How to Save Money on Car Insurance and Home Insurance

Renters Insurance Can Save Lots of Money

Getting a renter’s insurance policy can save you money on many different things. Renters insurance covers quite a few things, including:

  • Coverage for your personal content, even if it’s not in your home (eg: items in your car. Certain limits apply for traveling and storage).
  • Coverage if you are temporarily displaced,( eg: you need to stay at a hotel while your house is being repaired for smoke damage, money to replace lost clothes, increased food expenses because you’re eating out every day since you don’t have a stove, etc.)
  • Coverage for liability (eg: someone falls in your apartment and breaks their leg, sues you for negligence). I typically see this at 300k
  • Coverage for your defense costs (eg: lawyer fees, small allowance if you need to miss work to attend court hearings, etc.) This is included.

And how much does this coverage cost (including the numbers I used above)? Usually under $200 annually. Further  if you bundle your renters and auto, sometimes the discount on auto will cover the renters (eg:$200 savings on auto, renters cost 150, net savings: 50.) Call your auto insurance, ask if they have renters insurance as well.

 

Why should you get renters insurance?

Why should you get renters insurance? What would a worst case scenario look like? For the lazy, imagine you accidentally start a small house fire while cooking. It damages a few thousand dollars’ worth of your stuff, plus you have to live in a hotel while it’s being repaired, and your landlord is going after you for damages because he has to pay for the repairs. If you don’t have renters insurance, you’ll be paying all of that out of pocket. Oh, but if you DO have renters insurance? You’re paying the deductible (typically 250 or 500), and then letting your claims adjuster deal with everything else. Have to take time off work to go to court to prove you’re not negligent? They have you covered.

 

Higher Insurance Deductibles Will Save You More Money

General rule: Get at least $500 deductible on your auto insurance, preferably $1k. For homeowners insurance, it’s best to go with at LEAST $1k, preferably 2.5k or even 5k. Renters can get away with 250 or 500, honestly.

The difference is usually several hundred a year, and you pay the deductible before the insurance pays anything. For example, let’s say your insurance is $1,500 a year with a $1k deductible, and $900 a year with a$ 2.5k. After 4 years, with a $1k deductible, you’ve paid $6,000 to the insurance company, and then you’ll have to pay another 1k in the event of a claim. After 4 years with a $2.5k deductible, you’ve paid $3,600 to the insurance company, and put aside $2,400 that would have gone to the insurance company, so basically covered your deductible. One more year, you can use the $600 you’ve saved to cover the deductible with $500 additional savings to do whatever you’d like.

 

Insurance should only be used in an emergency/making claims will increase your rates

This is the one that gets people the most. You pay $1,500 a year for insurance, you’ve been paying the last ten years, so why shouldn’t you make a claim when you’ve already paid then $15k? Because it’s going to raise your rates.

Why do insurance rates go up if you make a claim? If you don’t make any insurance claims, the insurance actuaries put in a group, “unlikely to make a claim”. Because you’re in that group, you get more favorable rates. If you make a claim, you automatically switch to a different group, “likely to make a claim.” Because you’re in this group, you’ll get less favorable rates. On auto, it will last for 3 years; on home, five. It doesn’t matter if you haven’t made a claim in your entire life up until this point; as far as the insurance company can see if, you’ve made a claim and will be much more likely to make another.

For example: Let’s say you have a $1k deductible. Someone breaks into your car, steals your purse worth $1,500. Personal property is covered by your home/renters, so if you make a claim your home will pay out $500 (cost of loss-deductible). They now see you as riskier, so they will increase your rates. Maybe $300 a year for the next 5 years; you’ll pay $1500 over the next five years, plus you’ve already paid the $1000 deductible, so now you’ve paid $2500 for a $1500 purse. In this case, it will cost you less to just buy a new purse out of pocket.On the other hand, if you have a kitchen fire that does $30k in damage? Yeah, make a claim on that one.

 

Most vehicles don’t need full insurance coverage

Unless A) Your vehicle is financed, then it’s required by your financing company, or B) Your vehicle is less than 10 years old, then your vehicle will pay out more.

 

Why don’t you need full insurance coverage?

  • Full coverage isn’t an industry regulated term. Professionally, it means nothing. It usually includes collision and comprehensive coverage; some companies will also throw in towing, glass, and rental. If you ask for full coverage, you could be getting anything.
  • Your policy will typically only pay out collision if you’re at fault. If the other driver is at fault, their insurance will pay out. Comprehensive does cover more, so you can get away with having comprehensive (vandalism, theft, tree falls, hit deer) but no collision (you hit object)
  • We will only pay out what the vehicle is worth. Not what it costs to get a new vehicle of this type, not what it costs to get a used vehicle of this type. Doesn’t matter if you paid $35k for the vehicle 10 years ago, doesn’t matter if it costs $15k ro replace it today, we’re only going to pay out the Actual Cash Value, and it typically isn’t 15/35k on a 10 year old vehicle (Much more common is less than 5k)
  • You actually end up paying the company more than it would pay you in the event of a claim, because “full coverage” costs more than liability only.

 

Example of Getting Less Than Full Coverage on Auto Insurance

Let’s say you have a buy a vehicle in 2001 for $20k. ACV is 3k. Your insurance is 1000 liability only, 1500 with collision and comprehensive, with a 1k deductible. Over the course of 4 years here’s what your insurance totals will look like:

 

Liability only coverageFull insurance coverage
1$1,000$1,500 ($500 extra)
2$2,000$3,000 ($1k extra)
3$3,000$4,500 ($1.5k extra)
4$4,000$7,000 ($2k extra).

 

Liability is what you have to pay anyways, so unfortunately there’s not a lot you can do to get around that. For the collision and comp, you’ve paid out 2k extra over the years. If you have an accident right now, the ACV is 3k, minus deductible (in this case 1k). So the most they’ll pay out is 2k, which is the amount you’ve paid them, so you break even. Ever year after that that you don’t have an accident, you’re paying them money that you will never get.

The exact amounts vary, which is why I have the general rules A and B above. If you’re not entirely sure, find out the rough value of what your vehicle is worth. Price liability only coverage (that’s coverage if you hit someone), and liability+ collision and comprehensive coverage (coverage if you hit someone, and also for your own vehicle). Take the rough value of your vehicle, subtract your deductible, this is X. Then take (the price of your quote with collision and comprehensive) and subtract (the price of your quote with liability only). This is Y. X divided by Y is how long it will take you to “break even” if you were to have an accident (although this is obviously not the goal).

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