How to Save Money on Home and Auto Insurance

I had a terrible start in life and went through all kinds of trials and tribulations to make it to adulthood semi-functional and occasionally sane, but my most embarrassing and shameful secret is this:

I used to be an insurance agent.

There. I've said it. I'm 'out'!

We all have to earn a living somehow, and for about five years I earned a fairly decent one in the insurance industry. I'll tell you this much: If anyone is going to have money in tough times and good times, it's an insurance company.

Insurance companies look out for #1--themselves--and you should be doing the same thing.

The average person can actually benefit from buying property & casualty insurance. (I know, I know, the insurance companies are Evil Overlords and so on and so forth, but some crumbs of value really can be found, so bear with me, OK?)

It's not easy to save money on insurance, and the way to go about making the most of your policy is not always about getting the cheapest rate, but you definitely can save money if you understand what you are doing.

During my stint as an agent for a big multinational insurance corporation (not AIG), I personally talked to thousands of people each year (about 10,000 per year to be exact), and what I learned from that experience is that people don't always think clearly when they are trying to save money.

Since lots of people in the U.S. are currently trying very hard to save money, I thought I'd list some quick do's and don'ts.

Most people don't want to have to spend anything on insurance, but in the U.S. insurance is required on autos and on any home that carries a mortgage (which is most homes).

So here we go...

Do carry the highest deductible you can afford. My experience is that people go to extremes with this. Either they want a $50 home policy deductible so they can file a claim if their fence cracks, (BTW don't do that), or they ask their agent insane questions like, "Why don't you have a $10,000 deductible?" because they live in New Orleans and are paying more each month for insurance than for their mortgage.

The fastest way to save money on home or auto insurance is to carry the highest deductible you can, but be reasonable. The deductible represents the amount of money you will have to come up with out-of-pocket in the event of a loss. Pick an amount you can actually access. Don't assume you'll never use the insurance and then have a meltdown when disaster strikes.

Do increase your liability limits. What? Increase coverage to save money? How can that be a good idea? Liability refers your responsibility for what happens to the other guy, not you, in the event of a loss. So someone trips on your lawn and sues you, or you run into another car and injure the occupants, or your dog bites your neighbor--The hospital bill, the attorney fees, the ER visit, these all fall under your liability coverage.

Relatively speaking, liability coverage is cheap, and lawsuits are not. Insurance companies know that poor people don't care if they get sued because they don't have anything anyway, so they factor low liability limits into their overall pricing (as an increased risk). Many (not all) policies can actually be written at a lower rate if you increase your liability coverage, and all policies have minimum requirements for liability limits. Besides, in the world of insurance, liability coverage is cheap, cheap, cheap. Carry as much as you can afford. We live in a world where everybody sues everybody at the drop of a hat.

Do keep your full homeowner's personal property coverage. Most people never even look at their home policy let alone read it, but here's what often happens when they do: They get to the line that shows the limit of coverage for their personal property (i.e. your 'stuff': your sofas, spoons, clothes) and they keel over because they are sure it's way too much coverage. It isn't.

First of all, in most states, standard personal property coverage has to be set at 50% of whatever your home itself is covered for, and on a deluxe policy it has to be 75% of that number. That percentage is set by the state; you can't change it. Secondly, in the event of a total loss, you're going to run through all that really fast. Imagine replacing every sock and paper clip in your house at full price.

Make sure you have 'replacement coverage' not 'actual cash value' too. You want what it will cost you to replace your burned up sofa, not what the insurance company thinks your burned up sofa is worth used. Replacement coverage will not add much to your costs and it will save you thousands if you ever need to use the policy.

Do work with a human being. Major insurers are currently trending toward the build-your-own-policy online models with call center back up for service. This is good for them because it drastically decreases their costs and they pass a bit of the savings on to you in reduced premiums... but not as much savings as you might think. Then, when a problem hits, you're screwed. You get a different version of 'Buffy' at the 800 number every time you call and no one seems to understand what they are doing.

I tried Esurance once and it took me five emails and three phone calls (after my new agent faxed the termination form) to cancel the damn policy after I went to a local carrier. The local company charged me all of $25 more twice a year and sent a live person to my house. Only a few major insurers still follow this model. If you don't want to see it disappear, and I really don't want to see that, you know what to do.

Do consider insurance costs before buying a home or auto. Unless you are independently wealthy, insurance is part of the cost of owning a home or a car. Yes this is America, but, surprise!: You don't have an inalienable right to drive a Lamborghini and keep your $50 per month scooter premiums. Similarly, you may feel safer with 16-year-old Skippy behind the wheel of an Escalade, but it's gonna cost ya big time.

Grow up. Nobody at any insurance agency anywhere feels sorry for you you spoiled rich bastard. Does this mean that you might not be able to afford to live in coastal Florida even though you really, really want to? Yes, it does.

Do read your policy. The chart you get twice a year that lists all your coverage amounts is called your Declaration Page; your actual policy is 30 or 40 pages long and contains detailed explanations of what is covered and under what precise conditions. You might have to make a special call to your insurance carrier to ask for a copy. Do that. Then read it.

Most people have far more coverage than they realize, not less, but because they never read the policy the insurance company never has to make good on their promises.

If you don't know what you have, you can't insist on getting it when you need it. You won't even know you didn't get it.

Don't shop by price alone. Bob & Billy Bob's Insurance and Live Bait Emporium probably can get you a super deal on home and auto insurance, but ask yourself this: Do Bob & Billy Bob look like they'll be able to pay out on the $1 million liability claim you will have to file later this year when your poodle bites Paris Hilton on the ass? Investigate the financial health of the company you are thinking of hiring and check their claims history too. If you can't get help from a company when you need it then they're not a bargain.

Don't underinsure your home. The high cost of home insurance in some parts of the U.S., especially along the Gulf Coast, in NYC, and in the western regions that are very prone to wildfires and mudslides, is provoking some homeowners into prolonged pissing matches with insurance companies over the insured value of their homes. The homeowners try to negotiate down. They have a brother-in-law in construction who can rebuild for half of the insured value, and that's all they'll pay for, dammit.

This is stupid for so many reasons, but the biggest reason it is stupid is that in most cases it won't significantly reduce the premium anyway. If you live in a high risk part of the U.S. the last thing you want is inadequate coverage to rebuild in the event of a total loss. Actually that's a bad idea anywhere. If you win that fight, you lose.

Don't file small claims. This is especially true if you live in a part of the U.S. where homeowner's insurance is very expensive. Traditionally, homeowner's insurance was offered as a kind of 'loss leader' so the insurance carrier could get your auto and life business. Home insurance isn't all that profitable for insurance companies.

(I know someone will blast me for saying that but check it out before you tell me about the Evil Overlords again--Hey I know they're Evil, I'm just saying, in this specific area, not so much. Calm down for Pete's sake.)

This is why the federal government has had to keep stepping in to make them insure things, and why it keeps getting more and more demented and twisted and dysfunctional with each passing minute. The quickest way to push your premiums through the roof is to file four little claims on lawn equipment in a single year.

I'm not saying it's right, I'm just saying.

Don't walk on the wild side. If you like to live on the edge, consider paying for everything in cash so you don't have to insure it. Insurance is based entirely on mathematical models of the statistical probability of certain kinds of bad things happening to you personally. One way to lighten your burden is to live more safely.

No you can't become 38 instead of 18 to reduce your auto insurance premiums, but you can maintain a B average in school (statistically-speaking, good students get in fewer accidents the bad students) and you can drive a heavy older car (as opposed to a Kia Rio which will easily sustain $4,000 in damage to the car alone in a 6 MPH crash). Keep a fire extinguisher and a burglar alarm in your home and don't build it facing Cuba 300 yards from the Atlantic Ocean. Wear your seat belts, even at the dinner table.

You get my drift.

Seriously? Because they don't make polyester leisure suits anymore.

No, not because of that.

I'm not an insurance agent anymore because most major insurance companies no longer hire agents on salary with commission. It's either straight commission or draw against commission or it's a franchise opportunity requiring a huge financial investment (which involves borrowing money).

More common are the agents who start at $12-$15 an hour and work in call centers, which is the kind of agent I once was. It's just not something I want to do anymore. I don't think you can adequately address the needs of a real live human being in the space of 7 minutes while talking on a headset and then just move right on to the next person without coming up for air. I don't think that's fair to me or to the customer, so I won't do that anymore.

Instead, I am committed to going broke writing about it on the internets.

It's a tough job, but hey, somebody's got to do it.