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Seven Insurance Commandments for Thrifty (Cheap) People

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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. 🙂

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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.

Comments

  1. I’ve got an eighth commandment. Skip all the additional paid extended warranty offers on electronics, washers, dryers, dishwashers, etc. You know the ones, where they’ll come out to your house and fix or replace their defective equipment for two years from date of purchase for free! While there is some undeniable peace of mind to be had, over the long run it is better to refuse all of these offers and you will be large wads of money ahead. The two year (or whatever) time periods are carefully calculated to be well within the design life of the unit and is mostly a way for big companies to take a little more. You can pay out of pocket from the money you haven’t spent for the one or two things that fail that aren’t covered by the original warranty and are within the extended warranty period.

    • I’m with you. Unless you really can’t sleep without an extended warranty that is. But there aren’t too many people like that.

  2. Here’s the ninth commandment. It made sense to us when our kids were all young to keep hefty life insurance on the main wage earner. That way the mortgage would get paid off and there would still be money for college if the person bringing in the big bucks got unexpected bad news from his doctor. But once the last fledgling left the nest, we cut it way back. The premiums aren’t worth it as you get older and the critical need goes down. So don’t cling to that old policy like the insuance companies count on your wanting to.

  3. Great advice. I would add that you should try to take advantage of any programs your car insurer offers where they track how you drive for 3 months for a possible discount upon completion (assuming you’re a safe driver).

    I just wrapped this up today with Safeco’s (part of Liberty Mutual) Right Track program and I believe I earned a 17% discount, not just off this year’s premium, but for every year I have the policy.

    I’ve been a homeowner and a driver for 21 and over 30 years, respectively, with no claims filed, and yet my policies consistently rise every year too, which really burns me up.

    I used to be with State Farm many years and while I never had occasion to find out, I’d read in Consumer Reports or somewhere that they are one of the worst companies when it comes to honoring claims. I’ve also tried getting quotes from GEICO in the past but they could never beat the rate I was getting elsewhere.

    And finally, I’ve had good results working with an insurance agent who will do all the legwork for you.

  4. I’ve been very thankful Dad was in the Army for a few years and had USAA insurance. As a newly minted 16-year old driver, I was added to his plan, and when I was out on my own (post college), I was able to keep USAA, despite not being in the military myself. The one or two times I’ve checked to see if there is something more competitive, price-wise, the answer is a firm & fast no. Thus my thankfulness.

    That reminds me that I have wanted to look into their financial adviser services, if any.

  5. Hi Barnaby, I sell life and health insurance in Canada. When you use words like “catastrophic” and “adequate” there is still a subjective component. The recommended amounts of insurance depend on the selling agent and the particular needs analysis they use. The decision is up to the client. If you don’t understand why the recommendation is so high, ask for a detailed explanation and analysis, and seek a quick second opinion. But don’t waste the time of a whole bunch of agents. An appropriate amount of insurance depends on what arrangements you will make after the event. No need to keep the mortgage fully insured under your life insurance so you can give it to adult kids if you die, especially if they don’t want it and will sell it anyway. But maintain some coverage to maintain it for two to five years after death, allowing time to make arrangements and sell it. For critical illness insurance, please, PLEASE carry at least two times annual household income for Canadians for each insured, and more elsewhere depending on your public or private health insurance. And more if you have young kids. A critical illness event is one of the most financially disruptive life events for a family – more than death – because the event can persist for years creating a financial impact whose endpoint is never known.

  6. Excellent advice. Agree with you all the way. Especially re: settling your own minor matters. I’ve been on BOTH sides of that: settled with someone, and had someone settle with me. But I would also caution: if it’s an accident against you, don’t trust the other party unless you KNOW the person. I’ve seen far too many issues with folks who trust that the other person will pay as they claim. In fact, I’ve been handed fraudulent insurance information at an auto accident by an AUTO INSURANCE SALESPERSON! That’s a story for a post sometimes, perhaps…

    I recently posted on the same topic (if Barnaby doesn’t mind me mentioning it!), especially re: how to dig into the details and save on things like PIP, which may be duplicative.

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