Slash Your Insurance Costs

These tactics can save hundreds on auto, home, life and long-term-care premiums.

By Kimberly Lankford, Contributing Editor, Kiplinger's Personal Finance

September 22, 2009

Don't overinsure. Calculating the right amount of coverage has nothing to do with the market value of your home. You don't need to cover the land's value, but you do need to have enough insurance to replace the building and details inside. To calculate rebuilding costs, go to www.accucoverage.com, which for $7.95 lets you access the same building-cost estimates that insurers use. Update your coverage when you make major home improvements.

LIFE INSURANCE

Reshop your policy now. Prices for term life insurance have dropped significantly over the past 15 years. You may be able to find a lower premium now or lock in a longer term even though you're older. But do it soon, because it looks as if rates have finally hit bottom. Several insurers recently raised their prices by 5% to 20% for the first time in nearly a decade, and most others are expected to boost rates over the next year.

LONG-TERM-CARE INSURANCE

Lower your benefit period. A three-year benefit period costs about half as much as a policy with lifetime benefits, and you still get valuable coverage. The Association for Long-Term Care Insurance surveyed insurers and found that 92% of buyers who have three-year benefit periods and eventually file a claim do not exhaust their benefits.

Another way to hedge your bets while lowering the cost is to buy a shared-benefit policy. If you and your spouse buy a three-year shared-benefit period, for example, you actually get a pool of six years of benefits. If one spouse needs four years of coverage, the other can use the remaining two years.

ANOTHER WAY TO SAVE

Boost your credit score. Insurers have found a strong correlation between credit scores and insurance claims -- people with low scores are a lot more likely to file insurance claims than people with high scores -- and in most states your credit score can make a big difference in your auto- and homeowners-insurance rates.

Go to www.annualcreditreport.com to review your credit report, and fix any errors promptly. You can get a free copy of your report from each of the three credit bureaus every 12 months; stagger your requests so you see a copy from one bureau every four months.

If you do have a bad credit score, it can help to work with an independent insurance agent who deals with many insurers and knows which ones are more likely to offer the best deals for people with poor credit. You can find a local agent at www.iiaba.org.

AVOIDING CLAIMS HASSLES

Check out the complaint record before you buy. Saving a few dollars in premiums can backfire if the insurer hassles you at claim time. You'll find insurers' complaint records, especially for auto and homeowners policies, at https://eapps.naic.org/cis.

Focus on the complaint ratio, which measures the company's U.S. market share of complaints against its share of premiums for a specific policy type. If the national median complaint ratio is 1.00 and the ratio for the company you're considering is 2.00, for example, that should be a red flag. Also look at the insurer's complaint trend report to see whether complaints have been increasing or decreasing.

You can also check with your state insurance department to see whether any enforcement actions have been taken against the company. Find links to your state insurance regulator at the Kiplinger insurance center.

TIP

Insurance companies share information about your claims history with each other through the Comprehensive Loss Underwriting Exchange (CLUE), and a history of homeowners and auto claims -- even small claims -- can result in a rate hike. If you have too many claims, you may have a tough time qualifying for a policy at all. Go to www.choicetrust.com and make sure there aren't any mistakes in your CLUE report. Before you buy a home, check out its CLUE report -- even if you've had a spotless claims record, you could have a tough time finding affordable coverage if the previous owners made a lot of claims on the home.

Editor's note: AOL's personal-finance site, WalletPop, featured this article but questioned the cost savings on some of Kimberly Lankford's recommendations. Kim stands by her advice, welcomes the discussion with WalletPop, and responds:

Raising your auto deductible can lower your premiums significantly (you'll generally save a few hundred dollars per year) and can help you avoid making small claims that could cost you a claims-free discount. You can use some of the money you saved in premiums to boost your emergency fund -- in many cases, the price difference is so big that you'd need to go for only about two years without a claim to amass way more in that emergency fund than you'd need to cover the higher deductible.

And buying a long-term care policy with a three-year benefit period is much more affordable than buying lifetime benefits -- a policy with lifetime benefits can cost more than $4,000 per year for one person in his or her fifties. Many people have sticker shock when they see those prices and decide not to buy any long-term care coverage.

But you can cut your premiums in half -- or more -- by buying a long-term care policy with a three-year benefit period instead, and still cover most long-term care needs. The average stay for nursing-home residents is 28 months, and the average combination of nursing home and home care is just about three years. In many cases, lowering your benefit period from lifetime to three years could reduce your premiums by $2,000 or $3,000 per year per person.

You may want to buy a longer-term policy if you have a family history of Alzheimer's. A good way to hedge your bets while lowering the cost is to buy a shared-benefit policy. If you and your spouse each buy a four-year shared-benefit period, for example, you'll get a pool of eight years of benefits. If one spouse needs six years of care, the other still gets two years of coverage.

A shared-benefit policy tends to cost about 15% more than buying two separate policies with the same total benefit period. But it still costs a lot less than buying two policies with lifetime benefits. Here's a column I did with more details about picking a long-term care benefit period.

Readers, tell us what you think. Please leave a comment below:

• < PREV
• 1
| 2

• Print
• Comments
• Email
• RSS