Inside Money: Re-evaluate insurance policies to cut costs

No one likes to think about insurance — until you need it.

“All forms of insurance need to be examined each year on an annual basis without question,” says Michael Pirrello, a certified financial planner with Mill Ridge Wealth Management in Chester.

Here’s how to give your insurance policies a check-up.

Auto

The average U.S. driver pays $850 a year for auto coverage, according to the Insurance Information Institute. In New Jersey, the average cost is $1,115.01, says the Department of Banking and Insurance.

There’s plenty you can do to cut costs:

• Raise your deductible: Higher deductibles mean lower rates. The Institute said increasing your deductible from $200 to $500 could reduce collision and comprehensive premiums by 15 to 30 percent; a $1,000 deductible could save you 40 percent.

• Stay local: You may be eligible for low-mileage discounts if you don’t drive much.

• Cut coverage: If you have an old car with a few dents in the fender already, consider dropping collision.

• Clean up your credit: Most insurers will give better rates to those with better credit ratings. The III says people with better credit have fewer claims.

Check out the state’s Department of Banking and Insurance website for buying tips.

Homeowners

Your homeowner’s policy should cover “replacement cost,” for which the insurance company would pay the cost to replace your home with similar materials.

The cheaper option is called “cash value,” with which you’d receive money for what the property was worth.

Some savings ideas:

• Raise your deductible: You can save as much as 25 percent if you raise your deductible to $1,000, according to the Institute.

• Secure your home: Alarm systems may equal discounted premiums.

• Review riders and floaters: Make sure you still own items for which you have purchased floaters or riders, and that they’re still worth the same as when you purchased the coverage..

• Ask your agent: You may be eligible for other discounts for updating certain systems, such as electrical, or for installing weather or storm-resistant items.

For added protection, walk through your home with a video camera once a year.

Umbrella

An umbrella policy gives you extended liability coverage beyond your auto or home insurance. Umbrella policy premiums are relatively inexpensive — $150 to $300 a year for $1 million of coverage — because they only kick in after auto and home insurance limits are reached. With cheap premiums to start, the best way to save is to purchase a policy from your homeowner’s or auto insurance company.

Life Insurance

When your children are young, you may want your spouse to receive life insurance to financially support the kids or pay for college. When you have a mortgage, you might want insurance to take that burden off your spouse should you die. Once your situation changes, you may no longer need life insurance at all.

If you do need coverage, here are some ways to lower costs:

• Buy early: The younger you are, the cheaper premiums will be.

• Stay healthy: If you lose substantial weight or quit smoking, you may be eligible for lower premiums.

Some use life insurance to build wealth for heirs or to pay estate taxes and settlement costs. Speak to a financial adviser about your life insurance needs.

Disability

People between the ages of 20 and 65 have a greater risk of disability than death, according to the American Society of Actuaries.

Disability insurance can help by paying out a certain percentage of your salary for a certain time period.

To reduce costs:

• Longer waiting periods: You choose a waiting period — for example, 30 or 60 days — after which time the policy starts paying benefits.

The longer the waiting period, the cheaper the premiums. The insurance company hopes you’d be back at work before the waiting period is over, and then they wouldn’t have to pay out.

• Shorter benefit period: You can choose the length of time the policy would pay during your disability. You might choose benefits until retirement age, or choose only five years of benefits. The shorter the time, the cheaper the policy.

Long-Term Care

Long-term care insurance helps to cover the cost of nursing home care, assisted living and nursing care. Pirrello notes that 70 percent of people above age 65 will need some form of long-term care. Further, nursing home costs for a private room in New Jersey average $283 per day, compared with a national average of $220.

• Buy young: Buy a policy in your mid- 50s or early 60s while you’re still healthy.

• Daily benefits: Lower daily benefits will mean cheaper premiums, but make sure the coverage is enough for your needs.

• Elimination period: This is the time period before benefits kick in. The longer the wait before benefits are paid, the cheaper the policy.

• Shorter duration: The average length of stay in a nursing home is three years. If you choose a policy with lifetime benefits, it will cost you more than a policy with a set coverage period.

• Inflation rider: Don’t cut back by eliminating an inflation rider. As health care costs rise, you want to make sure your benefits will, too.

Ways to save on all insurances

• Shop around: You may find huge price differences among carriers, so pick up the phone and start calling, or search online. Make sure you weigh like coverages for a fair price comparison.

• Stay loyal: Most companies give a discount if you have several policies with the same carrier. Long-time customers are also sometimes given better rates.

• Ask your employer: Some firms offer discounted plans for employees. Also ask professional organizations or alumni groups to which you belong if they offer a group plan.

• Forget the payment plan: Monthly payment plans usually have a hefty fee attached.

Make sure to check the financial health of your insurance company. Try ratings agencies such as Moody’sA.M. Best, and Standard & Poor’s.

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