Save Thousands on Insurance

Insurance is essential to safeguarding your finances and your family. But over your lifetime, the types of coverage you need change. And the company that offered you the best deal as a single person may not have the most attractive policy after you have a family. We'll suggest strategies to help you choose the right coverage at every stage of your life while saving thousands on your premiums.

When Keisha Fuller was in her early twenties a few years ago, she decided not to buy a car until she found an auto-insurance policy that cost less than $1,000 per year. The Atlanta woman started her quest at the Georgia insurance department's Web site, where she learned about smaller companies offering good deals. She contacted independent agents to get price quotes (find an agent in your area at www.iiaba.org), gathered quotes from large insurers at Allstate.com and Progressive.com, and used sites such as InsWeb.com, which work with a number of companies. The result: Fuller found a policy that cost less than $900 per year.

And she didn't stop there. She reshops her coverage every six months or so, and last December her premium dropped to $426. "I turned 25, an old accident was removed from my record, and I took an online defensive-driving course from AARP for $19.95," says Fuller. "I also allowed Geico to take my credit rating into consideration. They sent a letter asking permission, and I sent it back with haste because my good credit helped lower my premium."

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In addition to car insurance, young singles should have renters coverage to insure their belongings, which can be expensive to replace, and give them liability protection. You should be able to find a policy for just $100 to $200 per year, and purchasing it from your auto-insurance company could earn you a discount on both policies.

If you don't have health insurance through your employer, it's a good idea to buy it on your own. You can generally stay on your parents' policy while you're a full-time student, up to age 25 (rules vary by company and state). After that, you may be able to continue coverage for up to 36 months through the federal COBRA law. Premiums will jump if your parent's employer had been subsidizing the cost. But you can't be rejected for health reasons, so COBRA may be your best bet if you have a medical condition.

You're healthy? You'll probably be able to beat COBRA's cost. Get quotes from several companies at eHealthInsurance.com, or find a local agent at www.nahu.org.

Raising your deductible on individual coverage to at least $1,150 can lower your premium significantly and qualify you for a health savings account. An HSA lets you set aside tax-deductible money that you can use tax-free to pay for medical expenses that aren't covered by insurance.

Young singles don't have to worry about life insurance. You only need that type of coverage when someone is financially dependent on you.

Checklist for Young Singles

Shop for auto insurance; premiums can vary by hundreds of dollars from one company to another.

Buy renters insurance.

Individual health insurance can be surprisingly inexpensive, especially if you choose a high-deductible policy.

You probably don't need life insurance.

When kids arrive

Life insurance becomes essential when you're supporting young children, but coverage is surprisingly inexpensive. A healthy 35-year-old man can get a 20-year, $500,000 term-insurance policy for less than $350 per year, or a 30-year policy for less than $500. Women pay even less. That will give you protection until the kids move out or your mortgage is paid off.

A general rule of thumb is to buy coverage equal to eight to ten times your annual income. But stay-at-home parents need life insurance, too, to cover services the family would need if they weren't around to provide them.

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Jeanpierre and Susie Caramanica ran the numbers when their son, Daniel, was born two years ago. "We analyzed our current income and assets, plus our current and long-term expenses," says Jeanpierre. He and Susie, ages 31 and 32, started with about $50,000 in life insurance each through their jobs as human-resources consultants, and they purchased an additional $200,000 in supplemental polices offered by Susie's employer. The Caramanicas, who live in New York City, plan to update their calculations after their second child is born in May.

Disability insurance is also a concern. Most employer plans pay only 60% of your income, up to a monthly maximum of $5,000 to $10,000, and don't include bonuses or commissions. If that's not enough to cover your expenses if you can't work, you can buy your own policy or supplemental coverage through your employer.

Getting married or having kids should also trigger a review of your health-insurance options, comparing premiums, deductibles and co-payments for anticipated expenses. One plan may offer a much better deal for family coverage.

When the Caramanicas went through this exercise, they found it cost significantly less to add Daniel to Susie's plan than to Jeanpierre's. Jeanpierre, meanwhile, remains on his own employer's policy. They also make the most of their employers' flexible spending accounts, which give them tax-free money for medical expenses that aren't covered by insurance and for dependent care.

Checklist for Families

Life insurance is a must; buy low-cost term policies.

Purchase extra disability insurance if your employer's coverage isn't enough.

Reassess health-insurance choices when you have a baby.

Maximize discounts when your teens start to drive -- if they drive a safe car and maintain good grades, and if you keep all of your insurance with one company.

Empty nesters

When your kids move out, your auto-insurance rates will finally drop and you'll probably need less life insurance, if any. That frees up money for you to purchase long-term-care insurance.

That's what Nancy and Ken Holm did after their daughter, Nancy, graduated from college. The Holms, who live in Prairie Village, Kan., had seen firsthand the value of long-term-care coverage after Ken's mother had a lengthy stay in a nursing home. They wanted to protect their retirement savings and make life easier for Nancy, 28. "We have only one child, and she lives far away," says her mother.

Last year the Holms (she's 59 and he's 63) bought a long-term-care policy from MetLife that pays a daily benefit of $105 for care in a nursing home, in an assisted-living facility or at home.

Coverage kicks in after a 45-day waiting period. The policy has an annual inflation adjustment of 5% and a shared-care rider, which gives the Holms a pool of money to cover a total of eight years of care between the two of them. They also have a return-of-premium rider that pays back their premiums (less any claims) to their estate. Total annual premium: $3,300 (the policy would cost $2,600 without the shared-care or return-of-premium riders).

The Holms cut their homeowners premiums by moving to a smaller, newer house after their daughter moved out. If you move, keep in mind that the company that offered the best deal in your old neighborhood may no longer have the lowest rates. Also, the company that offers the lowest auto-insurance rates for families with children might not be the best for a couple.

Checklist for Empty Nesters

Reshop your auto insurance. The company with the lowest family rates may not offer the best deal for couples.

Consider dropping your life-insurance coverage.

Use your premium savings to purchase long-term-care insurance.

Reshop your homeowners policy if you move or downsize.

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After you retire

If you haven't bought long-term-care insurance already, consider it now. The younger you are when you buy the policy, the lower your premiums will be. Plus, it's less likely that you'll have a medical condition that could make it difficult to qualify for coverage.

You'll also need to make new decisions about health insurance when you stop working. If you retire before age 65, you may have a tough time finding affordable coverage on your own until you qualify for Medicare. If your employer doesn't offer retiree health insurance, you may be able to stay on the company policy through COBRA for up to 18 months after leaving your job.

COBRA was the best option for Esther Love of San Antonio. Her husband, Allen, retired in 2003 at age 65 and qualified for Medicare. Esther was only 57 at the time, so she elected COBRA coverage. After that ran out, she had to search for a policy of her own.

Blue Cross rejected her because a colonoscopy had turned up a benign polyp. Two other companies offered policies with monthly premiums of $501 and $560, but they wanted to exclude coverage for conditions related to the polyp. Esther finally found coverage with no exclusions through the Texas high-risk pool for $601 per month, and she's still on the lookout for a better deal.

Because prices and coverage can vary so much, it's a good idea to get help from a health-insurance agent (find one in your area at www.nahu.org). Many states have high-risk pools or laws requiring insurers to continue your coverage even after COBRA runs out, as long as you follow certain procedures.

Raising your deductible can lower your premiums. And if your policy has a deductible of at least $1,150 for an individual (or $2,300 for family coverage), you can open a health savings account that lets you use tax-free money to help pay for medical expenses.

Even after you turn 65, Medicare pays only a portion of your health-care costs, and it doesn't automatically cover some big expenses, such as prescription drugs. You have two choices: Buy a medigap policy to supplement Medicare, plus a separate Part D policy for prescription drugs. Or purchase all of your coverage through a private insurer with a Medicare Advantage plan, which can be either an HMO or a regional preferred-provider network.

Allen Love ended up going with a Medicare HMO from SecureHorizons, a division of UnitedHealth. "It cost much less than any Medicare supplement policy, and the number of doctors and hospitals covered is acceptable, as is the quality," says Allen. And the price can't be beat: Allen pays nothing beyond his Medicare Part B premium because of generous government subsidies to Medicare Advantage plans (use the Medicare Options tool at www.medicare.gov to compare prices).

After you retire, other insurance takes a back seat to health-care coverage. But it pays to tell your other insurers when you stop working. Your auto-insurance rates may drop when you no longer use your car to commute. You may qualify for a retiree discount on your homeowners insurance because you're likely to be spending more time in the house. And you probably don't need life insurance anymore, unless you want to protect your spouse because you have a life-only pension that will end after your death.

Checklist for Retirees

Notify your homeowners and auto insurers when you stop working. You may qualify for lower rates and discounts.

Get help from a health-insurance agent if you need to buy coverage on your own. Supplement Medicare with a medigap policy or by joining a private Medicare Advantage plan.

Consider buying long-term-care insurance, if you haven't already.

Editor's note: This story originally was published in the May 2007 issue of Kiplinger's Personal Finance magazine and has been updated.