Insurance is one of those things that we all need if we plan to protect our assets. Whether you are protecting your health, your home, or even your life, insurance is a way for you to keep your family safe.
However, paying all those premiums starts to add up. Health insurance premiums can get especially expensive over time. One of the ways that I’ve found to save money on insurance costs on a regular basis is to self-insure to some degree. This doesn’t mean that I completely eschew insurance (and in some cases, as with auto insurance and, in 2014, health insurance, not getting insurance coverage is illegal). In fact, I have the basics of my life covered by insurance.
I do make an effort to reduce my premium amounts, though, by carefully considering where I can do without certain coverage, or how I can cover more of my costs.
Higher Deductible = Bigger Emergency Fund
One of the ways you can self-insure to some degree is to ask for a higher deductible on your insurance policies. A higher deductible means that you will pay more costs out of your pocket, whether you are having your roof replaced or whether you are visiting the hospital.
If you go this route, your monthly premium fees will be lower. I have a higher than average deductible on my home and auto policies, and I have a high deductible health care plan. This means that I save anywhere between $50 and $200 a month on my various insurance policies.
The key, though, is that you have to be able to cover the deductible. Having lower premiums does you no good if paying the deductible is going to put you in a tough financial position. This is why I partially self-insure with the help of an emergency fund. I have a stash of funds that is large enough to cover my deductibles so that if I am called upon to use the money, it doesn’t cause problems with my regular finances.
In the case of my health insurance, I save money in a Health Savings Account, which comes with a tax advantage on top of being a place to keep my money.
The beauty of this approach is that, rather than paying higher premiums, you can put that money to work on your behalf. You can earn interest on the money, and it remains yours, rather than disappearing into the depths of the insurance company.
Considering Your Coverage
Another option is to consider how much coverage you actually need, and the self-insuring by saving up extra money, just in case. My husband and I have done this with life insurance. We are covered by what many financial professionals would tell is us an insufficient amount. However, we are comfortable with it because we have other assets that can supply the place of a bigger life insurance payout.
The same is true of short-term disability insurance. Instead of buying short-term disability coverage, we self-insure with an emergency fund. We do have long-term disability coverage, but there is no need for us to pay for both policies.
When you think about what coverage you need, and what coverage you could drop (replacing my car’s windshield costs about $100; I don’t bother with that coverage in my auto policy), you might surprised at how little things add up to create a bigger premium. Carefully look at your insurance needs, and at your assets. Then, consider self-insuring to some degree. You could save more of your money, and put it to use on your behalf.