If it looks like a fee, smells like a fee and hurts your wallet like a fee . . . then it’s probably a fee. And while insurance companies might not call them “fees,” there are some sneaky expenses out there that needlessly drive up your insurance bill.
If you’re not careful, you might end up getting nickeled-and-dimed without even realizing it. Making a few tweaks to your insurance policies could help lower the costs of your premiums. While a few bucks saved here and there might not seem like a big deal, those savings add up to a nice chunk of money that stays with you over time!
From annoying fees to unnecessary insurance riders, here are some hidden insurance expenses you might want to drop from your policy.
Monthly Payment Fees
When it comes to insurance, how you’re paying for it can be just as important as what coverages you’re paying for.
By paying your insurance premiums in monthly installments, you’re basically choosing the most expensive way to pay for insurance. Why? Because there are administrative costs that come with processing those payments—so your insurance company charges an “installment fee” to cover those costs.
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And like most businesses, insurance companies would rather have money in hand—so they’ll try to make it worth your while to pay up front and in full by offering you some savings.
So, if you can pay quarterly (four times each year) or semi-annually (twice a year), you’ll likely see some savings on premiums. And if you can pay annually—the “pay-in-full” option—even better!
Paper Payment Fees
If you’re old school and decide to pay your insurance bill by sending in a check through the mail or choose to receive paper billing statements, you might get charged a few dollars extra for it. The costs of postage and handling all that paperwork fall on the insurance company, and they’ll often try to pass those expenses onto you.
So, insurance companies will reward you for going paperless, paying your premiums electronically, and setting up automatic payments by waiving some of those extra fees and surcharges. And besides, you’ll save a few trees and avoid late payments in the process. Win-win!
Rental Car Reimbursement Coverage
A nasty car wreck could leave your car stranded in the shop for a couple weeks, depending on how bad the damage is. That begs the question: How are you going to get around while your mechanic fixes Old Betsy?
Rental car reimbursement coverage is an optional coverage that will pay for the cost of a rental car or public transportation while your vehicle is being fixed after an accident. Sometimes this coverage adds as little as $2 each month to your premiums, which might seem like a good deal. But sometimes it could cost more than $175 every year.
The truth is, you probably don’t need this coverage—especially If you have a fully funded emergency fund in place or access to a second vehicle.
Emergency Roadside Service Coverage
There’s nothing more deflating than getting stranded on the side of the road with a flat tire, and that’s where emergency roadside service coverage might come in handy. It’s another optional coverage you can add to your car insurance policy that helps cover the cost of roadside troubles, like sending someone out to fix a flat tire or tow your car to a mechanic for repairs.
Like rental car reimbursement coverage, it’s not very expensive to carry emergency roadside coverage. But if you already have roadside assistance through a service organization like AAA, then this is just duplicate coverage you can afford to drop.
Here’s the bottom line when it comes to car insurance: You want to have “full coverage,” which is made up of three types of coverages—liability, comprehensive and collision. Beyond that, you can decide whether or not any other type of coverage is worth keeping. But the truth is, with a fully funded emergency fund in place, you might be able to take on the smaller risks yourself.
Not sure? Talk to an independent insurance agent to decide which coverages you need to have and which ones you can go without.
You want to have “full coverage,” which is made up of three types of coverages—liability, comprehensive and collision.
Return of Premium Riders
We know what you’re thinking: What in the world is a “rider”? An insurance rider is often some kind of additional coverage or benefit that’s added to your policy for an extra charge. You’ll often see riders attached to life insurance policies, but you might see some riders available with homeowner’s or auto insurance policies from time to time.
A return of premium rider advertises that you can get your premiums back if you never use your policy. So if you sign up for a 20-year term life insurance policy with a return of premium rider and you outlive the term, the insurance company promises to pay you back for all the premiums you’ve paid over the years.
Sounds good, right? But a return of premium rider could add hundreds of dollars to a life insurance bill each year—and that’s money you could have been using elsewhere.
Let’s say you’re looking at a 20-year term life policy that will cost you $500 each year. With a return of premium rider, that will bump up your annual premium to $800. So, the most you could hope to get back at the end of 20 years is a check for $16,000 in returned premiums. But what if you decided to invest that extra $300 each year instead? After 20 years, that money could have grown to more than $21,000!
Accidental Death Riders
Here’s another rider you’ll usually see sold with life insurance policies. The accidental death rider offers extra coverage if your cause of death isn’t natural and due to an accident.
For example, you might take out a $500,000 life insurance policy with an additional $500,000 accidental death rider. If you die of a heart attack, your beneficiaries would get that original $500,000 death benefit. But if you died in a car accident, your beneficiaries would receive twice as much for a total payout of $1 million.
Listen, your family doesn’t need twice as much because you died in an accident. Stay away from these gimmicks that could add hundreds of dollars to your annual premiums! As long as you carry 10–12 times your annual salary in term life coverage, you’re good to go.
As long as you carry 10–12 times your annual salary in term life coverage, you’re good to go.
Extended Warranty Coverage
Whether you’re buying a car or a new couch for the living room, you’re almost always going to get a pitch from the salesperson about signing up for an extended warranty—a service plan that’s basically like buying extra insurance for your stuff.
Where to begin? First of all, most new items already come with a standard manufacturer’s warranty. That means if your brand-spanking-new washing machine breaks down or your smartphone goes dumb and stops working within the first few months (sometimes up to a year or more), it’ll be on them to cover the costs to fix it—at no extra cost to you. An extended warranty gives you the chance to prolong that original protected period, for a price.
And second, the chances of your stuff breaking down and you using that warranty are pretty small—and the people selling you on an extended warranty probably know that. Instead, set aside some of the money you would have paid for an extended warranty and put it into a “repair fund.” That way, you can handle the cost of any repairs yourself.
So, the next time a salesperson tries to get you signed up for an extended warranty, just smile and say, “Thanks, but no thanks!”
Paying Too Much for Coverage? Talk With a Pro
If you feel like you might be getting fleeced by hidden insurance expenses, you’re probably right! At the very least, you might want to set aside some time to review your insurance policies and see if there are any changes you can make that could save you some money on premiums. Every little bit helps!
Better yet, get in touch with one of our insurance Endorsed Local Providers (ELPs) who can help you shop around for better rates and show you what coverages you need and which ones you can go without.