Home and Auto Insurance Costs Are Rising — 6 Ways To Keep Your Budget on Track
Home and auto insurance are essential expenses, but rising premiums can put pressure on an already stretched household budget. Consumers have several ways to respond to higher costs without simply dropping coverage or leaving themselves exposed to a major financial loss.
Financial experts recommend these six steps to take a more active approach to managing coverage.
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1. Shop Around Instead of Automatically Renewing
When a renewal notice comes with a sizable premium increase, don’t assume you have to accept it and don’t cancel coverage to reduce costs, according to Sara Stegall, senior tax manager at Maris & Associates, CPAs.
“The immediate response should be looking elsewhere,” she said. The same coverage from another company is frequently less expensive than the old rate with a discount applied. Generally, checking your policy against the competition every few years “is just good money hygiene,” she said.
For homeowners, Edward Hsyeh, owner of Anvo Insurance, similarly recommended using an independent agent who can compare multiple carriers.
“The difference between the first quote and the fourth is often several hundred dollars a year on identical coverage,” he said.
2. Consider a Higher Deductible If You Can Afford It
Raising your home or auto insurance deductible can reduce premiums, but the strategy only works if the resulting out-of-pocket cost wouldn’t strain your finances after a claim.
Stegall said a good rule of thumb when looking at insurance deductibles “is the amount you are considering should be sitting in your emergency fund as you think about raising it.”
If that money isn’t already earmarked specifically for this purpose, then moving your deductible up isn’t saving any cash, she said.
“You’re just shifting who pays out of pocket in the event of a loss," according to Stegall.
3. Look at What You’d Pay After a Claim
A relatively affordable homeowner’s premium can hide potentially expensive deductibles, exclusions or coverage limits. Reviewing these details now can help prevent an insurance claim from turning into a much larger budget problem later.
Hsyeh said many policies pay on value rather than replacement cost, particularly for home repairs like a roof.
When it comes to home insurance, he said to pay attention to the following:
Replacement cost versus market value: The cost to rebuild a home is different from its purchase price.
Water damage: Sewer backup, sump-pump failure and seepage may require additional coverage.
Ordinance or law coverage: Older homes can cost more to rebuild to current codes.
Prior claims: A property's loss history can affect its insurability and cost.
The goal should be to lower your premium but also minimize the risk of an unexpectedly large expense later.
4. Research Insurance Costs Before Buying a Home
For people shopping for a home, insurance should be treated as part of the property's total cost rather than an expense to investigate shortly before closing. Hsyeh said the time to start researching insurance costs is “the moment you're serious about a specific address.”
Characteristics such as an aging roof, older electrical system, flood exposure, or wildfire risk can substantially affect premiums or even whether standard coverage is available.
“I'd rather a buyer find out during the option period that a house is hard to insure than discover it 10 days before closing when the lender needs a binder," according to Hsyeh.
Getting a solid insurance quote before the inspection contingency expires can give buyers a more realistic estimate of ongoing housing costs.
5. Condo Buyers Must Investigate The Building’s Insurance, Too
Condo and co-op owners have another potential source of insurance-related costs: The building itself.
Anthony Guerriero, certified public accountant (CPA) and managing partner at Manhattan Miami Real Estate, warned that for anyone buying a condo or a co-op, they need to investigate the building's master policy, because the master deductible is a shared cost.
“It lands on whoever owns the unit when the bill shows up, not on whoever owned it when the damage happened,” he said.
Guerriero recommends requesting the building's master policy declaration page and loss run and reviewing its reserve study and board minutes.
6. Treat Insurance as an Ongoing Part of Your Budget
Insurance shouldn't be an expense consumers think about only when a bill arrives. Build home and auto premiums, deductibles and potential out-of-pocket costs into your broader financial plan, then revisit them periodically or anytime something changes.
Stegall said, “Ultimately a premium increase is a cash flow issue before it becomes an insurance one.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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