Overpaying For Insurance? How To Spot It And What To Do About It

When was the last time you looked closely at your insurance policies? If your answer is “I don’t remember,” you’re not alone. Trust me, I get it — they’re boring and filled with confusing jargon. But your insurance may be costing you more than you realize.

I don’t know about you, but I don’t want to spend more than 6 percent of my annual income on insurance policies. As a money coach, one of the quickest ways I help clients gain control of their finances is by auditing their insurance policies to find hidden savings. 

Here are five issues to look for and how you can shift more of your paycheck toward investing, not just insurance premiums.

1. Understand what you’re actually paying for

Most people don’t realize how many “hidden” costs are built into their policies. Whether it’s extra riders or overlapping coverage, the fine print can cost you.

After twenty years in the life insurance business, expert Tony Steur says the most common mistake he sees is people paying for coverage that they don’t need. “People often start with deciding whether or not to buy a certain type of policy, rather than reviewing their goals and comfort with risk, then deciding if a policy makes sense.”

Several of my clients have aging pets with chronic health conditions. Rather than waiting until an emergency happens, I suggested that they call their pet insurance providers proactively to understand the costs associated with hypothetical scenarios, such as surgeries or medications needed for their pets.

If you don’t understand a line item in your policy, highlight it and ask your provider to clarify precisely what is covered and what their processes are for filing a claim. You may find that the insurance doesn’t meet your needs or can be pared down.

2. Compare, compare, compare each year

Loyalty doesn’t always pay off when it comes to insurance.

Insurance companies know that most people auto-renew their policies, so they quietly raise rates and bank on their customers not paying enough attention to notice. If you’ve been with your insurance provider for many years, it may be time for a switch.

As with any financial product, you should get at least three quotes from different carriers to find the best deal. Market trends shift with the wind, and the company that was right last year may not be right next year.

Make sure you’re considering discounts in your shopping process, but don’t over-focus on them. For example, when I worked for an insurance company, I found more affordable rates with a different carrier, even after factoring in my employee discount.

Since then, I’ve made it a habit to dig into my insurance policies and get some comparison quotes during the last week of the year. It feels like a holiday gift when I find a better rate and can kick off the new year with some savings.

3. Match your coverage to your needs

Life changes, but insurance policies don’t — unless you proactively let your carriers know.

Maybe you bought your homeowners policy before you renovated your bathroom, or your car insurance hasn’t been updated since you started working from home. Mismatched coverage can mean overpaying for things you don’t need or being underinsured when it matters most.

One of my biggest surprises came in 2020, when I purchased a second property and called my home insurance provider to insure my new home. After review, they were pleased to offer me coverage for both homes for almost the same price I’d been paying for just the first one.

Rather than being elated by the news, it made me wonder if I’d been overpaying all along.

4. Don’t be afraid to avoid bundling and ask about discounts

Bundling can be a smart way to save, but it’s not always the cheapest route. Many people assume that bundling home and auto insurance will automatically save them money, but you still need to compare individual policies to confirm. If you have some cash savings, you may also get a greater discount by paying the premium annually instead of monthly or quarterly.

I love it when my clients opt to pay their premiums annually, as it also eliminates a monthly budget line item, which helps increase their cash flow.

Plus, as Steur says, “Monthly or quarterly surcharges can lead to an extra 8 percent a year in premiums.”

5. Build an emergency fund to match your deductibles

Your deductible is the amount you pay out of pocket before your insurance kicks in. This can significantly impact both your premiums and your financial stability.

Choosing a higher deductible often lowers your monthly costs, but it also means you need to be prepared to cover that amount in case of an emergency.

I learned this the hard way when I needed unexpected kidney surgery in my mid-twenties. I didn’t understand deductibles at the time, so I had total sticker shock when I got hit with a $10,000 bill to cover my health insurance deductible.

Now I coach my clients to review their deductibles and aim to save as much as their highest one, which might be their health insurance or homeowners insurance coverage.

That way, if you need to file a claim, you don’t have to rely on credit cards to cover your out-of-pocket costs. After all, 46 percent of credit card users already carry a balance, according to Bankrate’s Credit Card Debt Report.

Final thoughts: An hour of effort can save you thousands

Insurance isn’t something to “set and forget” — it’s a financial product you can (and should) manage like any other. Just an hour of review could save you hundreds or even thousands a year, freeing up more money for your other financial goals like paying off debt or retiring early.

If you’ve been wondering whether you’re overpaying for insurance, the answer might be yes. The good news is that it doesn’t have to stay this way — review your coverage and shop around to maximize your savings.