💸 Optimizing Insurance Part 1 (Home/Auto/Liability/Pet)

Last year, weather-related disasters cost the US $145 billion dollars¹ and in 2020 the total cost of motor-vehicle deaths, injuries, and property damage in the US was $474 billion². Now despite that insurance companies are still making lots of money while Americans overspend on just auto insurance by nearly $21 billion per year³. So, why does all this matter? Because getting the right policies in place at the best price can protect you and your family without overpaying insurance companies. In fact, 76% of consumers who have shopped around say they’ve saved money by doing so⁴. 

So, what kinds of insurance am I talking about? In this issue, I’ll focus on home, auto, liability and pet insurance, and in the next issue I’ll focus on life, disability and travel insurance. 

🏡 Homeowners and Renters Insurance

Any homeowner will tell you that things can and will always be breaking. Water heaters burn out and roofs always seem to find the most inconvenient time to need replacing. Then, there’s the scarier stuff. Things like what the residents in Colorado are dealing with after a wildfire burned through two towns or the massive flooding residents in Washington are still cleaning up. 

Enter, homeowners and renters insurance. 

Generally, homeowners insurance will cover destruction and damage to your home, the loss or theft of possessions, and personal liability for harm to others. I don’t think there’s really a question of whether you should have homeowners insurance (you should) since most mortgage lenders require it. Also, depending on where you live, natural disasters like floods, hurricanes and earthquakes are often excluded and require separate riders or policies. 

Renters insurance works similar to homeowners insurance in that it’s there to protect your personal property and offer liability coverage, but damage to the building is the responsibility of the landlord and covered by their homeowners insurance.

Homeowners/Renters Insurance Tips

• Document Everything - As Joe Saul-Sehy said in Episode 35, this can be as easy as making your own MTV Cribs video, going room to room to capture everything you own. For expensive electronics (TVs, computers, etc.) it’s worth writing down the model/serial numbers somewhere in case you need them.

• Compare Prices - Every year I comparison shop from multiple providers. While I wish there was a perfect comparison site, I often have to go straight to the companies’ websites. My favorite trick here is that the quizzes about your home size, roof material, etc. are often just to help you figure out how much coverage you need, so once you know that number you can put whatever you want to get to the end where you can just dial up the numbers to exactly what you want. Also, you don’t need to wait until the end of your policy to make a change. If you switch in the middle, you’ll just get a check for the difference. 

• Get Your Discounts - Alarms (especially if they report to local police/fire), fire sprinklers and security cameras can reduce your premiums by as much as 15-20%. You may also get a discount for an organization you belonged to (I think I once got one for my college fraternity) or if you’re eligible for military-related insurers you can check them out (my fathers’ past military service makes me eligible for USAA – though they weren't the cheapest).

• Bundle with Auto - This may help you save money, but don’t assume it’s always the best. For us, it ended up being less expensive to get our homeowners policy from Lemonade than buying policies together from any one carrier.

• Raise Your Deductible - Statistically, the cheapest insurance should be self-insurance, because insurance companies make profits. However, very few of us have enough in our emergency fund to rebuild our home nor we want to take that risk. That said, if you have enough emergency savings to cover a higher deductible, it can be a great way to lower your premiums.

• Have Enough Coverage - We were fortunate that our first condo in SF appreciated quite a bit and while a lot of that was the value of the land, the cost to rebuild had gone up a lot too, but our policy wasn’t close to having enough coverage. So, keep an eye on the value of your home and rebuilding costs so you can adjust your policies as needed. Similarly, when we upgraded from IKEA furniture and started to acquire more things, we increase our coverage as well.

• Dial Back Coverage You Don’t Need - This varies by policy, but a specific example is around “Loss of Use”, which covers putting you up in a nice hotel or similar rental home if you can’t use your home. If you have a second home or family you could easily stay with, you might not need as much coverage here.

• High Value Items Aren’t Covered - It’s important to note that if you have fancy jewelry, art, bikes, cameras or other high-value items, you’ll probably need an additional insurance rider for those items. It varies by policy, but a common threshold is ~$1,000. Also, these policies aren’t that expensive, often costing ~1% per year.

• Premium Insurers - If you have a really expensive home(s) and need coverage beyond what the traditional insurers cover, there are two high end insurance companies that I’ve heard great things about: Pure and Chubb. 

   

🚗 Auto insurance

According to the Association for Safe International Road Travel, about 4.4 million Americans are involved in a traffic accident that requires medical attention. That doesn’t even touch on the cost of time off work, vehicle damages, rental cars, or possible litigation costs. So, car insurance is a must-have.

But before we talk about ways to save, I’ll do a brief run through what type of damage each of the common components of auto insurance covers:

• Collision - Accident regardless of who’s at fault.

• Property damage - Property if you were at fault.

• Uninsured motorist - Accident with someone who doesn’t have insurance / is underinsured.

• Comprehensive - When you’re not driving (tree falls on your car or you get keyed).

• Personal injury - You and any passengers in the car at the time of the accident.

Car Insurance Tips

• Compare Prices - The same advice for homeowners above applies to auto insurance, but it might be even more important. While I saw 10-20% variability in pricing for our homeowners policy, the quotes I got for covering our Model 3 were about 2x higher at State Farm and USAA than we pay with Geico.

• Raise Your Deductible - Same as for homeowners.

• Low Mileage Savings - If you don’t drive much there are a lot of companies that offer “pay-as-you-go” insurance that often involves adding a device to track your driving. If you’re driving less than 10,000mi/year this could make sense, but even if you don’t find good pay-as-you-go rates, you can select a lower number of miles/year with any policy and often get a lower rate. I know we saw the rate drop when we picked 5,000mi/year with our Geico policy.

• Pay in Full - Many insurance companies charge a fee to pay your bill monthly, so you can save by paying in full every six months.

• Increase Your Credit Score - In some states (though not CA), insurance companies charge less if you have good credit, so if you

• Anti-Theft Devices - I’ve heard of big savings for adding anti-theft devices, so you may want to see if you can get a discount worth paying the cost, but I’ve never seen this promise come true.

• Good Grades - Students can get discounts for having good grades.

☂️ Liability/Umbrella Coverage

While home and auto policies can cover your personal liability for accidents in your car or home, their coverages may not be enough. For example, your auto policy might offer $250,000 of liability coverage, but that doesn’t mean you couldn’t be sued for $1 million for an accident involving a serious injury or death. In fact, in some states, you can be sued for future earnings, so if you have a higher net worth or are a high earner, your home/auto policies might not offer enough liability coverage.

That’s where umbrella or personal liability insurance comes in. It sits on top of your home and auto policies and covers your liability for as much as you want to pay for. Umbrella policies aren’t too expensive, usually costing $150 to $350 per year for the first $1 million of coverage and about $100 for every $1 million in coverage after that.  This piece from NerdWallet has a bit more detail on umbrella insurance coverage.

🐕 Pet Insurance

Pets are a walking example of Murphy’s Law. Whatever can go wrong, will go wrong. While pet insurance can be a good option for any pet owner, it might be more interesting those with exotics like birds and reptiles that require specialty care as well as those with breeds prone to health issues (e.g., flat-faced dogs and cats with breathing issues, working dogs with a predisposition to hip dysplasia).

Premiums are usually $15-100/mo, but vary widely depending on age, breed or species, and previous health history. The older the pet, the higher the rate. In the past I’ve taken the path of self-insurance, but after spending almost $1,000 this year to try to diagnose an issue with our dog Finn (which resulted in finding nothing and him just getting better), I thought about reconsidering. Then in my research for this newsletter I saw a lot of positive feedback for  Lemonade’s pet insurance. I priced it out and I’m reconsidering even more (though have not pulled the trigger yet).

Ultimately, I think pet insurance is a really personal decision that comes down to how much you’d be willing to spend on medical treatment for your pet. If that number is more than $10k, then pet insurance might make a lot more sense. Also, it’s important to note that pet insurance is typically reimbursement style, so you’ll pay for services upfront and then submit your claims to be paid back.

📋 Final Insurance Tips

I’ll probably repeat this section in two weeks when I tackle Life, Disability and Travel insurance, but wanted to share this time as well. Here are some final tips that apply to all insurance:

• Shop around! I’ve said this multiple times, but prices vary widely between companies offering the same coverage.

• Thoroughly read policy terms. There are too many terms to list, but some common examples are waiting periods for the policy to fully kick in or exclusions for certain things.

• Avoid Insurance Myths. Some of what you assume about insurance may be incorrect, like credit not affecting rates for certain insurance, suicide voiding a life insurance policy or what beneficiaries may have to pay in taxes upon receipt of benefits

• Up your deductibles. Stacking Benjamins creator, Joe Saul-Sehy shared a great tip in Episode 35 of the podcast. If your emergency fund or other savings are solid, you may not need to worry about securing lower deductibles. By upping your deductible, you can save money on your premiums, which puts more money in your pocket and ups your cash flow.

• There’s insurance for everything. There’s special insurance for boats and other recreational vehicles, rental car coverage, additional coverage for certain illnesses like cancer, wedding insurance and even bed bug insurance.

• Some insurance is a waste. Not all insurance options are worth it. A disease-specific insurance policy probably isn’t needed if you already have good medical coverage. Rental car insurance is probably already covered in your own auto policy or credit card. While having all this additional coverage may sound important, chances are it’s not necessary or covered in a policy you already have.

While we all hope to never have a car accident or flooded basement, realistically, these things happen to lots of us, so hopefully these tips will help you save money getting the insurance you need to protect yourself.