Slash Your Insurance Costs

Editor's note: This article is from the 2009 issue of Success With Your Money. Order your copy now.

AUTO INSURANCE

Boost your deductible. One of the easiest ways to reduce your auto-insurance rate is by raising your deductible. Boosting the deductible from $250 to $1,000, for example, can cut your premiums by 15% or more. And you'll be less likely to file small claims that could jeopardize a claims-free discount and lead to a rate hike.

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Trim your coverage. If your car is five years old or older, you may be paying more in premiums than you could possibly get back in claims. Consider dropping collision and comprehensive coverage, which could reduce your premium by 25% to 40%. A good rule of thumb: If your car is worth less than ten times the cost of the annual coverage, drop it. You can get a ballpark estimate of your car's value at www.kbb.org. (If you have an outstanding loan, your lender may require you to keep collision coverage.)

Shop around. Car-insurance prices can vary enormously by insurer -- it isn't unusual to find price differences of hundreds of dollars per year for the same family. And even if you shopped carefully a few years ago, you could benefit from assessing your options again, especially if you've experienced any life changes. The insurer that offered the best rate for a couple, for example, may have some of the highest rates for adding a teenage driver.

It's easy to get price quotes from several insurers at www.insweb.com or www.insurance.com. You can also check rates for a few insurers at their own Web sites, such as www.statefarm.com, www.progressive.com and www.allstate.com. Or you can find an independent agent who works with many companies and knows from experience which insurers are more likely to offer you the best deal (you can find an agent in your area through the Independent Insurance Agents & Brokers of America).

Get all the discounts you deserve. Auto-insurance companies offer a slew of discounts. Some may come automatically, such as a price break if you have several cars or multiple policies with the same insurer (maybe homeowners insurance and an umbrella policy as well as auto coverage). And having a good driving record -- no at-fault accidents or moving violations in the past three or five years -- may slash your premiums by up to 20%.

But you may not benefit from some other discounts unless you know to ask -- such as discounts for low mileage (often 7,500 or less per year) or carpooling, or a premium reduction when you retire. Some insurers even offer a discount for people age 55 or older who take a defensive-driving course. Ask your insurer for a full list of discounts and find out what you need to do to qualify.

Save money on teenage drivers. Good grades can have a big payoff-some companies shave as much as 30% off the premiums for a student who earns at least a B average. And some companies offer extra discounts for kids who participate in their own driver-safety courses (such as State Farm's Steer Clear program). Matching the kid with a safe car can also lower your premiums (check safety ratings at www.carsafety.org).

Also let the insurer know if your kid goes away to college without taking a car -- your rates could drop by as much as 30% if the school is at least 100 to 150 miles away from home, and the student would still be covered when home on summer or semester break.

It's generally a much better deal to keep your new driver on your own policy rather than buy a separate policy; many insurers won't even cover teenagers by themselves, and they'll benefit from a multipolicy and multicar discount on your policy, as well as any breaks you've accumulated for being a longtime customer.

HOMEOWNERS INSURANCE

Boost your deductible. Increasing it from $250 to $1,000 can lower your premium by as much as 25%; raising it from $250 to $2,500 could cut your premiums by up to 30%.

The higher deductible also makes you less likely to file small claims that could result in a rate hike or even being dropped by your insurer. Boost your emergency fund to make sure you have enough money to cover the deductible.

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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.

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