My Best Efforts to Keep the Insurance Industry From Robbing Me Blind

This expense is one dragon even I cannot slay.

Happy Monday, ya’ll! Here is the latest post in my Annual Expenses series. If you didn’t see the introduction post that summarizes all of my expenses, you can check it out here. I’ve been going into detail on one category each Monday. Over 2017 and 2018, I spent an average of $3000 per year on insurance. To be honest, this category makes me sick since I don’t like betting against myself and have literally never received even close to what I’ve paid in premiums. Not one single year. There is a lot to discuss on this since it includes three subcategories: auto, homeowner/renter, and health/dental. And it is a highly variable expense category since insurance is based on personal factors. But I believe a minimal annual expense would be about $2000. And this is a great topic to go into since my annual auto/renter policy renews in early October and I’m going to be shopping around to try to get just a little bit closer to a reasonable amount – if that is even possible anymore.

I’ll start with health insurance since it is the most important. I’m very fortunate to have a solid plan through my employer that has a very low required contribution of less than $1000 total per year – and that’s pretax. Our dental insurance is less generous and as a result, I even went without it one year. But dentist appointments seem to be much more expensive than they are in the Midwest – about $300 on average versus about half that – so I got back on it. Anyway, admittedly, my minimum annual insurance number above requires an employee friendly setup because if I didn’t have that, it appears I would be paying about $4k total per year for fairly minimal individual health coverage. However, I would then have the advantage of being eligible to contribute to an HSA (health savings account), assuming I chose the right plan. An HSA is the add on you want. A FSA (flexible spending account) is only useful for those who have medical expenses that are both high AND predictable. Unlike an HSA, which is basically a bank account you own (but can only use for medical expenses), a FSA is a tax advantaged, but “use it or lose it” account. So only contribute what you KNOW you will spend or you could easily lose money instead of saving any.

The key with health insurance is really to stay as healthy as possible. It’s not going to be cheap no matter what you do, but if you have high medical costs, it’s going to be a lot worse. This is one of the reasons I said investing in your health is the best investment you could possibly make in one of my very first posts on this blog. This is also one of those areas where you’re going to pay through the nose for having kids, but that’s a whole other topic. Long story short on health insurance, go through your employer if they offer a decent plan and live the healthiest life you can so you can use it as little as possible. Frankly, if this industry doesn’t see dramatic changes over the next decade or so, this country is going to be bankrupt. So I don’t know how in depth it even pays to go into this. It is simply going to be a moving target for a while.

On auto insurance, I’m paying a bit over $1500 a year for a single vehicle, which makes me sick given that I paid just over half that much for two in Wisconsin (and not much more than that for three when I was married). But you only have to spend a day on Houston’s roads to see that the drivers here more than justify that difference. Dallas, San Antonio, and Austin haven’t been much better in my experience, so it’s possible that sky high insurance costs are simply a Texas thing and a well justified one at that. Anyway, nearly half of that is for collision, which you should only have if your vehicle is objectively worth at least $10k in my opinion, and the rest is for liability, comprehensive, and so forth. I have a 100/300 policy and I’m actually likely to increase that and add umbrella coverage in the near future since as my net worth skyrockets, so does my potential loss if I somehow hit one of these aristocrats who drive $400k Bentleys in an area with roads that are about one step above a war zone. And it wouldn’t even need to be a car that expensive. Sending someone to the hospital could cost far more than that very quickly, especially if they sue. And if it’s major, that’s probably more likely than not. It’s a calculation you need to make for yourself. If the vast majority of your assets are in retirement assets, which are typically protected in the event of bankruptcy, then you can probably afford to gamble a little by having the state minimum level of required liability coverage. However, if the opposite is true, then you’re probably going to have to pay for higher coverage limits as I do and be thankful that it’s necessary.

As far as saving on auto insurance, there are at least some things you can do. First and foremost, have good credit and a clean driving record. If you get a ticket, fight it. The ticket itself may only cost a hundred or two, but the increased insurance premiums could cost more than that on an annual basis for five years or more. Some states are better than others for this. I know people in states where they’ve been able to lawyer up and get out of anything and everything up to and including alcohol related stuff. In other states, it’s not even worth trying. Do your research and find out which your state is and act accordingly.

Definitely shop around with your policy. The rule of thumb is to do it every other year, but with as much as I’m paying, I’m doing it every single year until further notice. Loyalty definitely doesn’t seem to be rewarded at all as most insurers raise your rates each and every year now. About the only exception I’m aware of is USAA. If you are eligible to do business with them, thank your lucky stars and do so! I’ve heard nothing but good things. I’ve also heard good things about Amica, although every time I’ve gotten a quote from them it’s been way out of the ballpark so who knows. But most insurance companies are the same basic “charge sky high premiums, then forget your wallet when it comes time to pay the bill” scams operations.

At least by shopping around, you know you’re not getting totally screwed. Ask for the longest term you can get (usually it’s either a year or six months) since if you don’t, you’re effectively financing your annual premium and the interest rate is not low. Also, you can raise your deductibles to the max. Usually it’s only $1000 though, which limits the premium difference it makes. My attitude is that most accidents involve replacing a bumper, which is going to cost about $1000. I’m not going to make a claim and send my premiums into the stratosphere so the insurance company will hem and haw and finally grudgingly pay out five hundred bucks. No thanks. So I’d be paying the first thousand regardless in the event of a serious accident.

That’s another thing to keep in mind with insurance. Don’t make a claim if you don’t have to. Much like with buying extended warranties, you are extremely unlikely to come out ahead in the long run. If you do, you’re one of the lucky (although also extremely unlucky in another way of thinking) few. Think about it. If the insurance company (and warranties are sold by them as well) pays out more than it takes in, it goes out of business. So in most cases, you’re going to have to fight for every dollar. If the scope of the situation gets big, make sure the insurance company knows you will involve an attorney if you need to. And don’t be afraid to follow through with that either. Someone needs to keep the bastards honest. 

I saved the least important type of insurance for last, at least if you’re a renter. Most renters insurance I’ve ever had has included roughly $30k for personal property, which is enough for almost any apartment dweller, and has cost about a hundred bucks a year – yes, even in the insurance hell that is Houston. Usually I just get it as an add on with whatever auto insurance company I’m going with that year. Of course, it is much more significant if you are getting homeowners insurance since you’re insuring the exterior of the building as well. And if you live in a hurricane area like Houston, suck it up and pay for the flood insurance. In case you haven’t been paying attention for many years now, new storms “make history” on a very regular basis. Don’t assume you are safe just because the flooding didn’t reach your area in the past. People have literally lost their homes for doing exactly that.

If it hasn’t come through in the tone of this post, I fucking hate insurance. It is one of the only industries besides politics that makes finance look ethically upstanding. I get that there are problem customers like in anything else, but for the vast majority of us, this is going to amount to decades and decades of donating money to for profit entities. But if you keep an eye on them, both when making sure you’re paying a competitive premium, and when actually making claims, you can at least keep the bleeding from turning into hemorrhaging.

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