Year-end tip: How to get an insurance deal
'Tis the season to evaluate your policies and look for potential savings.
I doubt if many year-end checklists include the item "insurance policy review." It's about as exciting as road salt.
Yet this is a great time of year to see how you can save on all of your policies. Since my homeowner's policy is up for renewal the end of the month, I usually check to see how I can cut my premium.
Since insurers want to sell you as many policies as they can -- auto, homeowner's, life, umbrella liability -- they will give you a reasonably good discount for getting most of your property-casualty business. In my case, I placed both of my cars and homeowner's policies with a new insurer and saved a few hundred dollars.
When I did a policy review on my homeowner's plan recently, I discovered discounts that I didn't know existed.
There are the usual breaks for multiple policies, smoke detectors and new/renovated home. (My house is 11 years old.) Then there are more obscure reductions, like dead-bolt locks and not having filed a claim in the last five years. (Insurers have access to this information.)
In addition to covering my home and its contents, I always make sure that I have inflation protection. Even though the value of my house dropped in the past few years, the replacement cost of rebuilding it hasn't.
Much to my surprise, I was even given a "new roof" discount, even though my house is more than a decade old. I was further surprised to learn that break expired this year, which raised my premium by almost $100.
That brings us to a universal truth about insurance. How can you and I save even more money on premiums? The more you choose to insure yourself, the lower your premium. That goes for auto and disability policies as well.
My home deductible is $1,000. If I was to raise it -- pay more out of pocket in the event of a claim -- then I'd save more. Here's a rough idea of how to save on premiums:
Raise your deductible by … Save on premium …
As you can see, premium discounts can be substantial if you're able to cover the potential out-of-pocket hit through personal savings. You can also reap discounts if you're a senior citizen, stay with one insurer for several years or don't smoke.
On health insurance -- assuming you are buying individual or family policies -- the same principle applies.
A high-deductible health plan is usually paired with a health savings account. Your out-of-pocket expenses can be funded by the HSA, which is a separate bank account you finance with pre-tax dollars. You can deduct the amount you deposit in an HSA from your federal taxes.
For 2010-2011, the minimum deductible for individuals is $1,200 and $2,400 for families. The maximum out-of-pocket limits are $5,950 and $11,900, respectively. Discounts will vary depending on health history, whether you're a smoker (you pay more) and the type of coverage you select.
Auto insurance also works the same way. The more you want to insure yourself, the lower your premium. On our second car, which is 16 years old, I dropped comprehensive and collision altogether. It’s in the garage most of the time. I scarcely pay $200 a year for liability, which is required and protects me if someone sues me after an accident.
I call my second-car auto strategy "clunker insurance." Since it's an old car, it has a low book value and lots of mileage (140,000+ miles). Now, if I could only get the same kind of discount on a health policy due to the miles I've put on my body. That would be sweet, but it doesn't work that way.
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The start of a new year is a great time to reconsider key financial objectives.