12 Ways to Save on Insurance

Insurance is a funny thing. You’re paying for something you hope you’ll never use to replace things you already have. In some cases, insurance is required. But these days you can buy insurance for everything from autos to vacations. How do you know what to insure and how much to spend? Here are 12 tips to help you get the coverage you need without spending a fortune:

* Question yourself. Before buying insurance, ask yourself the following questions: Why am I insuring this? Out of fear or necessity? What is the replacement value? Is the cost of insurance greater than the value? Your answers will bring you back to the purpose of insurance, to pay for something you cannot afford to replace otherwise, and keep you from paying for anything else.

* Shop around. Review information offered by your state’s insurance division, then call around to several companies for their rates. Every time you get a premium notice, contact at least two other insurance companies to ask for competitive quotes.

* Get discounts. Ask your insurance agent about discounts. Most policies give discounts for safety features, for example anti-lock brakes and air bags in cars and alarm systems and smoke detectors for homes/apartments. Some insurance companies offer discounts for nonsmokers, good drivers – even non-drinkers. If you park your vehicle in a closed garage instead of a carport or driveway or drive a limited number of miles, you might qualify for a discount.

* Raise deductibles. A higher deductible leads to a lower premium. Keep in mind, the purpose for insurance is to make sure you have coverage for a disaster. Fender benders on your car or slight damage to your house can be paid out-of-pocket.

* Reduce claims. Only make a claim when the cost/damage is substantial. Minor repairs should be funded out of your emergency fund. Insurers are notorious for increasing the premiums of those who have cashed in on even low cost claims come renewal time.

* Don’t overinsure. Drop collision or comprehensive coverage on older cars. Determine how much your car is worth using the Kelly Blue Book. If it’s less than one thousand dollars, you may end up paying more for coverage than you would be able to collect on a claim. For life insurance, only insure for the amount needed to replace the income of the one being insured – not so the family of the deceased becomes suddenly wealthy.

* Avoid insurance coupled with investments. There are several life insurance products that mingle insurance and investments (they develop a cash value). Usually, these are very expensive insurance policies and not as good of performers as other options. It’s better to buy term life insurance and invest your extra money elsewhere.

* Don’t forget disability insurance. It’s much more likely that you’ll be disabled than it is that you’ll die during your working years. Yet many Americans only consider life insurance. Be sure you have a solid disability policy in place – especially for the primary bread winner in your household.

* Buy smart. Purchase a car with a good repair record and low theft rate. Insurance will generally be less expensive. Also buy reliable brands of electronics and appliances and forego the extra insurance at the register.

* Check the price. Double check your insurance policy after you receive it and make sure you’re getting the price you were quoted.

* Combine policies. If you own a home, consider a combined premium option, where you get insurance on both the home and your cars from the same insurance company. You can typically reduce your premium costs by 10 percent or so by simply having both policies with the same insurer.

* Pay annually. Pay your premiums once a year, rather than quarterly. That way you avoid the typical $5 to $10 “service fee” you get stuck paying each time you send in a payment every few months.

Use these tips to spend only what you have to on insurance. Keep in mind the purpose of insurance, for protection rather than provision, and you’ll be sure that every cent you spend on insurance is well worth the cost.

Ask Mint | In Ulips, the insured assumes investment risk

The customer decides whether he wants to invest his money in equity, debt or money markets, but the sum assured is guaranteed on death only

On Insurance | Rajesh Relan

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The insurance business in India isn’t just growing, but also becoming more sophisticated in terms of product offerings. To help readers keep ahead of developments in this business, Mint features a Q&A on insurance every Monday.

What is a traditional insurance plan and is it better than Ulip?

Rajesh Relan, managing director, MetLife

The traditional insurance plan is called traditional because it has been around for many years.

Ulip means a unit-linked insurance plan. It was introduced in the Indian market at the turn of the millennium. In a Ulip, the customer decides whether he wants to invest his money in equity, debt or money markets; in traditional plans, the money is invested in a predetermined manner as decided by the insurer within the guidelines laid down by the regulator. A traditional insurance plan, by and large, has some inbuilt guarantees which assure you a certain sum, both in the event of death and maturity. Many traditional plans also have guaranteed returns over and above this sum assured. Hence, the sum assured plus the returns are guaranteed.

In Ulip, usually the sum assured is guaranteed on death only. Also, in Ulip, you will assume the investment risk and participate in possibly higher returns as well.

I am 39 and earn Rs20,000 per month. I have five life insurance (endowment) policies worth Rs5.6 lakh, with an annual premium of Rs32,000. Please advise me whether the existing policies will cover my insurance requirements.

The human life value (HLV) of a person at your age should be around 10-12 times the annual earnings. This is a thumb rule. The sum insured should be equal to an amount which, if invested, should fetch a regular income for the dependants of the insured. In case there are any liabilities, these should be added to the amount of insurance required.

The life insurance plans taken by you are of an endowment type (that is, a mix of savings and protection). I would recommend you take a pure term policy which will cost you around Rs8,500 per annum and will give you a cover of close to Rs15 lakh for 25 years. This will also depend on your health parameters. If you have children, you also need to invest in a plan with a greater savings component.

Readers are welcome to write in with their queries to askmint@livemint.com. The questions will be answered by senior executives from leading insurance firms.

This week’s expert is Rajesh Relan, managing director, MetLife.

Protect your home with good insurance

October 7, 2007

By KAREN PAUL

There is beauty in this life. We just need to take the time to see it.

Yesterday I took a drive to see an old friend. My journey took me off Route 2, driving on dirt roads only the locals know. Surrounded by crisp hues of crimson, burnt ochre and hints of yellow reminiscent of a summer sun at dusk, I found myself cradled by Vermont's most breathtakingly scenic time of year. Amidst the lifeless leaves that embraced me with lively color, I remembered why I live in Vermont. On an overcast dreary day, I sometimes forget.

Once I arrived at my friend's home, the beauty did not end. There was more. Now we have all gone to see friends and enjoyed their homes.

This visit was different.

Two years ago, I traveled to see my good friend and what I saw when I arrived could not have been accurately understood through photos or verbal explanation. Two days before, my friend had lost his home in a fire.

Walking through a field in rural Vermont, standing before the shell of a dwelling once held dear by its owners, I felt chills advance through my body as my heart tried to fully appreciate the weighty look on my friend's face. As we gingerly trod through burnt wood and the melted metal that had been the support beam over the cook's kitchen I had often admired, I began to develop an elementary understanding of what losing everything truly means.

Perhaps you have wondered what if? What if I have a fire in my home and everything is lost? How would I fare in the event of such a loss?

Whether you have ever pondered what you would do in a disaster, there is no time like the present to evaluate your insurance coverage. If you are a homeowner, protecting what is often your most valuable asset is paramount. There are different kinds of home insurance policies. There are four types that are most common. The most basic or HO-1 policy covers what are called 11 types of "perils." They are fire, windstorm or hail, explosion, riot, aircraft, vehicles, smoke, vandalism, theft, damage by glass and volcanic eruption. (Ok, so the last one is a bit far-fetched unless you live near Mount St. Helens or in Hawaii.)

An HO-2 covers all the previous 11 perils as well as falling objects, weight of ice and snow, water damage and electrical surge damage. An HO-3 covers all that a HO-2 covers plus other perils not specified in your policy, except for flood, earthquake, war and nuclear accident. There is also a policy for older homes that covers repairs and actual cash values, not rebuilding costs. Most homes are covered by HO-2 and HO-3 policies.

When reviewing your policy, take particular note of these features:

Make sure your policy covers the replacement costs of your personal property and your home's structure and interior. Please keep in mind that market value is not usually anywhere near your replacement costs. Your personal property may decline in cash value but replacing your belongings could prove very costly.

Look for a policy with an inflation adjustment so the replacement cost keeps pace with the overall level of price advances. Never underestimate the value of inflation on the erosion of your dollar over time.

Of course, no insurance policy will cover 100 percent of your replacement loss. Unfortunately, such a policy would invite a great deal of fraud on the part of the unscrupulous. Most policies insure your possessions at 50 percent of the value of your dwelling. Thus, if you insure your home at $200,000, your possessions are insured at $100,000. Take a look around your home. Do you have antiques, gifts that are valuable, a larger than usual amount of clothes, tools or sporting equipment? It is possible to increase your content coverage to 75 percent with some limits on some property.

This weekend, while it is still fresh in your mind, take out your video camera or borrow one from a neighbor and go room-by-room and videotape the contents of your home. Talk through it about the highlights in each room, any items of particular value that may not appear to have such a value and give detail whenever possible. This should take maybe 30 minutes but it can really help.

Collect receipts of items of value and store all these records anywhere but your home.

Consider where you will live should your home be gone or unlivable. Be sure to have a "loss-of-use" provision in your policy. That coverage level can be as much as 40 percent of your home's insurance. In other words, your $200,000 would give you $80,000 in coverage which would include temporary housing. Depending on the extent of your loss, settling with the insurance company and rebuilding your home can take a year in some cases.

Over the past 18 months, I witnessed my friend's loss test the foundations and endurance of his being. Yesterday, my friend graciously and with pride showed me his new home, room by beautiful room. Fortunately, he had not only adequate insurance but receipts for many items in his original home. Having adequate insurance and doing your "home" work today can prove priceless in the event of an unfortunate tomorrow. Out of despair and doom, hope and beauty can happen.

Protect your home with good insurance

October 7, 2007

By KAREN PAUL

There is beauty in this life. We just need to take the time to see it.

Yesterday I took a drive to see an old friend. My journey took me off Route 2, driving on dirt roads only the locals know. Surrounded by crisp hues of crimson, burnt ochre and hints of yellow reminiscent of a summer sun at dusk, I found myself cradled by Vermont's most breathtakingly scenic time of year. Amidst the lifeless leaves that embraced me with lively color, I remembered why I live in Vermont. On an overcast dreary day, I sometimes forget.

Once I arrived at my friend's home, the beauty did not end. There was more. Now we have all gone to see friends and enjoyed their homes.

This visit was different.

Two years ago, I traveled to see my good friend and what I saw when I arrived could not have been accurately understood through photos or verbal explanation. Two days before, my friend had lost his home in a fire.

Walking through a field in rural Vermont, standing before the shell of a dwelling once held dear by its owners, I felt chills advance through my body as my heart tried to fully appreciate the weighty look on my friend's face. As we gingerly trod through burnt wood and the melted metal that had been the support beam over the cook's kitchen I had often admired, I began to develop an elementary understanding of what losing everything truly means.

Perhaps you have wondered what if? What if I have a fire in my home and everything is lost? How would I fare in the event of such a loss?

Whether you have ever pondered what you would do in a disaster, there is no time like the present to evaluate your insurance coverage. If you are a homeowner, protecting what is often your most valuable asset is paramount. There are different kinds of home insurance policies. There are four types that are most common. The most basic or HO-1 policy covers what are called 11 types of "perils." They are fire, windstorm or hail, explosion, riot, aircraft, vehicles, smoke, vandalism, theft, damage by glass and volcanic eruption. (Ok, so the last one is a bit far-fetched unless you live near Mount St. Helens or in Hawaii.)

An HO-2 covers all the previous 11 perils as well as falling objects, weight of ice and snow, water damage and electrical surge damage. An HO-3 covers all that a HO-2 covers plus other perils not specified in your policy, except for flood, earthquake, war and nuclear accident. There is also a policy for older homes that covers repairs and actual cash values, not rebuilding costs. Most homes are covered by HO-2 and HO-3 policies.

When reviewing your policy, take particular note of these features:

Make sure your policy covers the replacement costs of your personal property and your home's structure and interior. Please keep in mind that market value is not usually anywhere near your replacement costs. Your personal property may decline in cash value but replacing your belongings could prove very costly.

Look for a policy with an inflation adjustment so the replacement cost keeps pace with the overall level of price advances. Never underestimate the value of inflation on the erosion of your dollar over time.

Of course, no insurance policy will cover 100 percent of your replacement loss. Unfortunately, such a policy would invite a great deal of fraud on the part of the unscrupulous. Most policies insure your possessions at 50 percent of the value of your dwelling. Thus, if you insure your home at $200,000, your possessions are insured at $100,000. Take a look around your home. Do you have antiques, gifts that are valuable, a larger than usual amount of clothes, tools or sporting equipment? It is possible to increase your content coverage to 75 percent with some limits on some property.

This weekend, while it is still fresh in your mind, take out your video camera or borrow one from a neighbor and go room-by-room and videotape the contents of your home. Talk through it about the highlights in each room, any items of particular value that may not appear to have such a value and give detail whenever possible. This should take maybe 30 minutes but it can really help.

Collect receipts of items of value and store all these records anywhere but your home.

Consider where you will live should your home be gone or unlivable. Be sure to have a "loss-of-use" provision in your policy. That coverage level can be as much as 40 percent of your home's insurance. In other words, your $200,000 would give you $80,000 in coverage which would include temporary housing. Depending on the extent of your loss, settling with the insurance company and rebuilding your home can take a year in some cases.

Over the past 18 months, I witnessed my friend's loss test the foundations and endurance of his being. Yesterday, my friend graciously and with pride showed me his new home, room by beautiful room. Fortunately, he had not only adequate insurance but receipts for many items in his original home. Having adequate insurance and doing your "home" work today can prove priceless in the event of an unfortunate tomorrow. Out of despair and doom, hope and beauty can happen.