With people looking to cut costs in a tight economy, some may be thinking about decreasing or even eliminating certain types of insurance. But while such a move may save a few dollars in the short-term, it could jeopardize your long-term financial health, experts warn.
Before decreasing your insurance coverage, “You need to understand the risk that’s involved,” says Thomas E. Hampton, commissioner for the District of Columbia Department of Insurance, Securities, and Banking. If you decide to forgo health insurance, for example, and you need an emergency appendectomy, you could be out of nearly $16,000, according to the Life and Health Insurance Foundation for Education, an Arlington, Virginia-based organization that informs consumers about insurance matters.
Instead of cutting back on coverage, consumers should ask their insurers if they’re eligible for any discounts or comparison shop to make sure they have the most affordable policy, advises Jeanne M. Salvatore, senior vice president and consumer spokesperson for the New York-based Insurance Information Institute. Even if you only plan to reduce your coverage temporarily, you can be financially wiped out if you have major fire damage to your home or total your car without enough insurance to cover the expenses associated with the catastrophic event.
Some may even be tempted to cut certain types of supplemental insurance entirely, such as long-term care insurance, but such a move can be financially harmful not only while you’re uninsured but when you go to re-apply for the insurance later. Since certain insurance products such as life insurance and long-term care insurance cost less the younger and healthier you are, “when you go back to buy the product at a later date the premiums might be higher,” points out Hampton. Even worse, you risk being denied coverage entirely if you’re diagnosed with a major illness after canceling your policy.
Though reducing coverage isn’t a recommended strategy, there are still ways to cut down on the amount you’re paying for insurance:
Consider using one insurance provider. If your insurance policies are spread out among different providers, consider consolidating them with one insurer since insurance companies often reward you for buying multiple policies from them.
Increase your deductible. One way to lower the cost of your premiums is to pay a higher deductible on your home, car or health insurance. While that means you’ll pay more out of your pocket before the insurance company will pay out, you’ll be covered for any damages that are catastrophic. According to the III, you can save up to 25 percent on your home insurance policy by raising your deductible to $1,000. However, before raising your deductible, make sure you have enough banked to pay the deductible should you incur damage to your home or car or having a medical emergency.
Check your property’s worth. Make sure you’re not paying for more insurance than your property is worth. For example, if your car is worth less than $1,000, the III advises that you skip comprehensive