Money
Do this one thing at least once a year to save big money
Reviewing your insurance policies could potentially be the most lucrative thing you do all year.
By Bron Maxabella
Earlier this week, an annual recurring meeting invite popped up in my calendar and I knew it was time to get to work.
You see, a few years ago I spent a morning reviewing our annual insurance policies and managed to save more than $5,000 in a couple of hours. Honestly, I couldn’t believe how simple it was to save such a huge amount of money. It turns out, we’d been overpaying for years, and the savings I uncovered have had a lasting impact on our finances.
Insurance is one of those things that quietly ticks away in the background of life – until you realise you’re probably paying way more than you need to. You might discover this in one big hit like I did, or gradually manage to save a little bit each year.
The only way to know is to annually review what you’re paying and why you’re paying it. Year after year I’ve managed to save money on our policies.
Here’s how I do it — and how you can too.
Step 1: Avoid common pitfalls
Before I started my annual reviews, we’d been overpaying for our insurance for years, letting our policies languish in what I like to call the “Basket of Shame.” You know the one – filled with the life admin tasks you keep meaning to get around to but never do. If you’ve got a similar basket, there’s likely money waiting for you to reclaim.
Here are the mistakes we were making:
1. Over-insuring
It’s far too easy to pay for insurance you don’t actually need or even qualify for. Common examples are over-valuing your contents, adding unnecessary extras to your health insurance, doubling up on your travel insurance or insuring your car for a value it’s no longer worth.
For example, when we bought a new car many years ago, we insured it for an agreed value rather than market value – and then never adjusted it. Fast forward to now and our 19-year-old Subaru (yep, still going strong) was insured for roughly 10 times its actual worth. Sure, Subarus are resilient, but that policy was pure waste.
2. Ignoring life changes
We were still paying for obstetrics on our health insurance… despite the fact our youngest is now 16. Did we think we’d be having more babies in our 50s? Hell no. Yet, somehow, that cover had lingered for years.
Similarly, this year I found that we hadn’t updated our car insurance policy to list our youngest child as a learner driver. Big mistake: as she’s a member of our household, our insurance would not have covered her in the event of an accident.
Read this too: 13 genius ways to save big money on your insurance premiums
3. Keeping excess too low
When we first set up our policies, our emergency fund was small, so we chose low excesses. As we achieved a better financial position, increasing those excesses bit-by-bit has significantly lowered our premiums year after year.
4. Paying monthly premiums
This was a big one. Paying monthly instead of annually was adding up to 20% on most policies. That’s money we could’ve been saving all along. I swapped to paying our premiums annually and have done so ever since.
Step 2: Reset your insurance needs
To assess your insurance needs each year, ask yourself 3 questions:
What do I actually need to insure?
Your home, your business, your income, your car, your caravan, your travel… ‘peace of mind’ is calling and, boy, is it expensive. So, you need to be clear on how much risk you’re willing to shoulder in order to potentially save money on your insurance premiums.
Take our health insurance. Now, Australia has an exceptionally good public health system and so far, despite paying for top private health cover for decades, that’s what we’ve always used.
However, now probably isn’t the time to get rid of our policy. We are getting older and once I factored in future health needs and the tax implications for ditching health insurance, I decided to stick with it. For now.
But the lesson here is this: don’t just blindly take out an insurance policy for ‘peace of mind’. Do your homework first or you’re likely to pay for more than you need.
What can I afford to self-insure?
Ask yourself whether you have enough in your emergency fund to cover any losses. A couple of years ago I switched our old Subaru’s coverage from comprehensive to third-party property. If it were written off tomorrow, we could easily afford to replace it.
What’s the bare minimum I need?
Instead of insuring our home contents for full replacement value, I opted for the minimum amount of coverage that would help us start over in the event of a disaster.
I realised that should a disaster happen, we didn’t need to replace ‘like with like’ to set our life back up exactly as it is now. Instead, we’d really just want to know that we’d have ‘enough’. Turns out ‘enough’ reduced our insurance premiums by ‘plenty’.
The same might be true for you for income protection and life insurance policies.
Step 3: Use comparison tools
Comparison websites like Citro partner iSelect make it easy to shop around. They essentially do the research legwork for you. Matter of fact, they make comparing policies so easy that the shame in my Basket of Shame instantly grew larger. There is simply no excuse for not shopping around regularly.
Just keep in mind that no single site lists every insurer, so it’s a good idea to run your numbers through a few for a broader view.
Step 4: Call and negotiate
Rather than clicking “buy now” online, I called the insurers directly. Discussing my needs not only clarified the policies but also led to better deals – on average, I saved an additional 10% by simply asking for a discount.
Step 5: Pay annually
If you can afford it, paying for your policies annually is a no-brainer. Switching from monthly to annual payments across our policies saved us hundreds of dollars a year.
Takeaway: review your insurance policies annually
Back when I first did this exercise I ended the morning by cancelling all our old policies (receiving refunds for the unused portions) and replacing them with ones tailored to our current needs. Our new policies cost significantly less than what we’d been paying – and the savings were immediate.
It’s true that now when I do my annual insurance policy review, the savings aren’t excessive year after year. But every year without fail shopping around has saved me a few hundred dollars and I call that a big win for a single morning or evening’s work.
This article reflects the opinions and experiences of the author and does not necessarily reflect the views of Citro. It contains general information only. It is not financial advice and is not intended to influence readers’ decisions about any financial products or investments. Readers’ personal circumstances have not been taken into account and they should always seek their own professional financial and taxation advice that takes into account their financial circumstances, objectives and needs.
Citro may receive a commission if you use iSelect to compare and purchase certain products.
Feature image: iStock/insta_photos
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