I’m thrifty. Or cheap, if you ask one of my kids. I don’t like to spend money if I don’t have to. So I’m always looking to reduce the regular ongoing expenses that really accumulate over the years. Like insurance.
I have a neighborhood friend who grew tired of practicing law and decided to become an insurance agent. Not your typical career move, so I was intrigued. What precipitated the switch, how’s it going, etc. Tony told me that, as an auto accident liability lawyer, he was always fighting the insurance companies and was tired of it. I guess it was one of those “If you can’t beat ’em, join ’em” things.
Eyeing the opportunity to perhaps reduce my insurance expense, I asked him to look at our home and auto policies. We use GEICO for both (for the discount!), with the home policy subbed to Travelers.
I gave Tony a copy of our policy docs, then didn’t hear anything. That’s usually a sign that the rates you’re paying are already pretty competitive, so I didn’t think anything more of it.
Tony’s a dog walker, so I ran into him a couple weeks later on the sidewalk. He was frank: “Barnaby, it doesn’t make money sense for you to switch to State Farm – you are already paying a good rate.” His sloppy pooch, Bowser, starts to sniff my crotch, so I move to go.
“But I have to tell you, as a former lawyer, your exposure to a big liability lawsuit is troubling. I can’t tell you how many people I saw who were bankrupted as a result of an auto accident. One missed red light or a millisecond of distraction is all it takes. You really need $1 million umbrella liability coverage.”
Nothing speaks truth like experience, but it didn’t hit home for me until I hung out with another neighbor – Barry – on his porch later that month, drinking a couple beers. I help Barry swap out his storm windows every Spring, and we always hang for a while afterwards.
Barry is what I call a “small doses” guy – you wouldn’t want to live with him, but he’s bearable – highly entertaining even – for small doses. He always has a good story to tell.
That day he told me about an auto accident a few months prior where he clipped a moped, which went down and broke its operator’s leg. “He sued me for half a million clams! My insurance company was ecstatic to settle it for $250,000!”
Barry’s not afraid to embellish a bit for the sake of a good story, but even if the dollar figures were halved, I couldn’t help but think how a serious debilitating accident could destroy us financially. I’d always seen the “Been in an accident?” lawyer ads on the back of buses, but I never realized how that could impact me.
We got that $1M umbrella policy. Then I drafted my 7 Insurance Commandments for Thrifty (Cheap) People. Not to be confused with God’s 10 Commandments, which are slightly more important. 🙂
- Insurance is to protect against catastrophic loss. Period. Catastrophic loss means house burning to the ground, a big liability lawsuit, a cancer diagnosis. These aren’t likely, but if they do occur, they will bankrupt you unless you’re wealthy.
- Skip insurance you don’t need. Related to #1. You don’t need life insurance for your baby. Yes, it’s devastating if he dies, but you won’t need a payoff if he does. Your expenses will actually decrease. You also don’t want the automotive “cracked windshield” and “tire” packages. They don’t cost much, but over time you pay way more into them then you ever get back.
- Maintain adequate coverage. Related to my auto liability awakening told above. If your house burns to the ground, you want replacement value for it. If you get sick with a terminal illness (I’m sure you know about outrageous medical costs), you don’t want your legacy to be a grieving AND financially-strapped family.
- Think twice before you file a claim. You don’t ever want to give your insurer a reason to raise rates, and a claim often triggers this. In a fender bender that’s your fault? Try to settle it out of pocket. A wind storm knocked some shingles off your house? Replace them yourself – you will save more money in the long run.
- Maintain high deductibles. Related to #4. Reduces premiums. Also, one of the best ways to resist the urge to file a small claim is to make the loss ineligible for an insurance payout. In other words, protect yourself from the urge to collect some of what you are ‘due’ because, ‘heck, I’ve been paying insurance premiums for years and deserve this.’ No, you deserve to not waste your money on insurance and high deductibles is one of the best ways to do that.
- Seek discounts. Bundle auto, life, and property. Get a burglar alarm. Take a defensive driving course. Join a gym. Find out what actions will trigger discounts, and exploit these.
- Keep your provider honest. Every year I get a hefty premium hike; every year I call to find out how to get it reduced. Inflation is less than 2% in the U.S., so you shouldn’t be paying big annual rate hikes. You’ll be surprised how much room they have to negotiate. If they won’t work with you, look around for another provider. For example, I’ve heard that 15 minutes could save you 15% on car insurance. My apologies for the unpaid product promo, but you get the idea.
Is 7 Commandments the right number, or do you have an 8th? Or 9th? Let me know what you think.