Why We Overpay for Insurance (& Tips to Reduce Your Expenses)

Most of us pay way too much for insurance.

I am not discussing how we shop for insurance, policy discounts we might be missing out on or providers from which we purchase (though all these factors certainly can have an effect on premiums). Instead, my focus lies with how much coverage is purchased.

Over our lifetimes, we give far too much money to insurance companies; over-insuring only increases their profits at our own expense.

Insurance needs and costs, in general, act as a progressive tax on those less fortunate. Lower claim deductibles usually translate to higher premiums while higher claim deductibles could result in lower premiums. Consider:

If you own a vehicle and lack savings to cover an accident, chances are good that a lower deductible and more costly collision coverage are necessary – both will dramatically raise your premiums.
If you lack savings to cover a high deductible, in the event of total home destruction a lower deductible may be more suitable and your premiums may increase accordingly.
If you have a family and have limited savings to cover the income loss from a deceased spouse’s death, larger life insurance payouts and higher premiums will likely be required to protect them financially.
If your health is poor (and lower wealth means poorer health, on average), you are more likely to need a lower-deductible health plan with increased premiums; the less money you have means the more insurance premiums will cost. In other words, when less is in your pockets for insurance premiums than necessary.

If you own a car and have sufficient savings to cover an accident, opting for a higher deductible or dropping collision coverage altogether could significantly lower your premiums and lessen the likelihood of making smaller claims that could otherwise increase future premiums.
If you own both your home and significant savings, increasing your deductible could drastically lower premiums – and less likely to make smaller claims that would increase future premiums.
If you have a family and substantial savings that can help cover any income losses caused by a deceased spouse, a lower (if any) life insurance payout could significantly lower premiums.
If you are in excellent health (and wealth generally correlates with improved health), higher deductible health plans could significantly lower premiums and save money in premium payments.
With more money saved away, less of your insurance payments will need to be covered; your savings act as your own private policy!

But, most never make that change; we continue to pay extremely high premiums for too much insurance even though savings could easily cover our needs.