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Eight Ways to Reduce Insurance Costs Without Compromising Protection
Insurance is essential, yet the premiums add up quickly and it takes knowledge and analysis to truly lower the costs. Learn more.
Eight Ways to Reduce Insurance Costs Without Compromising Protection
- Personalized Protection and Self-Insurance: Personalized risk and needs analysis, as well as self-insurance reduce the amount of insurance you need to purchase.
- Subsidizing the Insurance Cost and Leveraging Group Insurance and Government Benefits: Leveraging various subsidies and group discounts such as employer-provided insurance or utilizing different tax incentives can help you save money on premiums paid each year.
- Risk Mitigation: Risk mitigation and loss prevention can result in better rates on insurance premiums and in avoiding payments associated with having a loss.
- Choosing the Right Type of Insurance Policy: Selecting a policy like a pay per mile or declining term life insurance can significantly lower the insurance cost while still ensuring that you are adequately insured.
- Bundling and Loyalty Discounts: Insurance companies often offer significant discounts and perks for customers who bundle multiple policies or for loyal customers on the back of the decreased cost of customer acquisition and coverage overlaps. Discounts such as employer-provided insurance or utilizing different tax incentives can help you save money on premiums paid each year.
- Applying All Available Insurance Discounts: Most insurance companies provide discounts for customers who belong to certain groups or professions.
- Bulk purchase: For some policies like life insurance, buying higher limits can result in better rates for every $1000 of coverage.
- Shop around: Be intentional with your insurance – don’t let your policies roll over year after year as that will be a lost opportunity to save on better rates. Shop around and see which insurers provide a better deal, but be sure to compare and consider factors beyond price.
There’s always room for lowering premium costs, but it takes some knowledge and comprehensive analysis to do so.
1. Personalized Protection and Self-Insurance
Insurance plays an essential role in keeping you protected from the financial fallout of adverse life events. But not all adverse events are created equal – some are more predictable than others; some are more impactful than others. Insurance is most effective for managing the risk of low likelihood but high impact events.
However, no two insurance customers are the same when it comes to personal risk profiles, so a one-size-fits-all approach can cost you a lot in excess premium that you pay every year.
In contrast, personalized protection is based on individual circumstances and the elimination of unnecessary protection that stems from overlaps between policies. Customized insurance policies meet your unique individual insurance needs ensuring that you get the protection you need – not more and not less – at the lowest costs possible.
Self-insurance is another way you can lower your insurance costs. It is a risk retention mechanism in which you set aside money to finance potential future losses, rather than transferring risk to an insurance company in a traditional insurance contract. Self-insuring may be more cost-effective than buying insurance from an insurer, but it only makes sense for more predictable and smaller losses.
The following are some practical examples of how this lowers the cost of insurance:
The premium for home insurance, among other factors, depends on the insured’s profile, including their age and behavior-related factors. This means that you should be on a lookout for a discount if you are over 60, which usually ranges between 5-10%.
Also, for those who have not experienced a loss within a specified time period, insurance companies offer a loss-free discount (up to 15%). In case you are a non-smoker, you are a lower risk for your insurer and, therefore, qualify for non-smoker discounts.
Health insurance is an essential type of insurance which everybody should have. Still, getting the right health insurance policy can be an overwhelming task, and many end up with coverages that don’t fit their needs.
Also, opening a Health Savings Accounts (HSA) contingent to deductibles can help you leverage a self-insurance strategy to lower your health insurance premium. HSA is an account that allows you to set aside pre-tax money to pay for qualified medical expenses.
The elimination approach can help you lower your health insurance costs as well by avoiding overlapping coverages that stem from different policies. For example, you should consider the overlap between your health insurance with your auto policy when choosing Medical Payment and Uninsured / Underinsured motorist bodily injury (UMBI) coverages.
Self-insurance and elimination techniques will have the biggest impact on your car insurance costs. Drivers and operators as well as vehicle characteristics will have a bit lower, but still considerable impact on the cost. Uninsured / Underinsured Motorist and Medical Payment coverages can overlap quite a bit with your health, disability and life insurance, as such choosing the right amount, will depend on those coverages. Here is the list of various discounts and their approximate range:
- Self-insurance and Elimination:
- Deductible (up to 40 – 50%)
- Uninsured Motorist Bodily Injury Coverage (UMBI) / Uninsured Motorist Property Damage Coverage (UMPD) (up to 10% with Collision / up to 20% without Collision)
- Medical Payments Coverage (6% with Collision; 10% without Collision)
- Collision + Comprehensive (Up to 50% – 60%)
- Eliminate riders that are not needed – Low impact
- Drivers and Operators
- Driver Segment (Years Licensed, Gender, Marital Status)
- California Good Driver (20%)
- Named Non-owner (up to 60% on Body Injury and Property Damage)
- Mature Driver (5%)
- Inexperienced Driver Training (4%)
- Student Away at school (7%)
- Good student discount (5%)
- Superior Good Driver (additional 5%)
- No. Operators / Vehicles (up to 16%)
- Alternative Fuel Vehicle (10%)
- Vehicle Type (up to 60% on Bodily Injury and Property Damage)
As a safety net for your loved ones, life insurance is vital. Still, life insurance policies can be complicated, which is why many end up paying more than they need or want to.
To ensure that you optimize your life insurance coverage, be specific about what your objective is. For example, if the purpose is to replace your income in case of a loss, buy only coverage for the lost income after-tax adjusting dynamically and decreasing as years go. However, most life insurance policies are level term which don’t offer the flexibility to lower the amount of protection per year. Alternatively, you can buy shorter term life policies. Make sure you also eliminate riders that are not needed.
In addition, there are underwriting factors that you can leverage to make sure you get the right policy at lower costs. Since age is a major determinant of life insurance premiums, make sure you buy one sooner rather than later to lock in lower costs. Also, behavioral changes, such as quitting smoking or improving health, can considerably improve your life insurance costs.
Disability income insurance is intended to protect your income if you are not able to work due to illness or injury. The benefit period is the main feature differentiating various disability policies. This is the period you’ll receive benefits if you’re unable to work. That is why short-term disability insurance and long-term disability insurance exist. In the former’s case, benefits last for 8-52 weeks, while the latter provides benefits for much longer – it will depend on your plan but usually for 2, 5, 10, 20 years, or even until you reach retirement age.
As with life insurance, make sure you eliminate all riders that are not needed and all unnecessary protection. Also consider the overlap with, such as UMBI and MP for Auto.
Depending on your rainy day fund and savings, you may consider a longer elimination period – the time between an illness or injury and the receipt of benefit payments – to lower your disability insurance costs. For similar reasons, you can also skip short term disability insurance, unless subsidized by your employer.
2. Subsidizing the Insurance Cost and Leveraging Group Insurance and Government Benefits
With only a few exceptions, the Affordable Care Act requires everyone to have health insurance. One can get health insurance coverage through the employer, or programs like Medicare or Medicaid if they qualify. Also, you can buy your own health insurance. As a rule of thumb, individual health insurance is more expensive since health insurance subsidies from the government and/or employer can significantly reduce your monthly premium payments compared to health insurance bought on your own.
Federal-sponsored health insurance available at reduced or no cost for people with incomes below certain levels is known as subsidized coverage and includes Medicaid and the Children’s Health Insurance Program (CHIP), as well as Marketplace insurance plans with premium tax credits. Make sure you leverage all government-sponsored schemes for which you are eligible.
If you buy your health insurance through the Health Insurance Marketplace, you are eligible for a tax credit you can use to lower your monthly premium. This amount will depend on the income estimate and household information you put on your Marketplace application.
Employer-sponsored health insurance means that the employer contributes a certain portion – with the national average being from 70% for family coverage to 82% for individual coverage of insurance premium and employees pay the remaining amount. When you consider that annual premiums for employer-sponsored family health coverage reached $20,576 in 2019, paying only $6,015 (equivalent to 30%) toward the cost of the coverage is a massive saving.
It’s good to know that if you are married, you can leverage your spouse’s employer-provided health insurance policy. If this is the case, you can get so-called “opt-out” payments from your employer if it offers extra pay to those employees who choose not to enroll in employer-offered group health coverage.
Another powerful tool to optimize health insurance is a Health Savings Account (HSA), which offers multiple tax benefits: first, it’s on a pre-tax basis, which means that every dollar you contribute from your paycheck to your HSA is a tax-free dollar; second, interest earned on this account is also tax-free; and finally, unlike a 401(k) or an IRA, you will not be required to pay taxes on the HSA money when you make withdrawals.
There are federal, state and private disability plans that can provide coverage in case you become incapacitated by illness or injury. Make sure you utilize all government and employer programs available for disability insurance.
Social Security Disability is a federal program that provides benefits to those with total disability. Also, there are five states with state-sponsored disability plans — California, Hawaii, New Jersey, New York, and Rhode Island — requiring employees to receive short-term disability coverage.
Many employers offer group disability insurance plans for which the premium can be paid with pre-tax dollars. This means that you won’t owe taxes now, but you will pay taxes on the money you receive if you collect your benefits.
Life is full of risks and that’s why it’s important to get insured. Still, there are steps you can take to lower the costs associated with insurance coverage.
3. Risk Mitigation
Here’s a little more about what you can do to curb the premium you need to pay each month to have the coverage you need.
Not all homes are created equal when it comes to home insurance. Make your home watertight secure and your behavior on track to crush your home insurance costs.
If your home is equipped with protection devices, this added security layer should be reflected in the lower monthly premiums you pay each month. For example, if your house is a smart self-monitored home or a professionally monitored building or has in-built fire protective devices such as sprinklers, fire exits and smoke alarms, you may benefit from a discount that may go up to 10%.
If you have theft protective devices such as deadbolt, monitoring services, or if your home is within a gated community, this can bring you up to 5% discount as your house becomes a more secure, and therefore lower risk. Similarly, smart homes with water leak detection and shutoff can get up to 12% discount for home insurance.
Maintenance is key to securing not only good quality of living conditions but also lower insurance premiums. A house that is maintained has a lower risk that a big-ticket unexpected cost can happen. So not only will new wiring, plumbing and an impact-resistant roof get you a tax credit when you decide to sell your house, these home renovation projects can secure you lower insurance costs while you own the house.
Finally, your behavior counts too. Since smoking poses a fire hazard, if you are a non-smoker, you’re a much lower risk to the insurance company than someone smokes. This is the reason why you are eligible for a non-smoker discount.
The anti-theft discount is meant to reward drivers who have taken measures to secure their cars. With equipment such as an anti-theft device, you can get as much as a 15% break on your Comprehensive Coverage, while airbags can earn you a 5% discount on Medical Payments.
You can take numerous steps to enhance loss prevention and reduce risks for which your life insurer will reward you with lower premiums. For example, if you are a smoker, you can quit smoking. Also, you can take steps to embrace a generally healthier lifestyle and improve your overall health. This way, not only will you benefit from more disposable income on the back of your lower insurance costs, but from a healthier, better quality of life.
Life insurance is what brings a piece of mind. It’s there to ensure that your loved ones are financially secure if you were to die.
4. Choosing the Right Type of Insurance Policy
Term life insurance provides coverage for a certain time period and it only protects your dependents if you die prematurely. In contrast, whole life insurance provides lifelong coverage and includes an investment component known as the policy’s cash value. Term life insurance is much cheaper, so if your goal is to ensure your loved ones’ financial security when you are not around, this is an option to take. The key question to ask yourself before buying life insurance is for how long you want to secure that peace of mind for your loved ones and choose a term accordingly. Shorter terms such as 10 years instead of 30 years will be enough.
Also, if you are of generally good health, it might make more sense to buy a ladder or decreasing term life insurance instead of level term insurance and accelerated underwriting instead of the guaranteed issue of instant life insurance.
Accelerated underwriting allows you to buy a term life insurance policy without a medical exam. Guaranteed issue life insurance also doesn’t require a medical exam or history, and you can’t be rejected—hence the name guaranteed issue. But if you are relatively young and generally healthy, it makes sense to go for accelerated underwriting instead of guaranteed issue life insurance, since the latter is much more expensive and the chances are you won’t be turned down since you are young and in good health. Healthy adults who need to get coverage quickly can get a term life insurance policy with accelerated underwriting without paying more than they would for a policy with an exam.
There are different health insurance plans, and each will come at different costs.
With an HMO (Health Maintenance Organization) plan, you choose a primary care physician and all your medical services go through that doctor. Before you get to see a specialist doctor, you need a referral.
With a PPO (Preferred Provider Organization) plan, you can go to any health care professional you choose, even those outside of your network.
By choosing an HMO plan, you’ll pay a lower premium while still receiving medical care that you need, although you will lose some of the flexibility.
To leverage the full power of your HSA account, pick a health plan that can be paired with it.
To unleash the full power of insurance customization, choose Usage-Based Insurance (UBI) when shopping for auto insurance instead of a traditional one. If you are a responsible driver, your premium should be lower. To determine your driving habits, insurers use telematics, or a technology monitoring your driving behavior to determine a customized insurance rate or offer discounts.
Younger drivers who typically pay higher premiums can see a considerable impact of UBI on their insurance costs.
Insurance is needed to protect us as we go about our lives, but dealing with multiple policies, often signed with different insurers, is not convenient, to say the least, and downright overwhelming in most cases.
5. Bundling and Loyalty Discounts
Bundling different insurance policies into one super-package allows you to create one point of contact, a one-stop-shop for all your insurance needs. Not only does it bring convenience as you have only one premium payment to manage and one insurer to communicate with for changes or upgrades, but you can often get considerable discounts. And, as you go about your life and your dynamic insurance needs change, you can add to the bundle as your property list gets longer as you buy a car, home, motorcycle, or other insurable possessions.
Also, some companies offer discounts to longtime customers, so make sure you take this into account when buying insurance, especially if you consider switching insurers. Still, make sure you consider all aspects as, in some cases switching insurers may pay off even after factoring in loyalty discounts from your existing insurance company. But also keep in mind that insurance companies don’t like to see customers who switch insurers too frequently as this may be a sign they are a higher risk to insure.
To attract new customers, insurance companies will usually offer discounts to those newly signed up with them. But even when you switch to a new insurer, you can be rewarded for your loyalty to your prior insurer. For example, new business and a new home discount can get you around a 10% discount.
Combining auto and home insurance with the same insurer can save you up to 19% in premium payments. Also, if you choose to insure multiple vehicles with the same insurer, you may save up to 30%.
Bundling home insurance with other insurance policies can get you a considerable discount, which will typically range from 5% – 30% for homeowner HO3 policy up to 15% for HO6 condominium coverage.
If you choose to purchase add-ons through your home insurance policy, you may secure yourself substantial savings on insurance costs. Insurance floaters (also called riders) expand your coverage to protect you against risks not covered by a standard homeowner’s insurance policy. For example, home insurance can come with identity theft cover and, as such, will typically be cheaper than to buy a separate identity insurance policy. Also, a so-called companion discount – usually around 10% is offered when a homeowner’s policy is written for a customer who has an active automobile policy with another carrier. Also, if you bundle your home and auto insurance, you may only have to pay a single deductible.
Multi-life insurance bundling can also get you a considerable discount, typically ranging from 10% to 30%.
You can save on disability insurance if you buy it together with some other types of insurance, such as life. Typically, this discount would be in the 5%-10% range.
6. Applying All Available Insurance Discounts
If you choose to pay premiums on a monthly schedule, it usually costs more overall. Since the cover stays the same, you’re not benefiting from a better policy, so it makes sense to pay annually and save in premiums paid.
Some businesses, associations and organizations offer their employees or members discounts for various insurance policies, including home. Make sure you check if one of these options is available through your employer or an organization that you are a member of and leverage any discounts you qualify for.
Going green is a growing trend and insurance is no different. Many insurance companies now offer incentives to their customers to go green. Environmentally conscious homeowners that can prove that their homes are built up to “green” standards may qualify for green discounts.
These discounts will be applied to homes built with green alternatives including alternative energy sources, such as solar, wind and geothermal power; Energy Star-qualified homes with energy-efficient heating and cooling systems and appliances, lightning and electronics; houses with water-saving, low-flow plumbing and fixtures; houses made with toxin-free materials and those that include debris recycling.
Insurers often partner with various professional organizations, alumni associations, and other organizations to offer their members discount rates. You may be eligible for a special auto premium reduction if you are a member of one of the partner organizations. These group discounts can be applied to affinity groups (usually a 5% discount), alumni associations (5%), retiree associations (5%), service professional (5%) and degree-professional (5%).
Also, make sure you pay once a term as that way, you may secure a discount.
If you choose to pay for disability insurance annually, your premium may be lower. Also, check if you are eligible for an association discount. For example, the American Medical Association (AMA) members benefit from a 10% discount with MetLife. Other schemes include hospital residents, interns and physicians discounts, and business owner discounts (10%-15%).
Remember that it’s important to note that while some policies may be cheaper than others, less coverage may be offered in return.
7. Bulk Purchase
8. Shop Around
As much as insurance is essential for protecting against potential disasters and financial losses, it is still an expense and a considerable one. The good news is that most of the policies are annual, which means that every twelve months, you have an opportunity to save money by altering your insurance policy while still being adequately protected.
It does require some effort because you need to be intentional about your insurance costs, but the benefits are worth it.
First, don’t just let your policies roll over year after year as that may be costing you a significant amount of potential savings that you forego that way. Policy premiums can vary considerably between insurers, so it pays to do some comparison shopping to get the best deal possible.
Next, once you become intentional with your insurance, armed with the knowledge acquired from the previous sections, contact your insurer and ask informed questions. Review the policies that need renewal and see where you can pinch pennies.
At COVU, we’re putting the power into your hands to make highly informed decisions to protect the things and people you care about, with all the context you need to make the information meaningful and actionable. Get insured for less and only buy what you need. Discover more.
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