Insurance Rates

Buying Insurance on a Tight Budget

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There is no question that the last few years since 2008 have put the average person under extreme challenges in terms of personal finance. Pay reductions, layoffs, rising bills and utilities, and rising food costs all contribute to making a person’s budget stretch thinner and thinner. Often, when trying to find places to cut and trim, the average person will look at insurance coverage and question whether it’s really necessary.



Many who consider cancelling insurance plans often argue nothing bad has happened for years and it feels like throwing money away, especially when the coverage premium hits all at once in an annual payment versus monthly charges. However, letting go of existing coverage is probably one of the biggest mistakes a person can make during tough times as well as good ones. Because when that disaster or problem does hit, the cost will have to come out of pocket instead. And often such problems frequently seem to occur as soon as coverage is cancelled.Instead, there are ways to force savings on insurance costs the same way a person trim’s personal expenses to make a budget adjustment at home. Thinking through these options can, usually, produce enough savings to keep coverage going while making it easier for other household expenses. Here are some of the more effective ideas below:


• Examine the Deductible Planning Insurance on a Tight Budget– Often many people sign up for insurance policies that include the maximum potential coverage, reducing out of pocket expenses to little or nothing. While such coverage is clearly convenient and beneficial, it’s also far more expensive since the insurance provider takes on more financial risk. By raising the deductible on a policy, the amount a person has to pay out-of-pocket for a claim to be covered, the overall cost of coverage can be lowered hundreds of dollars annually. So, for example, if a full coverage plan on a car costs $1,400 a year, increasing the deductible to $1,000 could lower that coverage closer to $1,000 a year. The exact figures vary by provider, but a consumer should always check to see what’s possible. Most times, the amount of a deductible can be easily covered on a credit card in an emergency.


• Reduce the Coverage for Old Property – When people first purchase a coverage plan to protect property, the covered items or structure are usually brand new. Over time these protected items grow old and lose significant value. However, the coverage plan involved usually hasn’t been adjusted for the lesser value. For property that has depreciated over the years, a lower coverage plan can significantly increase savings in the pocket while still ensuring a financial safety net in an accident. This sort of approach works best with older cars where the vehicle is paid off and a serious repair at worst is a couple thousand dollars versus the new value of $30,000. A word to the wise, however, think carefully about reducing homeowner’s insurance this way. Often, the cost to repair and replace a home is far more expensive than when it was first bought. Real estate tends to be an exception to the rule of depreciation.


• Shop Around But Don’t Cancel Until Sure – Often insurance plans and their costs change. Insurance providers reset their rates for various coverage charges regularly, often times reducing rates as they go through years with less claims. However, the average policy holder contracts and forgets about his old plan, paying the same rate year after year. A bit of shopping around could save serious dollars with a cheaper rate for the same coverage but from a different insurer. Consumers have to be careful, however. Many insurers with cheaper rates can be very difficult when processing claims. The better services obtained with a current policy may be worth the slightly higher price paid versus a new insurer. A quick Internet check on consumer complaints about a provider will highlight problems if they exist. So don’t cancel and replace until fully sure the new provider is worth the trouble.


• Always Plan for the Worst Case, Not the Scratch – Too frequently people look at insurance as a means to address band-aid issues. However, insurance coverage on property should really be treated as a worst-case scenario or disaster financial safety net. If a home has a broken window, the owner should avoid a claim and instead pay out of pocket to get it fixed. These sort of small claims add up and significantly increase the cost of coverage as premiums are reset each year. By examining what is really needed for disaster insurance, the homeowner or property owner can then feel more comfortable raising the deductible or trimming off coverage benefits that aren’t necessary.


• Pay for What You Really Need – Comprehensive coverage plans are just that, they pack in every benefit possible and charge a consumer for them. That said, customers can tailor their insurance plans and remove terms that don’t benefit them at all. Doing so can remove marginal charges that add up over time. Common add-on coverages can include replacement coverage, gap coverage, inflation coverage, and other fancy names. These benefits offer coverage that is supposed to restore a person with a brand new property replacement, but they are expensive to include in a plan. If a consumer is happy with just a repair versus a full replacement, then don’t pay the extra expense.



Insurance is a necessity in modern financial planning, especially given the fact of how expensive repairs, replacements and personal injury litigation can be. No person with a car, a home, a family and a valuable career should be living without at least decent coverage for those important aspects. However, there are ways to trim their cost down, making personal budgeting easier in hard times. It just takes a bit of work and research, understanding how insurance works.

About John Krystof

John Krystof writes about personal finance and money matters for He was born and educated in Central Europe, but presently resides in New York City.

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