Tips for Saving Money on Insurance

A regular review can ensure you’re not wasting money or leaving loved ones or yourself unprotected.

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More than other age groups, people over 65 are reluctant to consider changes in their insurance needs. Consumers of all ages tend to get locked into policies they've owned for a long time. Older consumers are even more reluctant to change, and the companies count on it.

But circumstances change and the best insurance solutions change as well. With grown children, plus homes and cars that are paid off, the old reasons for having insurance may not make sense today.

Further, premiums for even the same coverage change, and so do the comparative rates charged by competing insurance companies. Insurers often have different financial reasons for their decisions on rates, and these may show up in major price variations for the identical coverage.

[See: 13 Lucky Events That Call for a Financial Plan.]

I regularly shop around for new insurance policies. I should do it once a year, but in practice, I am a slug and do it once every two or three years. This process is usually triggered by the renewal notices I get on my auto and homeowners policies. When the year-to-year rate comparisons become too large to stomach, I act.

In shopping for coverage, I have found that I get lower rates by insuring my cars and home with the same company. To provide further protection, I get a supplemental personal liability policy that gives me extra coverage. It's commonly called an umbrella policy and is inexpensive when linked with the underlying protection already provided by my auto and home policies.

Once you get used to shopping around, it becomes very easy to do. I scan copies of what are called the declarations pages of my policies, where the coverage levels are summarized. I either fax them or email them to agents with competing companies and ask them to provide quotes on comparable coverage from their firms. It doesn't take very long, and shifting coverage is easy. I'm happy to save hundreds of dollars for a few hours of work.

Insurance is hardly a minor household expense, either. According to the 2011 survey of consumer household expenditures by the U.S. Department of Labor, average after-tax income of households led by people age 65 and older was $42,326, and they spent $39,173 during the year. Of this amount, health insurance spending averaged $3,076, car insurance cost $894 and $280 was spent on life insurance and other types of personal insurance.

Home insurance was included in the $1,509 that the average older consumer spent on home maintenance, repairs, insurance and other related expenses. If only one-third of that was spent on insurance – about $500 – the total average spending on insurance by older consumers would be about $4,750. That's an eighth of total household spending just for insurance, or nearly as much as the older household's average spending on food – including food at home and at restaurants.

Comparing these figures with the 2009 household spending report, it appears that consumers age 65 and older have been spending less on insurance. Overall household spending by this group was $37,562 in 2009, and it increased more than $1,600 a year by 2011. Total spending on insurance, however, was higher in 2009 at nearly $4,900, and thus fell by about $150 from 2009 to 2011. Health insurance spending rose a bit during this period, so the declines came in other types of insurance.

[Read: Why Even Single People Need Life Insurance.]

Beyond shopping around for better auto and home coverage, it's important to take advantage of Medicare's annual open enrollment period. Health insurance is, by far, the largest insurance expense for older consumers. It's also a place where seniors have shown themselves to be particularly reluctant to switch insurers.

Medicare is complicated, as are the supplemental health and drug policies available under Medicare. Once seniors finally get into coverage plans that work for them, they tend to stay there. Studies show this to be an expensive decision. Just as with auto and home insurance, private Medicare insurers change rates and coverage terms frequently. Shopping for a better deal can save lots of money, not just in premiums but in out-of-pocket expenses for doctor's visits, procedures and drugs.

Beyond lower rates, it's also important to review each year whether the amount and types of coverage you need have changed.

Many seniors have older vehicles and do not need expensive low-dollar deductibles for collision and comprehensive coverage. Consider selecting higher deductibles. However, do not scrimp on liability protection or uninsured motorist coverage. One of the likely reasons that average spending on insurance has dropped since the recession is that people are dropping their car insurance entirely. You need to make sure you're covered should you be in an accident with an uninsured driver.

Insurers offer lower rates for low-mileage motorists. If you drive less than in the past, you might qualify for a lower rate. And more and more insurers are offering usage-based policies keyed to devices in your car that measure actual driving distances and patterns.

When you rent a car, odds are you do not need rental car insurance and can rely on your existing car insurance policy to protect you. You will, however, be on the hook for the deductible payment should you be in an accident that is your fault.

[Read: A Quick Guide to Health Insurance Exchanges.]

Inflation protection is a must-keep feature of home insurance, but like millions of seniors who have downsized, you may have reduced your possessions. Review whether you still need special riders on jewelry, furs, computers and other items.

Lastly, life insurance is among the "big three" of consumer insurance needs. It is designed to help loved ones by providing them money to replace the income lost by your death and helping to conserve assets in your estate should you have enough wealth to trigger estate taxes. As you age, the protective objectives of life insurance diminish, and you may not need as large a policy.

At the same time, think about the financial protection your spouse would need if you died. In particular, if you both worked for a living and are each collecting Social Security, what would happen to those payments if you died? Consider getting a life insurance policy for your older years to help replace the Social Security benefits your spouse would lose when you die.