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Insurance coverage 101. How much is too much?


on 2/28/2018

Young Man with confused look on face

Do you feel like you pay too much for insurance?  Most people would say yes.

There is another aspect to the cost of insurance that most people don’t consider, which is the amount of insurance that you are carrying for your home, automobiles and family security.  

The bottom line is that some Americans give insurance companies too much of their money over their lifetime.

Insurance costs are sort of a paradox.  People who don’t have much savings and would not be able to afford a portion of a repair are the ones that pay the most on insurance premiums because they need the lower deductibles.  

Remember, lower deductibles = higher premiums and higher deductibles = lower premiums.

Consider this:

  • If you have a vehicle and very little savings to cover an accident, you are more likely to need a lower deductible AND expensive collision insurance – both of which will dramatically increase your premiums.
     
  • If you have a home and don’t have the funds  to cover a large deductible in the event of a complete loss of home, you’re going to need a lower deductible - which will dramatically increase your premiums.
     
  • If you have a family and few financial resources to help withstand the income loss of a deceased spouse, you’re going to need to purchase a larger life insurance payout - which will increase your premiums.
     
  • If you’re in poor health, you are more likely to need a lower deductible health plan - which will significantly increase your premiums.

In other words, the less money you have, the more you need to pay for insurance.

The more money you have, the less you need to pay for insurance, because you have your own insurance policy – your savings!

Ultimately, the goal would be to get to a point where you have some savings cushion and you can start to make the shift in the level of insurance you carry.  Don’t continue to throw all that money into insurance premiums  if you don’t have to.  

Many people never seem to make that shift and continue paying high premiums for more insurance than they really need, even when they have savings that could cover it.

Why is that?  
One reason could be emotionally persuasive advertising.  The largest insurers spend well over $500 million annually on their advertising campaigns to tell us how much danger we are in.

 

Consider a mindset change.  

Try looking at your insurance coverage need based on the minimum amount of coverage you would need to comfortably get through a  catastrophic event.  When it comes to auto insurance, motorists file insurance claims roughly once every 17.9 years according to Fox Business. By understanding the probability of having to file a claim, you can more accurately weigh your chances and make better informed decisions about how much money you are willing to pay for a deductible.

Everyone’s circumstances are different, but here are some ways you could save on insurance costs.

  1. Do you need collision coverage on your cars?  If your car is not a lease or paid off , eliminating this could be an option.  Dropping collision coverage and increasing your liability coverage could give you significant savings.
  2. Do you really need to have a low deductible on your homeowners insurance?  Some companies will let you go as high as $10,000 on a deductible.  While a limit that high may seem scary, in the case of a total loss it is really a small price to pay for knowing the rest of your home’s replacement cost would be covered.  At least ask how much you would save at different deductible levels.
  3. Are you carrying life insurance policies longer than you really need?  They serve a purpose and provide security to you and your family, but don’t continue paying for policies into later life when kids are grown.  

Lowering your insurance costs is a product of your mindset about how much insurance you really need.  Don’t misinterpret this philosophy as a suggestion that everyone should get as little insurance coverage as possible. For those without a savings backdrop, that is not a wise choice. Even if you do have significant savings, you still want to protect yourself from catastrophic losses. But, as savings levels permit, don’t continue to overpay for too much insurance that you don’t need.

© Genisys Credit Union and www.genisyscu.org, 2018.  Unauthorized use and/or duplication of this material without express and written permission from this site’s author and/or owner is strictly prohibited.  Excerpts and links may be used, provided that full and clear credit is given to Genisys Credit Union and www.genisyscu.org with appropriate and specific direction to the original content.

 

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