We have always thought of ourselves as responsible, and maybe even frugal insurance customers. We don’t buy things we don’t plan to use, and, following Dave Ramsey’s advice, we made sure we were reasonably well-insured.
But we were wrong. And it had cost us money. Now, we are saving almost $1,000/year more – without losing any of the insurance we need. And we’re receiving a bonus check to boot! Here’s what we did….
First, we asked ourselves: what’s all that insurance for?
Insurance is designed to cover risks that we can’t. A house fire, for instance. Or a massive auto accident with injuries: we lack an extra $500,000 in the bank. I’m guessing that describes you, too. (If you do have a spare $500k and you’re reading this, then please, contact me: I would like to hear your story!)
Insurance is great for massive catastrophies you must pay for yourself, like that auto accident with injuries. But, as your finances improve, and you stuff away an emergency fund, insurance may still cover all kinds of things that you could cover yourself.
Let me pause here and add this for those who are newly passionate about personal finances: everyone needs an emergency fund. (More posts on that later.) Once you have one, you have 6+ months’ of expenses saved up, and you can weather a small storm. In our case, it now allows us to take on a few more risks ourselves – and bank that profit for ourselves as savings. Now back to insurance, and our story.
Insurance works by spreading the risk of something out across thousands of people. No single home is likely to burn, but one in 100,000 is (maybe more). But insurance must also cover a few other things – raising the cost far above the actual risk. Insurers must pay their staff and overhead. Insurers also end up paying fraudulent claims or at least paying to fight against them. And finally, insurers take a nice profit on top, conservatively, say, 10%. So, insurance is mainly valuable if (1) it’s for a risk you can’t possibly cover, or (2) you’re accident-prone. (In other words, if you have a habit of flushing things down drains, keep that ring insurance!)
So how did we save, and what did we learn?
It turns out we were over-insuring for some things. After seven hours of phone calls, spread across several days, I know a lot more about our insurance – and we now own less of it. Here’s what we cut after hours’ worth of talking to the helpful folks at our insurer (USAA), starting with auto insurance:
Auto insurance: goodbye, extra add-ons, hello discount.
First, we asked about auto insurance, our biggest cost.
1. Dropping our PIP coverage. We had been through an accident once, so we’re all too familiar with PIP: personal injury protection. Sounds really helpful – who wants to be injured and without help? And we had been paid under PIP. But it’s less helpful than it seems: our PIP only provided $2,500. And, most important: PIP is usually duplicative.
If it’s duplicative, why do people buy it? It covers you immediately, without asking whose fault it was. If you’re in a wreck, PIP jumps in and pays $2,500 towards your injuries immediately. But with an emergency fund, this seems less necessary: we can cover $2,500 over the short term. PIP is for folks who can’t cover an immediate injury. (PIP may also cover a few other things, like lost wages, but again, ours was capped at $2,500.)
For us, PIP is duplicative: we’re already covered when an uninsured or underinsured motorist hits us, even with our liability-only coverage. (You’ll need to check all of this with your own insurer.) And we don’t need the money today since we have our emergency fund – we’re fine waiting for the insurance to send a check later. The only thing that we would lose is $2,500 of expenses coverage if we cause an accident, since we have liability-only policies, and we’re less worried about that.
There’s one more thing to know about PIP: it may be worth even less than it seems. We learned this firsthand. For instance, your medical providers will likely bill the PIP (the insurance company) at a “premium” rate – an extra-high rate that they make up, basically. In other words, they may well charge 2-4x their normal rates just in case they have room to negotiate with insurance companies. In our case, the medical provider did this, told us he was charging “premium” rates, but that he would later discount the rate once the money came in. The way it often works, your lawyer will send a letter to the doctor, and the doctor will know he will get paid from the PIP before a dime is paid to you–meaning he has all the power to negotiate, and nothing to lose (unless the expenses are above $2,500, maybe).
In our case, our medical provider pushed us hard towards an attorney he happened to know (which smelled of kickbacks/sleaziness, but that’s for another post, maybe one about hiring lawyers…), but we went with someone we knew and trusted instead. He even got angry at us afterwards, which made the whole incident even more bizarre…and fishy. Then, to top it all off, the medical provider refused any discount in the end, and ended up charging us 2-4x what he usually charges his patients; he knew the money was captive and he could charge way above-market rates.
So, our medical provider pocketed most of the PIP money anyway by charging 2-4x as much as normal–much more we would have paid him.
Needless to say, we have another medical provider now. And we learned our lesson about PIP: it is a pot of captive money that medical providers know is captive, so they cash in on it. Not so your own cash. I’ll take a plan that gives me negotiating power, thank you. Medical providers do well enough without me paying for policies that subsidize them.
So goodbye, PIP. Savings*: $100/year.
2. Reducing our mileage. The insurers, seeking to help us, asked how much we drove. We’re now living a new frugal lifestyle, and also enjoying the benefits of being married (
no, not what you’re thinking not just what you’re thinking): you go places together. So we reduced our mileage accordingly.
Warning: I asked in detail about this, and you don’t want to purposefully undershoot on mileage – then you may have coverage problems. But if, like us, you find yourself driving less lately, this is a fine way to save a few bucks. Savings: $50/year.
3. Raise those deductibles! We raised our deductibles for auto claims. Where we live, it’s smart anyway: if you file a claim, your insurance rates automatically increase by 10% or more. So it already costs you more than your claim over the next two years! Many people don’t realize this; it’s worth checking to see what the laws are in your state, or, simply raising your deductible. We won’t file any claims anyway unless the amount is reasonably high. We bumped our deductibles up to $1,000, the highest. We were unaware they were set at less. Savings: $50/year.
3. Auto-payment discount. When we asked about savings, the insurer told us we could save 3% per year on our auto simply by auto-paying. Sure, sign us up. Savings: $13/year.
4. The biggie: dropping full coverage. We carried liability-only coverage on my
luxurious ride decent old beater, but my wife’s ride still had full coverage. However, we considered this: with our emergency fund, we can cover a vehicle disaster. And my wife is a safe driver; her only accident ever happened when she was plowed by someone, and the closest I’ve come is bumping someone slightly in a parking lot where I couldn’t see things. Plus, we are already slowly saving for my next car – my beater is getting pretty old, and we never know when it might die. So we dropped full coverage. Savings: $300/year.
With all this cutting, you might think we’re being cheap, but there’s one thing we kept: our maximum liability limits. We want to be covered in case one of us causes – or someone accuses of – causing a large accident with severe costs. If injuries happen, an accident could skyrocket in costs. So we max out our liability limits (umbrella insurance requires it anyway), knowing that we’re covered for things that are unlikely but catastrophic. Since that’s such a remote possibility, that extra coverage is really cheap – and sure would come in handy if that ever were to happen. Sometimes, you need insurance; we don’t want to cut corners.
Renters’ insurance: goodbye, large coverage limit, hello higher deductibles.
We thought we knew what we had, but instead, we learned much more about renter’s insurance – and I thought I already knew a good deal, after actually making a claim on it. For instance, we have limitations on what we recover if someone steals from us. That was my largest concern – a theft seems likelier to happen, and to be more destructive – than a flood, especially since we live atop a hill. A pipe could burst, but if we wash away here, civilization has much deeper problems, and I suspect we’d count ourselves lucky to be alive.
1. Raise those deductibles! Once again, we raised the deductible to the maximum. Savings: $10/year.
2. Lower the limit. We had all of our personal things insured for up to $50,000. But as I looked around our house I realized: we’re aiming to be more minimal, and even if it all burned up, we wouldn’t buy all of this again. We would buy the essentials.
For example, my home flooded a few years ago. I lost some property – all my old board games, for instance – but I didn’t automatically repurchase it all. In fact, I only repurchased those things I really needed; it was an opportunity to live more minimally.
Insurance was primarily useful for the items I repurchased. Unless you repurchase something, your insurance may only repay the depreciated value (i.e. not much, especially for older items). Furniture depreciates at an incredibly quick rate, for instance. So now, we only insure for an amount that covers things we would need to replace. Those posters we have from long ago? Nah. That old bookshelf that’s only half-full anyway? Nah. No need. My cheap IKEA shelves are so pitiful my wife hides them in my office behind the doors anyway, so no way we want to toss more money towards them or their contents. So I’m happy we reduced our policy limit to $30,000, and we’re considering a further reduction. Savings: $35/year.
Now, for what has helped us, here are four tremendous tips for rental insurance:
1. Check your policy limitations! Most insurers have different limitations. Some limit whether theft is covered. Most limit the amount of cash you may insure. Some limit whether your jewelry or other expensive valuables are covered. Some have amount limitations, and some may not cover them at all. It’s worth asking to know what you’re actually paying for. We learned from it.
2. Strongly consider “replacement cost” insurance. It’s often extremely cheap – $2/$3 per year, and it’s invaluable if you ever experience a loss.
We experienced a loss and were glad to have it: it covered the actual cost of replacing our items – not the depreciated-to-very-little amount we would have received otherwise. And, if you won’t replace it, why insure it anyway? (Even if it’s of sentimental value – insurers don’t pay for sentimental value regardless.)
Some insurers will give you this automatically (e.g., USAA), but others do not – though they’ll add it on if you ask for it. Thank you to Dave Ramsey for recommending it- it was especially valuable for us. We had one appliance destroyed and insurance fully covered its replacement.
3. Go now and take a short video and some pics of your place. Put them somewhere safe, ideally NOT at your home. If you experience a loss, they’ll help you. It also helps to have receipts – and even better, to have them saved digitally in the cloud, or elsewhere where they’re backed up and won’t be lost. Otherwise, you’ll spend a great deal of time tracking things down and finding comparators if you ever experience a loss. Plus, it’s always nice to have organized records anyway.
4. For renter’s insurance – or any insurance – savings are invaluable. When an incident occurs, you’ll have to pay for your property as you purchase it, or your car, or your medical bills – until you can sort it out with the insurance companies. If you have a large emergency fund, you can pay costs out of pocket until you settle, which gives you a lot more leverage to get a fair price. We’ve been through two such incidents now (one auto, one renter’s), and in both cases, it paid off immensely to have funds up front so that we didn’t need to seek a quick deal from our insurer. Our savings made our insurance even more valuable. All the more reason to save, save, save!
We also have my wife’s jewelry insured – her wedding rings. We weren’t eager to eliminate this insurance.
I love and take care of my wife; she’s my joy. And I want her to feel that, too. So I assumed we would keep this insurance. But the insurance company helped: it turns out, we’re paying for insurance to probably buy her a ring sort of like (but not the exact) custom-designed one she has now.
No, instead, we pay the insurance company so that they would buy her another ring themselves – through their own purchasing department – if she were to lose hers. No ability to upgrade hers, make changes, or simply repurchase the same custom-made ring from the same quality of jeweler (which we bought at a wholesaler, after significant shopping around, for below-market rates anyhow). The insurance company might not select a ring with as nice of a cut, even though I can understand why they do it: it cuts their costs, improves their profits, and especially helps them avoid fraudulent claims, because rings are less valuable than checks. And wow, is property insurance high! (In my experience, insurers usually refuse to allow a deductible, either; I asked.)
We had some conversations about it, and while my wife can admittedly be a little clumsy, she hasn’t struggled at all with misplacing her rings. And we’re both disappointed that we would be unable to duplicate her original ring or make another choice even if it’s insured. We can, however, dump the saved money into savings and replace the ring anyway in 10 years, or maybe even less with compounding.
Bonus money: computer error in our favor, sort of.
You thought it was only a Monopoly card, not a real-life thing. Me too. But it turns out, sometimes that happens.
Life Lesson: Ask, ask, ask. The more you know, the more you can save.
You’ll never get the savings you refuse to ask for. Asking for more helped slash my student loans – and netted me probably $15,000-$20,000, all told. And it helped again here.
I asked the agent why the insurance company recently reduced our umbrella insurance premium. After several minutes of searching, the insurance person realized that they had been – gasp! – double-charging us for part of our umbrella insurance. Of course, the insurance company never put that tidbit in its notice to us that our premiums were dropping.
They had already sent a refund check for some of our premium (about $30), so I asked how they computed it. And she volunteered more: their system only computes a refund for the past few months, not the year-plus we had been with them. Really? Would it be possible to receive a refund for the whole amount we were double-charged, I asked. Turns out, it is – it just took her some effort, and after she realized they had been (unintentionally) cheating us, she was eager to help us fix it.
Mistakes like that, even unintentional ones, are still some version of theft or fraud…but those are words I never mentioned. Instead, I kindly asked her to see if they could right the wrong…and instead of a tense phone call, now we’re awaiting our new check.
What about you? How have you saved on insurance? Any tips for obtaining a steal on insurance? Or questions about it?
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Note: Please consult your own insurer or an insurance expert regarding your particular policy. Policies may vary, even at the same insurer. It pays to be aware of what your own policy covers. As for insurance, PIPs, and the like, you may even want to consult an attorney for the relevant law where you are; we merely relate our experience.
*The savings amounts are approximate: I’m less sure how much each particular item saved, though certain about the overall total savings; in fact, I believe it exceeds the total here.