After dwelling on last week’s roof leak for a few more days, I realized there’s more I want to say about reducing insurance coverage. There were also more reductions I could make!
In general, I am mostly of the opinion that our insurance premiums exist to create jobs for actuaries and to keep insurance companies in business. Personally, I have better things to do with my hard-earned cash, and I bet you do too!
However, I maintain home, auto, and health insurance and here’s why:
We have health insurance because me and Mr. Hippie have had some particularly expensive health issues over the years. We are probably in the small select group of 20 somethings that have benefited more from health insurance policies than they have from us.
Also, when a health issue presents, I want for either of us to be able to quickly and tidily go to the doctor for care instead of hemming and hawing over the potential cost of the visit. If we didn’t have insurance, we might neglect routine care and visiting the doctor when our health issues are small instead of when they can no longer be ignored. In other words, having health insurance has saved me money AND has kept me from doing something stupid. Over the years we have gotten health insurance from school, work, and the ACA.
We maintain auto insurance because… well, it’s illegal not to. So, we have liability insurance on our clunker which is pretty standard in the FIRE world.
Since we are no longer using our car more than a couple miles a week, I ditched our Uninsured/Underinsured Motorists Bodily Injury policy, which saves $40.32/year. Since we have good health insurance now and won’t have any passengers other than each other until the quarantine is over, we aren’t at a huge risk at all for needing to rely on this policy.
I also mentioned in my last article that just by reducing the annual mileage on our car our premium went down $39.96/year. Are you commuting less during this quarantine right now? Adjust that coverage asap and get your money back!
There is absolutely no reason to insure a commute you aren’t even making.
We have home insurance because we have a mortgage and therefore…we have to.Here’s a good resourceon why having a mortgage at a low interest rate instead of buying a home in cash will result in more money in the long run.
But in addition to that, we are still in the accumulation phase of our financial independence journey, and something like a house fire could set us back hundreds of thousands of dollars. Sure, we could cough up that cash if we absolutely had to, but it would be a massive hit and would undoubtedly make a terrible and highly traumatic situation significantly worse.
Instead, I have an insurance policy… which I hope to never use. But, last week’s debacles tasked me with taking a good hard look at this policy.
At first glance, there was no fat to trim.
But, then I found some sharper scissors and got to work!
I discovered a line item titled “Medical Payments to Others” which provides a small amount of coverage “if a non-household member is injured on your property, regardless of who is at fault, their medical expenses will be covered.” Guess how many non-household members are on my property these days? None would be the correct response! Yet somehow, I had this coverage set at the maximum offered of up to $5,000 per person. I bumped this waaay down to the minimum my policy supported of up to $500 per person. If the worst happens, self-insuring that $4,500 certainly won’t break the bank. Reducing this insurance coverage took $22/year off of my premium.
But, I wasn’t done yet. My deductible was a shockingly low $1,000. I say shockingly low because after 3 years of home ownership we had never used our home insurance and don’t plan to unless an actual disaster strikes. Without a second thought I doubled the deductible to $2,000 and looked at my $78/year savings. Not bad, eh?
In total, this experiment saved me:
If I invested that money every year and earned 7% interest annually, I would have $2,665.19 after 10 years.
After 30 years? $18,221.45
The little things we do really do add up.
Take a second look at your insurance and see if there’s any room for reducing your coverage!