Insurance Renewal Tips and Strategies
We purchase our automobile, homeowners and umbrella coverage around this time each year. With two relatively inexperienced drivers on our policy, it can be a bit nerve-wracking when the renewal envelopes arrive. Even though the four drivers in our household have clean driving records, the premiums can get pretty steep.
Surprisingly, the renewal was pretty close to last year’s amounts. Regardless of the rates, I make a point to “shop” the rates at least every other year. I won’t pretend to understand how insurance underwriting works in detail, but I do know that over time carriers adjust how they punish or reward certain types of risk.
For example, when our older daughter first became licensed, the insurance carrier we had at the time immediately jacked our rates significantly higher. Their underwriters judged the risk to be sufficient to warrant such an increase. We decided to immediately change to another insurer that didn’t “punish” us quite as much. We didn’t even wait for the renewal date that year!
At the end of this post, I’ll share how much we saved this year by going through these steps.
But first, here are a few tips to consider when renewing your various policies:
1. Use an independent agent
Some insurance companies use “captive” agents, meaning they can only write coverage for that one particular company. It’s my understanding that companies like Nationwide, State Farm and Allstate (among others) use captive agents.
On the other hand, independent agents represent many companies simultaneously. With one call, I can request my agent obtain quotes from many other companies. He/she will then do the work necessary to obtain the quotes. This saves me the time of calling each insurance company and going over the same information time-and-time again. When we changed our policy mid-year as mentioned above, I made one call and within a few days I was able to review many quotes, including one from a company that was a bit kinder to new drivers!
I also like the idea of having an agent to help me when I need to file a claim. Instead of having to deal directly with the insurance companies claim adjuster, I have an advocate to help me with the process. The relationship I have with my local, independent agent is invaluable in times like these.
Independent agents are typically paid by the insurance company so this service costs you nothing, but saves you a lot of time!
2. Start looking in a timely manner
Don’t wait until your renewal date is just a few days away. I start around 30 days before my renewal date in order to have enough time to get and compare other quotes. I will usually receive the renewal quotes from my current carrier about this time so it’s a great reminder to jump on it as soon as they are received.
3. Consider higher deductibles
One way to save on your premiums is to consider higher deductibles. Basically, this is the amount you have to pay for a covered claim before the insurance company will begin paying. Raising your deductible lessens the amount the insurance company will be obligated to pay in the event of a claim, so they reduce your premium.
Make sure you understand the premium savings associated with increasing the deductible, though. For example, raising your auto insurance deductible from $250 to $1,000 will probably save enough in premiums to make it worthwhile. Raising the deductible from $1,000 to $2,000 probably will not. All of the insurers I’ve dealt with have had limits as to how high of a deductible they will offer.
Within a reasonable period of time you should save enough in premiums to cover the increased cost you’ll incur in the event of a claim. To better explain this concept, let’s consider the following example. Suppose raising your deductible from $250 to $1,000 saves you $150 in annual premium. The recovery period is then 5 years ($750 increase in deductible / $150/year savings = 5 years). This makes a lot of sense to me.
However, if the savings were only $50 in this example, it would take 15 years to recover the increased deductible! This would NOT make sense to me. It’s simply not worth increasing the deductible for such slim savings! The only way to know these numbers is to ask your agent to prepare the quotes with several different options.
Important point: Make sure your emergency fund is sufficient to pay the higher deductible! If you don’t have adequate savings, you won’t be able to pay the increased deductible without going into debt! Let this inspire you to beef up your emergency fund as quickly as possible.
4. Consider dropping add-on’s you may not need
Most insurers offer many different add-on’s to their quotes – for an additional fee, of course – to cover various special and often unlikely types of claims. For example, many automobile policies offer optional coverage for things like full glass replacement, trip interruption coverage, and coverage for discs and media lost in an accident. They may be nice to have, but are they worth the extra cost? I generally think they are not and none are included on our policies.
We don’t purchase medical coverage on our automobile policies as we cover those potential costs elsewhere. If you have health insurance, why do you need to pay for more medical coverage on your auto policy? If you have AAA, do you really need towing coverage on your policy? We have an extra vehicle available so we don’t pay for rental car reimbursement coverage.
These “little” extras can really add up over time. Make sure you really need them. Again, having a fully funded emergency fund makes these extra coverage’s less necessary.
5. Review to make sure you’re getting all the discounts you’re entitled to
There are many, many discounts available. Multi-policy, recently built home, smoke detectors, low mileage auto use, alarm systems, flood prevention devices, good student discounts, students away from home discount….yada, yada, yada. The list of discounts goes far beyond the scope of this post. Here’s the point: Review your discounts with your agent. Don’t be shy about asking if there are any other discounts available. It’s your money! Discounts don’t affect the coverage; they just affect what you pay for it!
Don’t forget, too, that some groups to which you belong may offer discounts. Alumni associations, AAA, credit unions, even Costco, and some employers are excellent places to seek out additional discounts when completing your insurance renewal.
6. Check for discounts for paying a full year up front
We pay our annual premiums in full at renewal. For doing so we received an additional discount of over $200 this year! To smooth the cash flow, we use a sinking fund to set aside money throughout the year so it’s ready and available at renewal. Making sure you have the funds saved in time is another big benefit of preparing a monthly budget.
7. Be sure to review your homeowners coverage limits
If you keep your homeowners coverage in place for many years, it’s easy for the value of your home to eventually exceed your coverage limit. Also, if you have made any renovations or additions to your home, the new and improved house value could easily be above your coverage limit. You don’t want to find out at the time you’re filing a claim that you’re under-insured!
I don’t like paying premiums anymore than you do, but understating the value of your property to save a few bucks is foolish. The marginal savings are incredibly slim compared to having your claim reduced due to being under insured. Review your coverage levels with your agent to make sure you’re adequately insured!
If you have any high value jewelry or collectibles, make sure you understand the coverage limits and purchase additional coverage riders if necessary. Don’t assume all of your personal property is covered as there are limitations for certain property types.
8. Protect your credit score to get the best rates
Whether it’s fair or not, most insurers consider your credit score when determining your premiums. They believe there is a direct relationship between how well you manage your credit and pay your bills with the likelihood of you filing an insurance claim. This relationship is so important to insurers that, as CNN reported, drivers with a poor credit history pay 91% more than those with a great credit score. Ouch.
Remember, it’s the job of the independent insurance broker to provide advice and expertise that we don’t possess. Be open and honest in your discussions with them. Yes, they are paid by the insurance company, but they only continue to earn commissions if they take care of you!
If they are hesitant to shop your coverage among many different insurers, perhaps it’s time for you to find a new agent who will!
Never just assume you’re getting the best rates year after year from your current carrier. The only way to make sure you’re getting the best rates is for you to take action and shop your coverage at least every other year.
So what were the net savings for us going through this process this year? We saved $741.20 in annual premiums! For the hour or two that I spent on the insurance renewal process, we received a pretty nice return on my time.
What steps do you take to improve your coverage or premiums when you renew your policies?