Saving Money on Insurance

Some tips from Independent Insurance Agents and Brokers of America, Inc.

Credit life insurance: Avoid credit life insurance (for new furniture or credit card debt, for example) under most circumstances. These policies, offered by credit card companies and other lenders, extend for the term of the loan and decrease in value over its life. They are designed to protect a third party if for some reason the consumer dies before the loan is paid off. However, they provide no protection to beneficiaries—only to the company that offered the credit or loan.

Deductibles are too low: Owners of expensive homes need to consider whether a low deductible makes sense. If someone steals the TV, it isn’t going to break the bank. Those same consumers need lots of insurance for a total catastrophe, though, or if they get sued. Therefore, they may want to take a $1,000 deductible and use the savings, which can be 10 to 20%, and buy a reasonably priced "umbrella liability" policy to give them $1 million or $2 million of coverage in case they’re sued.

Specific computer insurance policies: Though this coverage may seem like a good idea since so many people now have computers at home, a standard homeowners policy will cover most basic personal computer equipment. Here’s how it works: If you have a home with the structure insured for $100,000, you typically have $50,000 of personal property coverage, including computer equipment not used for business. If used for business, the home insurance policy typically provides $1,500 or $2,500 of coverage for computers. Only people with home-based businesses, laptops used for business outside the home or elaborate high-tech equipment need to consider extra coverage but it’s usually cheaper to buy an endorsement to the home or home-business policy rather than a separate computer policy. (The same concept holds true for cancer insurance or trip-specific life insurance, and other specific policies when in fact broader coverage that is cheaper in the long run might be needed.)

Tips on Beating Financial Blues

Kim Snider, CEO of Snider Advisors (which manages approximately 500 million dollars) and author of the new book How to Be the Family CFO: 4 Simple Steps to Put Your Financial House in Order (www.kimsnider.com), advises

1. Plan Prudently – Whether you do your bills online or the old fashioned way, every family can easily see what they owe in bills every month. Gather the paperwork into one stack, or create a computer file that details all your regular monthly expenditures. Combine it with your pay stubs and records of any other income. Now, you have a clear picture of your revenue and your payables. Moreover, you also have due dates for those bills, so you can match your cash flow (when you get paid) with when certain bills are due. Now, simply plan out what you’re going to pay and when you’ll pay it. Most companies mirror this procedure once a week, cutting checks on Fridays. You may not need to do it as often, but if you review your expenses once a week, you’ll always know where your money is and where it’s going.

2. Save Prodigiously – Saving money, to most families, is one of those things that always gets delayed for next paycheck. But saving is more than just trying to create a stockpile of cash for the proverbial rainy day – it’s about weathering the minor drizzles that come along every month. Unexpected car repairs, medical bills, home repairs, clothes for kids who can’t seem to STOP growing – these are all examples of flies in the budget ointment. If you can put away even $10 per week, it can help stem the impact of having your car’s alternator go belly up the same week you’re buying holiday gifts.

3. Invest Wisely – Take true advantage of your employer-sponsored retirement plans and 401K plans by allowing them to deduct the maximum amount from your paychecks. In many cases, employers match that money, so it’s tantamount to saving twice the amount for retirement. Plus, the more you save up front, the more you’ll benefit from the magic of compounded interest. The few dollars in cash flow you sacrifice now (which won’t hurt as bad as you think, because it’s PRE-TAX dollars) will be well worth it when you see your retirement balance grow later.

4. Manage Risk – Your biggest risk isn’t what you might think it is – it’s not about the financial markets or even your house burning down. Rather, the biggest risk for most people is the loss of your regular income. The vast majority of families who are in trouble today aren’t in crisis because of natural disaster or catastrophic illness, but rather, because someone in the household lost a job. You can hedge that risk by keeping your job skills current and competitive, and taking on a disability insurance policy.