If you saw a friend turn giddy at the prospect of buying insurance, you would likely think him delusional. While insurance is one of the major consumer purchases we make, the product and the experience we derive from shopping for it share nothing in common with the exhilaration of buying, say, a new car, TV, or something else we really want.
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That's understandable yet unfortunate. If you add up what you spend on all forms of insurance—auto, health, home, and life, just for starters—the total can easily exceed $10,000 a year even for basic coverage, and can be double or triple that amount for more affluent households. While the process of buying insurance will never be enjoyable, you would be well-served to use the same shopping skills you've honed through countless retail purchases.
Too often, however, consumers appear not to do their homework or look for the best insurance deals. They don't research what different policies cover. They don't shop multiple companies. They just don't behave like the eagle-eyed consumers they are in other retail settings. Here are 10 ways to become a better insurance consumer, saving money and getting a product that better meets your needs in the process.
1. Understand that insurers don't think alike. Different insurance companies have their own models for pricing out the risk of insuring you. This is especially true when insuring things—cars, homes, boats, and the like. As a result, the very same coverage situation—driver, cars, driving record, etc.—may elicit widely different premiums from different insurers. "There's actually a pretty wide range in the premiums that companies charge for the exact same risk," says Tom Hollyer, head of product development at Progressive Insurance.
2. Comparison shop when you buy. Because price differences are so common, it pays to comparison shop when you first buy insurances.
3. Comparison shop when you renew. Don't assume that this year's best deal will still be the best deal when it's time to renew your coverage. When you get your first renewal notice, check to see if the rate has changed and look at competing policies. The wealth of online quoting tools makes this an easy task, particularly with sites that store your profile and easily can generate updated premium comparisons.
4. Match your coverage to your needs. Don't buy more protection than you really need. If you have modest assets, for example, don't buy an enormous liability ceiling on your auto insurance. At the same time, make sure you're not ignoring real risks that need protection. Are your mobile devices and computers covered, for example?
5. Make sure you don't leave discounts on the table. Insurers provide lots of discounts, especially for consumers who buy multiple policies from the same insurer. "Many companies are beginning to offer discounts if you're a paperless customer," Hollyer says. "Others will provide a discount if you're willing to make payments electronically instead of by check."
6. Get the highest deductible you can afford. By self-insuring the first $1,000 or even more of an insurance claim, you can get solid price reductions. "The obvious big thing is adjusting the deductible," says Brandon Cruz, president of GoHealthInsurance.com. "The higher the deductible, the cheaper the plan." For individual health insurance policies, he says, "believe it or not, one of the most popular deductibles is $10,000."
7. Consider a health savings account. These accounts are available in many group as well as individual health plans. You can fund an HSA with pre-tax dollars, oversee their investment in a 401(k)-type account, and then withdraw the funds tax-free, so long as you spend them on approved medical expenses. Better still, HSA funds can be rolled over each year and do not need to be spent, allowing you to build a major rainy-day fund for big healthcare bills. It's possible that health reform eventually will end HSAs, so if one makes sense to you, take advantage of it while you still can.
8. Young adults should shop for cheaper health insurance. The group market for employee health plans must provide coverage to everyone, regardless of their health. To hold down rates for higher-risk employees, healthier employees wind up paying higher rates. In the individual market, Cruz says, insurers are free to cover only the consumers they want. Many offer lower rates to healthy young consumers, who are less likely to become ill and file claims. Under the health reform law, young adults up to age 26 are guaranteed coverage under their parents' family health plans. But Cruz says it may be cheaper for the family if the young adult instead got an individual policy. Likewise, an employee's spouse might find cheaper individual coverage than their spouse's group plan.
9. Consider a health maintenance organization. Health premiums for HMOs are cheaper than policies that allow you to choose all of your doctors.
10. Do your homework. "I think some people who have bought insurance and used it may understand it," Cruz says, "but by and large, people don't. Insurance is a complicated purchase, and most people would put planning for a root canal or funeral in the same category" as planning for insurance.