Get the Insurance You Need at a Great Price
Got enough coverage for your home? Still need collision on that old car? And what about long-term care? Your most pressing insurance questions, answered.
When was the last time you took a good look at your car insurance? Or considered whether your homeowners policy provides enough coverage? If you have no idea, or it has been more than a couple of years, now is an excellent time.
Experts recommend that everyone do an insurance checkup once every year or two. But if you recently retired or your lifestyle is otherwise shifting—say, your kids graduated from college, you’re launching a home-based business, or you plan to travel more—it’s especially important to make sure your coverage suits you.
“Milestone moments in life are useful reminders that your insurance needs may be changing,” says Doug Heller, director of insurance at the Consumer Federation of America. “People who are thinking about retirement should be asking both if the suite of insurance products they have fits their current circumstances and if the market can provide better alternatives.”
Review the Policies You Already Have
• You’re driving less than you used to.
• Your car is paid off or is getting old.
• Your children no longer live at home or drive your car.
• Your assets have grown and need to be protected.
Consider these changes: Because older drivers tend to drive less, and more safely, many auto insurers offer discounts to people in their 50s and early 60s. A few years later, however, the actuarial tables start tilting the other way: Even for those with good driving records, rates typically inch up around age 65 and jump dramatically around 80.
Wherever you are on the age continuum, ask your carrier for discounts, especially if you’re not commuting to work as often or stopped driving to a job altogether. Less driving should translate into lower premiums.
It may also pay to simply shop around: The reward for being a loyal customer is often not enough to compete with other offerings on the market, and some insurers even charge higher rates to longtime customers because the company doesn’t expect them to shop around.
Consider, too, whether you need to continue to cover your children. You can get a discount if they’re away at college without a car, and you’ll save more by dropping them from your policy altogether.
If your car is getting old, you can save by dropping the collision component of your coverage, which pays for crash-related repairs to your vehicle. As your car’s value declines, you could end up spending more on premiums than it would cost to restore the car after an accident. A good guideline, according to Heller: Consider dropping collision coverage if the annual premium exceeds 10 percent of the car’s value.
Another cost-saving strategy is to raise the deductible on the comprehensive and/or collision components. Going from $200 to $500 shaves 15 to 30 percent off the premiums, and as much as 40 percent if you raise the deductible to $1,000, according to the Insurance Information Institute. Just be sure you have enough emergency cash on hand so that higher deductibles won’t bust your budget.
Finally, you can usually save at least 5 percent on your auto policy by bundling—that is, buying your home, auto, and possibly other types of insurance from the same company. Just keep in mind that a discount on one company’s rates doesn’t necessarily beat another company’s prices—so make sure to shop around.
Is there ever a case for increasing your auto coverage at this time in your life? Yes, if you’ve amassed substantial savings and are not carrying enough liability coverage to protect it if you were to cause a catastrophic crash and get sued. The minimum liability coverage required in many states is likely to be inadequate. That said, the most cost-effective way to ensure that your assets are protected from liability claims will often be to supplement auto (and home) policies with so-called umbrella insurance. (See “New Policies to Consider,” below.)
• You recently bought a new home or fixed up your current one.
• You plan to be away from home for long stretches.
• You started a home-based business.
• You got a new dog.
• Your home or belongings have increased in value.
Consider these changes: Let’s start with what not to do: Because mortgage providers require borrowers to carry homeowners insurance, and often build the premiums into the monthly payments, you might think you can let it lapse once you pay off your mortgage.
Wrong. In fact, even if you’ve paid off your mortgage, you may need more home coverage than in the past. For example, if you’ve made home improvements—spiffed up the kitchen, added a room, or installed accessibility features like ramps—you should ask your carrier for a post-renovation valuation to ensure that it will all be replaced if catastrophe strikes. And as with car insurance, the liability protection on your home policy should be enough to protect your net worth if someone gets injured on your property and sues you—though, again, supplementing homeowners insurance with an umbrella policy may be the best option.
Rising home values and inflation are also reasons to consider increasing your coverage, or at least asking your carrier to assess the current replacement value. Over time you may have collected art, jewelry, or memorabilia that would not necessarily be covered by the home policy you put in place decades earlier. You should document them and alert your carrier, says certified financial planner James Lee, president of the Financial Planning Association. Some carriers may require adding special provisions, or riders, to the policy, he says.
If you’ve moved out of your home for an extended period of time—to winter in a warmer climate, for example—tell your carrier, says Birny Birnbaum, director of the Center for Economic Justice and a consumer representative at the National Association of Insurance Commissioners. Many policies will not cover damage that occurs while a property is vacant.
A home-based business is another reason to alert your carrier, especially if you see clients or you store equipment at home. “If a customer gets hurt or a tool causes some damage, a typical homeowners policy may not cover that,” Birnbaum says.
Another issue is your pet. If your dog bites someone, most homeowners policies cover you up to the liability limit, but double check: Some companies, in some states, exclude certain breeds deemed dangerous.
All that said, there are ways to reduce your homeowners insurance costs. Some carriers offer discounts if you install security systems, smoke detectors, and loss-mitigation devices such as water leak and gas sensors.
Also, note that your home policy doesn’t need to cover your property’s full market value, just its replacement value, which is typically lower because your land would generally retain its value in the event of a catastrophic fire, for example.
Finally, as with car insurance, you can lower your premiums by raising your deductible. Bumping it from $1,000 to $2,500 will reduce your premium by an average of 11 percent, according to the Insurance Information Institute. Again, be sure a higher deductible won’t bust your budget.
• You have retired or are bringing in less money than you used to.
• Your term life policy expired.
Consider these changes: It’s particularly important to reevaluate your life insurance as you approach or enter retirement. “Your life insurance needs are probably different than they were when you first bought the policy,” says Dan McDonald, who advises financial planners on life insurance for RIA Insurance Solutions.
Life insurance is typically purchased to replace income if a family’s earner dies so that you can continue to cover major expenses like your mortgage or a child’s education. So if those expenses have already been covered, it may be sensible to consider dropping your life insurance policy.
On the other hand, if you have a special needs child who could require financial support long after you or your spouse dies, that’s a reason to consider maintaining a life insurance policy.
If you decide you do want to drop or reduce your life insurance coverage, the advice depends on which kind of life insurance you have, term or permanent. With a term policy, which provides a level death benefit for a fixed premium for a limited amount of time (typically 10 to 20 years) but builds no cash value over time, you simply cancel the policy.
The calculus is more complicated if you have permanent life insurance, such as whole, universal, or variable life. These policies have an investment component and typically have a built-up cash value that can be accessed in a number of ways, even if you want to stop paying the premium. If you need the funds to help finance your retirement, you might choose to cash out the policy. If you hope to reduce your monthly expenses but still maintain some life insurance coverage, you could accept a reduced death benefit in exchange for smaller or no premiums. (This typically wipes out the cash value of your policy.) You may even be able to convert a whole life policy to term life.
All these options have significant and sometimes hidden costs as well as potential benefits. Permanent life insurance policies are notoriously complex and fee-laden, which is why many consumer advocates steer people away from them and toward plain-vanilla term policies. And the life insurance industry is rife with conflicts of interest. So any decision should be made with a financial adviser who can help you understand all your options and how they’d fit into your broader financial plan. This adviser should be a fiduciary (someone legally obligated to work in your best interest) and fee-only (paid directly by you for objective advice, rather than by an insurance company to sell the most profitable products for it).
New Insurance Policies to Consider
Why You May Need It:
• You own more assets than your home or auto policy can protect.
• You own a rental property, or have a pool or boat.
What to do: Umbrella insurance protects you if you’re sued and found liable for an amount greater than the liability limits of your home or auto policies. Because umbrella insurance kicks in only after those policies are tapped out, it tends to be relatively inexpensive: $200 to $400 a year can typically buy $1 million of coverage.
Most umbrella insurance claims result from car crashes, but you should consider this coverage if you’re highly exposed to lawsuits—if you own a rental property, boat, or swimming pool, for example.
How much do you need? You generally want to protect the full value of all your assets that exceed the liability limits of your home and auto policies. Qualified retirement assets, such as 401(k) plan savings, are safe from legal judgments. But do count your home equity, which in some states is accessible to creditors.
Why You May Need It:
• Homeowners policies don’t cover water from outside your home.
• Climate change is making storms more frequent and destructive, and new land use and development are changing how water flows and drains. (Check these tips on how to file a homeowners insurance claim after a storm.)
What to do: Most homeowners policies cover water damage caused by a pipe or system within your home. But for protection from water coming from outside, flood insurance is a must.
You definitely need it if you live in a “special flood hazard area,” as per the Federal Emergency Management Agency’s flood maps. (To find out if you do, go to the FEMA Flood Map Service Center.) But consider it even if that’s not the case: About 40 percent of claims on FEMA’s National Flood Insurance Program come from outside high-risk areas. Most flood policies in the U.S. are underwritten by the NFIP and can be purchased through private insurance agencies. The median annual cost is $865 for homeowners who are in special flood hazard areas and $689 for those who are not. NFIP policies cover up to $250,000 for a home’s structure and $100,000 for the contents. Private flood insurance is available if you need more coverage, but it can be expensive.
There are ways to save money on flood insurance. You can get a discount for risk mitigation like elevating electrical panels and utilities such as heating or cooling systems. You can also get a discount if your community has taken steps to reduce its risk of flooding and enrolled in the NFIP’s Community Rating System. And, as with other types of insurance, you can pay lower premiums if you raise your deductible.
To learn more about flood insurance and find out how much it would cost for your home, go to floodsmart.gov.
Coverage You May Not Need
Traditional long-term-care (LTC) insurance, which pays for care at home or at an assisted living or nursing facility, has been problematic in recent years. Prices on policies have gone up dramatically, and many insurers have left the industry altogether.
Recently, a newer form of LTC insurance has gained popularity. Known as a hybrid because it combines long-term-care benefits with permanent life insurance, this type of policy lets you tap some of the death benefit in advance to pay for care if you need it, and your beneficiaries get it if you don’t.
Hybrid policies address some of the problems associated with traditional LTC insurance— they’re not use-it-or-lose-it, for one thing. But they have problems of their own, including hidden fees, high costs, and extreme complexity, says Bonnie Burns, an LTC insurance expert and consumer representative at the National Association of Insurance Commissioners.
Her recommendation: Consider the insurance in the context of broader conversations with family members about long-term care, including how to pay for it, what kind of care you want, and who will manage the care if you’re unable. And if you decide to purchase it, consider your options with an objective financial adviser—ideally a fiduciary—who understands your full financial picture and the nuances of the policies.
This insurance is meant to cover funeral-related expenses and pay a relatively small death benefit of between $5,000 and $25,000.
Nobody wants to saddle their loved ones with a big funeral bill. (In 2021, the median cost of a funeral was $7,848 with burial and $6,971 with cremation, according to the National Funeral Directors Association.) But burial insurance is probably not the best way to help, because policies tend to be expensive relative to the benefit they provide. A recent study in Forbes found that the average cost for a 60-year-old male to get $10,000 of coverage was more than $750 a year.
They also tend to have graded benefits, meaning if you die in the first few years, your beneficiaries may only get a refund of the premiums you paid.
Better, if you can afford it, is to set funds aside in advance for your funeral, and leave instructions for family members.
Editor’s Note: This article also appeared in the September 2023 issue of Consumer Reports magazine.