance carriers, Schrage said. “If you escrow your insurance payments with your mortgage servicer and your escrow account is in good shape, you can keep part of the refund you get from your old insurance company rather than send it directly to your servicer to keep your escrow account balance positive.”
That money could be used to help pay off holiday bills or bolster your emergency savings for the new year.
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