How to cut costs on …

2. How to cut costs on health insurance

Group health insurance is almost always cheaper than individual coverage. According to Lankford, employers generally pay about 75 percent of the premiums for their employees. Smaller employers sometimes cut costs by raising premiums or reducing coverage for their employees, in which case it may pay to see if you can find a more attractive individual policy on your own. Be sure to check the premiums and coverage every open enrollment season at your workplace.

But don’t automatically choose COBRA coverage when switching jobs. The main thing is not to let coverage lapse, but shop around because there might be better deals in the marketplace. If you have a medical condition, though, COBRA may be your best bet since you may be unable to find a cheaper policy elsewhere. “Don’t give up your COBRA option before finding out for sure whether you can get an affordable individual policy,” warns Lankford.

Look at ehealthinsurance.com to see how changes in coverage affect costs, suggests Lankford. “The National Association of Health Underwriters site, NAHU.org, is a great resource to look to if you have a medical condition because it’s where you can find an independent broker who can help you shop around for a policy among several companies and present a strong case to insurers,” she adds.

Watch out for fraudulent health coverage offers. If it sounds too good to be true, it probably is, warns insurance commissioner Sandy Praeger, president-elect of the National Association of Insurance Commissioners. “Companies are out there blast faxing or telephone soliciting for these super-great deals: $89.99 a month, your entire family is insured, you can get every service that’s available, all the doctors and hospitals in your region participate — and it’s not worth the paper it’s written on.” Before dropping existing coverage, call your state insurance department and check the company and its complaint record.

Use Bankrate’s handy work sheet to help you shop for health insurance.

It’s not possible to be overinsured on heath insurance, but the mistake people make is on the deductible. Get a higher maximum coverage and offset the added cost by taking a higher deductible. “You know how much extra cost is on the deductible, but you don’t know how much more you could be in for on the big end,” says Lankford.

Always check the coverage cap on student health and other low-cost plans. They may have limited benefits of $50,000 or so (instead of the usual $1 million or more) that can easily be surpassed in the case of a serious accident or injury, leaving you responsible for hundreds of thousands of dollars more. Check to see what’s covered and what isn’t.

Praeger warns that many add-ons to health insurance are of dubious value. If you have health insurance, you probably don’t need the discount card, and read the fine print for specific-illness insurance like cancer coverage carefully, because you may just be paying double. “If you’re insured, there may not be any additional benefit offered through some of those additional kinds of coverage,” she says.

Look at your health history to determine which treatments or services you’ll likely face, then look for the policy with coverage that’s right for you.

Health insurance strategies are very different if you have an employer policy or get coverage on your own. Employers may offer several types of plans, such as an HMO, a PPO and a consumer-directed plan, so check out all options carefully.

Employers generally subsidize the cost of insurance, but have begun charging more in co-pay and for things like drug coverage. If you take prescription drugs, you’ll need to run numbers to see which plan has the highest out-of-pocket costs. “That’s where the hidden costs are,” Lankford says. “Not just the premium, but all other costs as well.”

For the self-employed, a great strategy is to have a high deductible along with a health savings account, or HSA, according to Lankford. The money you contribute to HSAs is tax deductible and can be used tax-free for medical expenses. That represents a discount of up to 35 percent on medical expenses. To qualify, you must have a deductible of at least $1,100 for individuals; $2,200 for families.

How to cut costs on …

3. How to cut costs on disability insurance

You are more likely to need disability insurance than life insurance during your working years — at age 40, you have a 21 percent chance of becoming disabled for 90 or more days before age 65, but only a 14 percent chance of dying. Unfortunately, comparison shopping for coverage is tricky at best because of lack of uniformity in the market. The complicated nature of disability offerings makes it doubly important to find a good agent, one that specializes in disability.

A couple of firms stand out in this area. Northwestern Mutual is a strong company that only sells through its own agents. Lankford recommends Guardian as another good high-end insurer. Always check for complaint records with your state insurance department when shopping for disability insurers.

According to Lankford’s book, for a policy paying $3,000 a month for life, 40-year-old men can expect to pay $1,500 to $2,500 per year; for women of the same age, premiums run $2,500 to $3,500 per year. As you can see, coverage can more than pay for itself in the first month alone.

It’s best to talk with an expert and maybe a financial planner when determining coverage needs. Disability offerings differ markedly from company to company. Some policies, known as “own-occupation coverage,” pay out if you can’t perform a particular job but are able to do another job. Other policies only pay out if you are completely unable to work. Still others protect against loss of income due to disability, but allow you to take a part-time job.

Match your disability coverage to your profession. If your job is physical and highly skilled — for example, if you’re a surgeon — you may want coverage that pays out if you can’t do your specific job.

Disability coverage is often offered through your work, but benefits are taxable when the employer pays the premiums. Because disability insurance generally pays out only 60 to 65 percent of your salary, the after-tax payout would reduce your income further. It may make sense to supplement with private insurance. You can cover up to 80 percent of your income if you supplement, it is portable between jobs and premiums usually don’t increase over time.

Lankford suggests checking out the following features:

Cost of Living Adjustment (COLA) increases your benefits to keep up with inflation. Skipping this option could save you 25 percent in premium costs, but may leave you with too little coverage.

Noncancelable and guaranteed renewable means they can’t cancel your policy or raise rates unless a premium change is made for an entire class of policyholders.

Residual benefits pay even if you drop to part-time work, so you don’t need to be completely disabled in order to receive benefits.

Elimination period is the amount of time that must elapse before your benefits kick in. The longer you can go before taking benefits, the more you can save on premiums.

Riskier lifestyles pay more for disability insurance, so if you give up skydiving or smoking, let your insurer know.

How to cut costs on …

4. How to cut costs on homeowners insurance

As with auto insurance, begin your search at Bankrate as well as other insurance sites. Look to Iiaa.org for help finding a broker.

Discounts are often offered for carrying multiple policies with the same company, so if you need both homeowners (or renters) and auto policies, make apples-to-apples comparisons with insurance companies that offer both types of insurance. Ask about other discounts as well — some companies give retirees discounts, for example.

Use Bankrate’s homeowners insurance work sheet to help you shop.

The cost of not having enough insurance is potentially high. For instance, you’ll need to boost your coverage after home improvements. “It doesn’t cost a lot for extra coverage,” Lankford says. “Go to Accucoverage.com and for $7.95 they’ll let you figure out the replacement value of your home using the same databases insurers use.” It’ll save you the cost of an appraisal as well.

Figure out how much renters insurance you need using insurer-provided checklists to tally costs. Renters policies only cost a couple hundred dollars a year and represent a good value if you consider how much it costs to replace a computer system and a good TV. Renters insurance also covers liability if someone gets hurt in or near the home or apartment rental.

You can be overinsured, especially on homeowners insurance if the market value of the home is much more than its replacement value. “I live on Capitol Hill in D.C.,” says Lankford, “and the property is worth much more than the cost of rebuilding my home itself.”

Notify your insurance of improvements that may cut premiums. In Florida, the insurance commissioner found that many people weren’t getting credit for all the storm proofing they had done, so make sure to let your insurance company know if you have hurricane shutters or if you’ve installed an alarm system.

The big opportunity for savings on homeowners insurance is raising the deductible. Depending on the deductible, savings could be as much as 25 percent, according Lankford. “A lot of people start at $500 but I recommend at least $1,000,” she says.

Think carefully before submitting a claim where the payout will only put a few hundred dollars back in your pocket. With a higher deductible you won’t be as tempted to file small claims that might put you at risk of rate hikes or getting dropped. “It often comes as a big surprise to people that insurers share information through CLUE (Comprehensive Loss Underwriting Exchange) reports, so when the insurance company doesn’t renew you and you go shopping for another policy, it will be tough for you to get covered,” says Lankford.

How to cut costs on …

5. How to cut costs on life insurance

Life insurance rates for term insurance policies have been going down, so if you haven’t shopped in a few years you may be able to get a better price and lock it in even though you’re older now.

Term life insurance rates have been dropping over the past decade primarily because people have been living longer. But it’s also because insurers are going into a lot more detail when underwriting the policies — they’re looking at many more factors when setting the person’s price, including details about their medical condition. “In the past, they’d generally have just three pricing categories: preferred, standard and smoker,” says Lankford. “But now most insurers have five or six categories, and the prices for the healthiest people have dropped the most.”

Be wary of advice from anyone with a vested interest. Agents get big commissions for selling cash-value policies. “If it doesn’t make sense why you’d need the recommended coverage, get a second or third opinion,” Lankford says. Check with unbiased financial professionals.

If you buy a cash-value policy, go no-load: Ameritas, USAA, and TIAA-CREF offer no-load life insurance policies.

Use Bankrate’s life insurance work sheet to help you shop.

If you’re young and no one is depending on you financially, then you don’t need life insurance. If your spouse couldn’t continue paying the mortgage without your income, you might need it. And almost everyone needs life insurance after they have kids — whether they earn an income or stay home with the children, according to Lankford. “The surviving spouse would have to pay a lot of money to provide extra child care if a stay-at-home parent were to die,” she says.

The general rule of thumb for coverage is six-to-10 times your annual income, but someone with five kids and a nonworking spouse would need more than someone with a working spouse and one child. Use Bankrate’s calculator to help determine your life insurance need.

If you’re buying term insurance to provide a payout in the event you die before your kids graduate from college or before the mortgage is paid off, a 20- to 30-year policy is best, says Lankford. After that, you may not need coverage.

You may need life insurance for longer than that if you have a special-needs child, or you have a business or estate-planning considerations. In that case, a cash-value policy, such as a universal life insurance policy, may be necessary because it doesn’t have an expiration date.

“I generally don’t recommend cash-value policies as a savings tool, which is how they’re often sold,” Lankford says. “It’s better to max out your 401(k) and IRA first, which have lower fees and don’t require you to buy expensive insurance that you may not need.”

You’ll get the best price if you buy when you’re young, but you don’t want to buy before anyone is financially dependent on you. To lock in the best price, buy before age 40.

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