When I started my written budget a couple of years ago, I began finding a bunch of waste in my expenses; mainly, in my insurance costs. Do you have any idea how many different types of insurances we pay for each year?
- Vision insurance
- Dental insurance
- Medical insurance
- Life insurance
- House Insurance
- Car Insurance
- Private Mortgage Insurance
- Long-term Disability Insurance
- Short-term Disability Insurance
- Product Warranties/Insurance
That’s ten different types of insurance that you might be paying today, and that list is just off the top of my head at this moment. There are probably dozens more that could be listed! Insurance is something that we all know we need, but never want to think about (even on a year to year basis), which is why many of us are overpaying for our insurance today. If you want to save hundreds of dollars a year, take a look at your insurance premiums and start cutting the fat. Here’s what I did:
1) Got Rid of My Life Insurance
Death is a very real thing to worry about, but it often makes people a little illogical in their decisions. When I was married and we were dirt poor, I paid an extra $15 a month to insure my life (well, actually, my death) for $300,000. In other words, if I were to die the insurance company would pay out $300,000 to my spouse, which would allow her to pay for my funeral and continue living without much worry of the present or future.
Years later, when we got divorced, it took me a while to even remember that I had this policy and then it took some more thought to realize that I really didn’t need it! I had money in the bank in the event of my death and I had no dependents, so I was shelling out $15 a month for nothing! There are plenty of people doing this today as well. They have a huge insurance policy, but have no one that really needs the benefit if they pass away.
2) Paid Down My Mortgage Loan
According to the Wall Street Journal, there are fewer and fewer people putting 20% down on their homes, and more lenders are decreasing their requirements to as low as 3% down to make housing more of an option to the average person. In order to do this, the banks need to cover themselves in the event that you default on your loan and they end up with the house.
For their safety, the bank requires that, in addition to the mortgage principle and interest, you pay an additional Private Mortgage Insurance each month. This is basically an additional fee that the bank collects to cover any sort of gap that there might be in the value of your home and your loan balance. Unless the equity in your home totals 20% of the overall value of your house, you will need to continue paying that pesky PMI, which can often equate to well over a thousand dollars each year.
When I first purchased my house, I only put 10% down. My PMI wasn’t very high each month, but it was still an unnecessary expense that I hated. In order to get rid of it, I worked incredibly hard during a short span of time to make monstrous payments on my house and prop my equity over the 20% mark. Boom, my PMI was gone and I was already saving money!
3) Shopped For Car and Home Insurance
Talk about an unexciting thing to do on a sunny Saturday afternoon, but shopping for a better car and house insurance policy ended up saving me hundreds of dollars a year and was well-worth the rays that I missed on that fateful Saturday.
Like any insurance story, my premiums started low a couple of years ago. My car insurance was about $60 a month and my house insurance was somewhere around $450 a year. Pretty cheap by most people’s standards. Within the next year I noticed a climb in the premiums that were due. The same was true the next year, and then the next! All of the sudden I realized that I was paying $85 a month for my car insurance and over $500 a year for the house! That’s when I started shopping around.
My first landing place was Progressive. Their prices were indeed cheaper, but I was hoping to move both my home owner’s insurance and my car insurance – they were only accepting car policies at that time. Then I remembered that my work had partnered with MetLife Insurance. I checked it out and it was even cheaper than the Progressive quotes! On top of that, I was able to get further savings by doing the following:
- paying every 6 months instead of each month
- setting up my payment through my payroll check
- increased my deductible (since I had the cash in the bank should there be an accident)
After using these rate-reducing techniques, I was able to get my car insurance down to $52 a month and my home insurance down to $395 a year, and the coverage is actually better! This small action saved me hundreds of dollars over the course of the year.
4) Reduced the Value of My Stuff
The more stuff we own, the more insurance we pay. I own a car and a house, and it’s simply wise to carry insurance on both of them, so I do. If I were to own a boat and an RV, then I would insure those as well. Insurance is often a necessary evil, but often times we inflict ourselves with more premiums because we just want to own a bunch of stuff!
While I never owned a large number of big ticket items, I have owned vehicles that were more expensive than the car I drive around now. A few years ago, I owned a nice, barely used Nissan Altima. I bought it for a steal of a deal, but since it was such a nice car I decided that I should get full coverage on it. This ‘cool car’ cost me $140 in insurance each month instead of my usual $50 or $60. In order to save money on my insurance, I knew that I had to reduce the value of my stuff. Within a matter of months, the Altima was sold and I went back to driving my 2001 Honda Civic that I am still tooling around in today.
Mind Your Insurance
Insurance is probably the most boring thing on earth, but if you want to save money this year, then this is probably the area that will get you to your savings goal the fastest. Check your policies and first decide if you even need them. Then shop around for a reduced rate. Finally, do your best to reduce the value of your stuff so that you can pay far less in insurance each year. It worked for me, and I bet it could work for you too!