Insurance is supposed to be a respectable field, but frankly, it sometimes resembles the much-maligned used car business. In both industries, it’s common for aggressive salespeople to pressure consumers into making unwise purchases.
Ask yourself: How much insurance do you need? Chances are you’re overpaying for unnecessary or excessive coverage. Below are the seven most common areas in which consumers seeking insurance get swindled. Remember, paying too much for insurance eats away at your retirement investment gains, which in turn diminishes your nest egg.
1. Credit Insurance
This type of insurance is such a waste of money, it borders on fraud! Here’s how it works: When you obtain a new loan or credit card, the lender will attempt to sell you credit insurance, promising that should anything bad happen to you, such as unemployment, illness or death, the insurance company will pay off the remainder of your debt.
Some lenders push this type of insurance hard, using the fear of passing mountains of debt along to loved ones as a selling tactic. Don’t fall for it. The statistical odds are that nothing will happen.
Moreover, the insurance in question is usually overpriced. If you’re interested in this sort of protection, there are other types of insurance (such as disability or term life insurance) that can accomplish the same goals for a lot less.
2. Homeowner’s Insurance
Learn how much it would cost to rebuild your home. You may get different assessments from different insurers, so do your homework ahead of time. If you’re covered for more than the amount needed to rebuild, you’re paying too much. To improve your cash flow, also consider increasing your deductibles. Although you’d be promising to pay a little more if there were ever an incident, you’d lower your monthly premium (what you pay every month to guarantee your continued coverage).
3. Aging Life Insurance Policies
People harbor this misconception that they can buy life insurance and then put it on automatic pilot. Not so. Life insurance needs get lower as you get older. So how much life insurance do you actually need? The most commonly guidepost is between eight and ten times your current wages if you plan on retiring in the next 20 years, ten to twenty times the amount if you won’t be retiring for another 40 or more years.
If you discover that you currently have more than necessary, you have options. For example, you can surrender your life insurance policy back to the insurance company for cash, or sell the policy to a third-party company.
4. Changes in Your Family Situation
If living arrangements change in your household, calibrate your insurance accordingly. For example, if your kid moves out of the house to attend college and consequently no longer drives the family car, immediately take him or her off your automobile insurance policy.
Remember, you can temporarily remove children from auto insurance while they’re away at school, and then quickly put them back on when they return home for the summer. It usually just takes a phone call to your insurance broker. Younger people are more costly to insure, so this tip can save you from squandering a lot of dough. As you put together a long-term retirement investing strategy, tactics like this can add up to thousands of dollars over the years.
5. Insuring an Old Automobile
Read the fine print of your auto policy! You’ll probably find lots of areas where you’re getting soaked. Here are three quick places to check:
a) If you’re driving an old car that’s worth less than $5,000, eliminate comprehensive and collision coverage. The car already has a low “Blue Book” value. Why pay a lot when you can replace it for only a little?
b) As with homeowner’s insurance, consider increasing your deductibles to lower your monthly premium payments.
c) If you’re driving a newer car, get rid of unnecessary coverage such as towing — the chances of a new car breaking down aren’t high enough to justify it. These superfluous items often are tacked onto a policy without you even knowing it.
6. Duplicate Health Insurance
You’d be surprised at how many spouses each have their own health insurance policy through their separate employers. This is a huge waste of money. Be sure to consolidate your family’s health insurance into one policy. It’s simpler, saves on paperwork and will score you volume discounts.
7. Using Too Many Insurers
Many insurance carriers provide one-stop-shopping for all your insurance needs. And yet, it’s common for people to buy different kinds of coverage from different companies. Insurance companies typically offer substantial discounts to customers who buy multiple policies from them.