When it comes to selecting an insurance plan, you have a tricky financial choice to make: Purchase the most expensive insurance policy or pass up a high-priced policy in favor of more affordable coverage and rock-bottom annual premiums? You don’t want to rush through the decision because in terms of coverage, you generally get what you pay for, and sometimes you may find that a deeply discounted, no-frills home, auto or health plan doesn’t offer much when you file a claim.
Before you make any decisions, consider these key factors first.
Understand what’s covered (and what isn’t) by the insurance plan. If you want to save on your insurance, you likely want to pay smaller monthly premiums. But you need to know what you’ll get for your coverage and carefully review your policy’s terms and conditions before you select a plan. For instance, if you get the lowest insurance rates – whether it’s for car insurance, homeowners insurance, health insurance or another financial product – that means your deductible, the amount of money you’ll shell out for a claim before your insurance company will pay – will likely be higher.
As a general rule, if you don’t plan to use your insurance often, you may feel comfortable with a high-deductible plan. However, if you take regular prescription medication, you’re likely going to get good use out of your health plan – and so a high deductible may be financially riskier. While you may have lower premiums, you’ll pay more out-of-pocket costs up front before your insurance starts offsetting those doctor’s visits.
You’ll also want to ask yourself: If something were to happen and you needed to file a claim for a car wreck, for instance, would you be able to afford to pay a $2,000 deductible? Or would you feel more comfortable paying around $500? In this example, a $500 deductible would mean that your monthly rates would be considerably higher than a plan with a $2,000 deductible, but if you are in a wreck, and the damage is severe, you may kick yourself if you don’t have extra money to cushion the financial burden.
“As I have told employees over the years when they ask which [health] plan they should choose, it’s really about how you like to purchase your insurance,” says Laurie Brednich, the CEO of HR Company Store, a website designed to help human resource professionals find and evaluate vendors. “If you are a risk-taker and are comfortable – and have the means – to pay for the out-of-pocket costs when something happens, go with the coverage that costs less out of your paycheck,” Brednich says. “However, if you are risk-averse or know you’ll be using the insurance – for example, you have a medical condition – and are able to afford the higher per paycheck premium, then go with the higher plan.”
Choose a reputable company. Don’t be so eager for discounted insurance that you sign up for a plan with an unethical company. If you need to file a claim, you need your insurer to work properly. Ben Carter, the co-creator and co-host of a weekly podcast and TV show called “Manage Your Damn Money with Ben & Malcolm,” learned that the hard way.
Carter says that during his junior year in college, he and three friends were in his 1998 Toyota Camry when a drunk driver hit them. While they all walked away, the car was totaled. “My mother was responsible for my car insurance at that time and paid a very low monthly rate,” Carter says, adding that she was paying about $50 a month. “I found out after the accident that the insurance she had out on my car was bare bones.”
Carter then had problems getting money from the drunk driver’s insurance company – and his own insurer. “The company was not at all helpful in working to get adequate compensation for me and provided no support in working through the insurance claim process,” Carter says. The following year – with the help of a lawyer – he did recoup about $12,000, though about $4,000 went to the law firm. “The experience taught me in a very specific way the value of good insurance that will also provide the level of customer support you need when in a crisis,” Carter says.
Find a professional to guide you. Working with an insurance agent is a smart strategy, but it’s especially important when you’re seeking an affordable policy and you aren’t sure what companies have a reputation for unfairly denying claims or dropping policyholders after a claim has been filed. Rather than heeding the advice of a TV, radio or internet commercial that advertises inexpensive insurance, you’d likely fare better by buying an insurance plan through a reliable independent agency or brokerage. The agent or broker will get a commission (generally 2 to 15 percent of your annual payment), and while you may technically pay more for the service, you’ll likely come out far ahead if the agent or broker steers you to a quality policy. Hiring a trusted professional is similar to working with a vetted real estate agent. While insurance agents will receive a commission, they will leverage their expertise and put in the legwork to enable you to receive quality insurance at a fair price.
“Find an independent agent who will take more than five minutes to understand your [financial] situation and guide you to the right coverage. An independent agent works with many carriers and doesn’t charge you for their services, so it really doesn’t hurt to get expert advice that you can trust,” says Tia-Marie Gagnon, an agent and marketing manager with Chalmers Insurance Group in Portland, Maine, which offers personal insurance, business insurance and group benefits. “In my opinion, taking the cheap route in buying insurance or just going it alone online leaves you open to the risk of either under insuring yourself or wasting money on coverage that you don’t need,” she adds.
And while a professional might recommend purchasing a cost-effective insurance plan, he or she can walk you through what you will receive, and what you won’t get, if there is a claim.
