So far, in this series, we’ve covered Investments and Taxes. Now let’s explore four ways to cut the costs of commonly owned insurance:
Homeowners and Auto Insurance– No doubt, we need this coverage, and we need it in adequate amounts. The trick to slashing premiums 20% or more is through judicial use of deductibles. Often, in reviewing homeowners and auto insurance, we’ll find the client has relatively low deductibles. On average, homeowners submit a claim only about once every twenty years. We’ve found that by raising the deductible from say $500 to $1,000 or $2,500, your break-even is three to four years…meaning, unless you have a claim once every three to four years, you’re better off with the higher deductible.
Disability Income Insurance– We work with lots of professionals who have purchased personal disability income insurance policies. In many cases, their premiums can be cut by two-thirds or more if they instead purchase group coverage through their professional association.
Life Insurance– Three common situations where you can save money on your life insurance:
- If you own cash value life insurance such as Whole Life, Universal Life or Variable Life, the premiums you are paying are likely to be three to four times as high as term life insurance. Yes, these policies have a savings feature, but they are often so laden with expenses that you’d be much better off investing elsewhere.
- If you own term life insurance, but your situation has changed for the better, consider re-applying for new, lower-cost coverage. An example might be that you purchased it as a smoker but now are a non-smoker.
- Often we find people have life insurance that they no longer need. For example, their children are fully grown and on their own.
Annuities– We rarely find a case where an annuity is a recommended solution for a client. They are typically high commission products sold by insurance salespeople. To pay the commissions, insurance companies load the policies with up-front and ongoing expense charges, which often make them a poor investment choice. If you own an annuity with a ‘surrender charge,’ you probably own one of these products. Take a close look at your alternative options, particularly if the annuity is held inside an IRA.
FOX 6 TALKING POINTS
4th Quarter Planning (series): Cutting Insurance Costs
- Homeowners/Auto Insurance- Raise deductible
- Disability Income Insurance- Is group coverage available?
- Life Insurance- Avoid cash value insurance; review term insurance
- Annuities- Most are high commission, poor investments
Stewart H. Welch, III, CFP, AEP, is the founder of THE WELCH GROUP, LLC, which specializes in providing fee-only investment management and financial advice to families throughout the United States. He is the author or co-author of six books, including J.K. Lasser’s New Rules for Estate, Retirement and Tax Planning- 6th Edition (John Wiley & Sons, Inc.); THINK Like a Self-Made Millionaire; and 100 Tips for Creating a Champagne Retirement on a Shoestring Budget. More information about The Welch Group and important Disclosures can be found on our website. Investing in securities involves the risk of loss. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy will be profitable or equal any historical performance level(s). Consult your financial advisor before acting on comments in this article.