With a new year comes a fresh start. If you’ve known that your insurance needs aren’t met or that you’re probably over-insured, the new year is a great time to reset your financial plan. Why spend money on insurance that you don’t need or stay awake at night because you know that you aren’t adequately covered? Here are five ways to score the right amount of insurance in 2017.
[See: 12 Ways to Be a More Mindful Spender.]
Beef up your emergency reserves. What’s the best insurance policy you can buy? Time. If you’re in a car accident, you’ll need time to sort it out. If your house burns down, you’ll need time to rebuild. If you’re disabled, you’ll need time to recover. If you pass away, your heirs will need time to regroup and move on.
That’s why an emergency reserve is so important. It’s the cheapest form of insurance, which allows you to support yourself instead of asking an insurance company to do it for you. While some bloggers advise against emergency funds because of the current (and horrible) interest rate environment, it should be your No. 1 resource for emergencies.
With a hefty reserve, you can slash the costs of auto, home and disability coverage. How? With a large reserve, you can safely increase the deductible on your homeowners and auto policies. With disability coverage, you can stretch out the elimination period — the amount of time you’ll have to wait until the disability coverage kicks in — which will also drop the premium. Because you won’t need liquidity for burial expenses, you can drop small life insurance policies.
Sometimes people raise deductibles or increase elimination periods without first stashing more money into an emergency fund. This can be dangerous. Why? If you don’t have coverage and you don’t have money in savings, you’ll either have to touch investments, such as stocks, which may have dropped in value, or use credit cards and personal loans to stay afloat. Both of these can spell disaster down the road for your financial situation.
[See: 10 Money Leaks to Shut Down Now.]
Update your auto and homeowners insurance. Your age is one important factor that affects the cost of your auto coverage, according to the Insurance Information Institute. By asking for a new quote, you may find that insurance companies are more attracted to you.
If your homeowners and auto coverage aren’t through the same company, check the price to see if you’ll score a lower premium by coupling your coverage to a single insurer. Even if you currently save because of a multiple policy discount, you should still shop.
Some people find lower prices by taking advantage of group plans. Many credit unions, for example, offer discounted group rates on home and auto coverage, as do some community organizations. For example, Nationwide offers a discount to members of the American Nurses Association, and USAA only serves members of the military, veterans and their families. Ask your insurer about organizations they work with, and ask your organizations for insurance referrals.
[See: 12 Habits of Phenomenally Frugal Families.]
Decide on life insurance coverage. If you have a family, life insurance is a no-brainer. How much to buy and what type is a classic battle bloggers and finance writers will probably wage until the end of time, but it isn’t as difficult to solve as either side would have you think. First, determine how long you’ll need coverage. When will the kids leave the house and when will you accumulate enough assets to be financially independent? Find a policy that covers you a few years beyond that. Find a reputable company and look at their online coverage tools. If you calculate how much your beneficiaries will need to live and pay off your debts, you’ll come up with a good number, which will lead you to the right type of insurance to buy and the best company to provide that coverage.
Add disability coverage. Your most important asset is your ability to bring home a paycheck, so it would follow that disability coverage is an incredibly important policy to own. Many people think that home foreclosures happen because people bought more house than they can afford. While that happens, during the huge 2008 housing crisis Physicians for a National Health Program surveyed people who’d lost their home due to foreclosure, and 49 percent of all respondents said it was due to a medical problem, including illness or injuries. Disability insurances aren’t inexpensive, so see if you can increase coverage levels through work. If you have a large emergency fund, buy a policy that covers time beyond when you’d run out of cash on hand to also lower your premium. Not working anymore? A different type of disability coverage is an important one to examine: long-term care needs. Because it’s a wide-ranging and hotly disputed area, you should find professionals in that field to talk to and read widely before making any decisions.
Kill off unnecessary insurances. Pet insurance? Catastrophic insurance? Accidental death and dismemberment? If you own any of these or other marginal coverages, rethink your strategy. Accidental death and dismemberment is important if you’re sticking body parts into equipment, but otherwise, a solid disability policy and enough life insurance should be enough. Also, with most insurances, you’re covering your ability to pay off debts, keep money flowing to you or beneficiaries and maybe help survivors plan a new life. How does your pet factor into any of those needs? While there are instances where these policies make sense, you shouldn’t believe the sales pitch. Spend a little time examining the cost versus any benefits you receive. Most people will find that it’s time to eliminate most insurances but the basics.
Here’s how to avoid insurance sales pitches and buy the right insurance: Instead of starting with an insurance product, start with your needs. You can easily think through most insurance decisions with a simple phrase: “If X occurs, I want Y to happen.” Fill in “X” with difficult situations, and “Y” with your hopes, and then add up how much of this need you can cover with current assets. If there’s any need still left, look at insurances that fill the hole in your assets. By working from the need backward, you’ll avoid insurance pitches for types and amounts you don’t need, and you’ll kick off the new year with the right insurance in place, so you can work confidently toward your goals knowing your contingency plans are in place. Don’t you feel better already?
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Podcast: 5 Wise Insurance Moves to Kick Off the New Year originally appeared on usnews.com
