18 Tips to Consider Before Buying Auto, Home & Life Insurance

Those who fail to plan, plan to fail. And like it or not, planning for the unexpected by being properly insured is a big part of being financially responsible. That’s because people who try to save a few bucks by not buying insurance can quickly end up in severe financial distress if bad luck befalls them.

The trouble is, for a lot of folks, buying insurance can be a complicated endeavor. After all, choosing the right deductibles and coverage options are not intuitive processes, so there are plenty of opportunities for even the savviest consumers to get confused when it comes time to finally buy coverage. Heck, even I still do on occasion.

With that in mind, here are 18 tips to consider the next time you find yourself shopping for auto, home or life insurance:

Auto Insurance Tips

Auto insurance guards against expensive repair, medical and liability costs that can result from major accidents. Trivia time: Did you know some form of it is required to legally drive in every state but New Hampshire?

  • Consider dropping your collision and comprehensive coverage. Well, that is, assuming your car is either paid for or at least six years old. Otherwise, you may end up with less money than it takes to replace your car because insurance companies generally pay the depreciated value of most older cars.
  • Purchase uninsured motorist coverage. One in seven US drivers currently carry no insurance at all. For that reason alone, you should keep uninsured motorist coverage similar to your primary policy’s liability limit.
  • Don’t buy your teenagers a new car. It’s true; insurers assume teens will drive less when they don’t have their own wheels.

Mint can help find the best auto insurance deal for you. If you’re interested, click here.

Life Insurance Tips

Life insurance protects your family by providing for your dependents in case you die prematurely.

  • Ensure you really need it. If you don’t have dependents, you probably don’t need life insurance.
  • Don’t buy life insurance for a period longer than you have to. Life insurance is important when you are younger and have a family that depends on your income. For most folks, that means it’s only necessary until their youngest child has left the nest, although some may prefer to keep it until their last child has graduated from college.
  • Consider buying term life insurance. A term life policy is the most cost effective way to cover your dependents if you die unexpectedly. On the other hand, whole life insurance is expensive because you’re paying for insurance plus the overhead that comes with the added investment component.
  • If possible, buy your life insurance when you’re young. Term life insurance premiums are ridiculously cheap for folks under 40. However, once you reach 50, premiums begin to increase substantially. I bought a 30-year $500,000 term life policy when I was in my twenties, and the low annual premium has remained the same since the day I bought it.
  • If you do need it, buy your life insurance from a reputable company. Make sure you only buy from a reputable insurance company that is financially sound. You can verify insurance companies via major insurance rating agencies such as Moody’s or Fitch.

Mint can help find the best life insurance deal for you. If you’re interested, click here.

Homeowners Insurance Tips

Homeowner policies shield you from losses due to theft, and fire or other damage to your home or personal property; it also provides accident liability coverage.

  • Ensure you’re getting all the homeowner discounts you’re entitled to. In addition to senior discounts, many insurance companies offer homeowner policy reductions for deadbolts, fire extinguishers, sprinkler systems, smoke alarms and security systems that report to a central station.
  • Raise your credit score. Believe it or not, because it is an indicator of personal responsibility, many insurance companies are now giving lower rates to homeowners with good credit histories.
  • Keep your home well-maintained. For example, updating aging electrical and heating systems as needed can reduce the risk of fire. And following building codes when remodeling bathrooms and kitchens can reduce the risk of water damage and other plumbing related problems.

General Insurance Tips

  • Comparison shop. Identical risks are often priced differently from insurer to insurer, so always shop around — thankfully, Internet shopping is relatively painless.
  • Know what you’re buying. If you don’t understand certain benefits, terms, or conditions, always ask your insurance agent to explain them to you.
  • Occasionally reevaluate your insurance needs. Review your insurance annually. Life-changing events such as the birth of a new child, divorce, retirement and income reductions usually call for coverage updates or additions.
  • If you’ve got a lot of assets, consider getting an umbrella policy. An umbrella policy covers you beyond traditional policy liability limits.
  • Raise your deductibles. Folks rarely make claims under $1000 because they’re rightly afraid it will raise their rates — so why pay a premium for lower deductibles if you aren’t going to take advantage of them?
  • Ensure you’re taking advantage of every available insurance discount. In addition to the homeowner deals previously mentioned, many insurance companies offer discounts for safe driving discounts, being a good student, working “low-risk” occupations, and being a loyal customer.
  • Combine coverage. Bundling two policies from the same customer can often result in insurers chopping premiums by as much as 20 percent.

Although everyone prays they’ll never have to use it, buying insurance is something that we all have to do as responsible adults. Hopefully these tips will make that task a lot easier and, more importantly, help ensure you’re properly covered if you ever do have to file a claim.

Photo Credit: David Hilowitz



Comments

  1. 1

    AverageJoe says

    Great tips! An Allstate agent I know recommended I check my home and auto every three years. He said each company has a “sweet spot” based on an age they prefer. You may move into a new company’s target market on your b-day.

    • 2

      Len Penzo says

      I think 25 was definitely one of my “sweet spots” for lower auto insurance. That is the age most insurance companies figure young male driving habits finally become a bit more responsible.

  2. 3

    DemosCat says

    My own rule-of-thumb for filing a claim — is the cost at least double the deductible? If not, you’re better off paying out-of-pocket and save your insurance for a true rainy day.

    Another point: Insurance companies do not care about the cost of a claim. Even if there is a zero payout on their part, a claim is a claim and counts as a strike against you. File too many claims within a certain period (example: 3 claims in a 5-year period), and you can count on being dropped instead of renewed at the end of the term.

    –DC (Changing moniker to DemosCat)

    • 4

      Len Penzo says

      That’s probably a pretty good rule of thumb, DC. (I’m still going to call you DC — it’s just easier!)

      My rule of thumb is, if I can afford to pay it without it making me wince, then I’ll do it.

      On your latter point, when I got in my freeway fender bender late last year, I checked with my agent and they said any claims I made under $750 would not raise my rates. (I think that is an exception rather than the rule.) Regardless, I didn’t put a claim in; I had a $1000 deductible and got the repairs done with the help of my father-in-law for well under that. I wrote about my fender bender here:

      http://lenpenzo.com/blog/id7744-why-bad-drivers-prefer-aftermarket-over-manufacturer-car-parts.html

  3. 5

    First Gen American says

    We have a ton of insurances including an umbrella policy. I’m just paranoid of a rainy day ruining all that we worked for up until now. Better to pay in every month and plan for the worst, than hope for the best and be stuck bankrupt later on.

  4. 7

    Phillip says

    This is a handy summary I’m going to print out and keep in my insurance folder. I think you covered most of the main points. Thank you. You need to put another one together for health insurance next.

    • 14

      Len Penzo says

      Great tip, Geoff! The Honeybee is a stay-at-home mom; I wonder if we can get away with classifying her car that way.

  5. 15

    Darwin's Money says

    One extra one I like is that even if you have insurance through your employer, you may want to have a small policy on the side as well. In the event you switch jobs or get laid off, you’ll find yourself with NO insurance and probably freak out. At least if you had something on the side you’re partially covered and could quickly/easily up the coverage. But finding a new policy from scratch is time-consuming, especially with health checks, applications, approvals, etc.

  6. 18

    ken says

    Great article-on the life insurance part:

    I think the real issue and question comes down to this, do you want to spend dollars that cost you 100% for life insurance related spends or would you rather spend dollars that did NOT cost you 100% perhaps even pennies for the dollar? If the latter you need life insurance.

    If you are really trying to buy life insurance you need the best “real” advice possible. I agree that online info is great; however, talk to a “reputable” agent or broker.

    The only other item I would mention is to be sure the “expert” candidates have achieved the CLU designation. (Chartered Life Underwriter) This is equivalent to a “Ph.D” in life insurance!

    Then you can be well, “almost” sure they really do know what they are talking about.

  7. 19

    David Cobb says

    Some good advice.

    I suspect what a lot of readers would like is an actual “How to figure out how much term insurance you need” post.

    I did a post like that a long time ago but it was very specific to my own situation (ie how did I calculate how much I needed).

    This is one area where I think rule of thumbs can be quite inaccurate — using a multiple of current income for insurance is similar to using a percentage of income for retirement planning. It’s not the worst way to do it but I think you can do just a bit of analysis and come up with a pretty good approximation of what you need.

  8. 20

    Lin Willits says

    Research homeowners insurance prices in the area your considering before you purchase your home. (Some homeowners insurance can be extremely expensive depending on the location. Ocean front property in hurricane spots can run very high premiums).

  9. 21

    James says

    Another auto insurance pro-tip… look at one of those “cheapest cars to insure” list and purchase one of them. The car make, model, and year is probably the most looked at factor when determining your auto insurance rates.

  10. 22

    Simon Goldberg says

    Definitely auto insurance is an important thing in our practical life. I just impressed to know this post article. It is so helpful to us. Thanks and keep it up….

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