A few economists continue to worry about deflation. Yet, the cost of the key goods and services most people buy keeps rising. Beating rising costs remains an important goal for those saving for retirement or striving to maintain their standard of living in retirement. Fortunately, you can reduce the cost of some important living expenses.
Homeowner’s insurance. There’s a normal cycle in homeowner’s insurance. One firm will drop its premiums to increase market share, and the other insurers will follow suit. They will rely on strong investment returns to make the business profitable. After a few years, the insurers find that insurance claims are exceeding expectations or investment returns decline, or both. The insurers then have to increase premiums significantly to stay in business.
We’re now in the premium-raising phase of that cycle. Stock market losses and higher claims punished many insurers the last couple of years. Homeowners are being hit with steep premium increases.
The easiest solution to rising premiums is to shop around. The investment returns and claims experience of different insurers are not the same, so premium increases vary. So, you should shop around. Industry reports indicate that State Farm apparently had the worst investment performance and raised premiums the most. Be sure to contact Allstate, Liberty Mutual, and at least one independent insurance agent.
The other way to decrease premiums is to increase deductibles. This is a good idea anyway, because insurers are declining to renew policies with homeowners who make claims for relatively small losses. It makes sense to have a deductible of at least $1,000. Consider a higher deductible if you have enough cash reserves to handle the loss yourself.
Auto insurance. The auto insurance situation is similar to that of homeowner’s insurance. Most of the solutions are the same.
Shop around among insurers. GEICO and Progressive have reputations as the lowest cost auto insurers. AIG is also trying to increase its share of auto coverage. Increasing the deductible also can decrease premiums.
The Internet makes comparison shopping for auto insurance easier. The site LowerMyBills.com compares the rates from different insurers. You type in information about your cars and driving history, and the site searches for premiums. Insurance.com and InsWeb offer similar services. Also, be sure to check sites of individual companies.
Make sure you are credited with all available discounts. Insurers generally have discounts for air bags, antilock brakes, anti-theft systems, and an unblemished five-year driving record. Older drivers might receive a discount for taking a special safe-driving course, such as one given by AARP. Some insurers offer a discount if you purchase both auto and homeowner’s insurance through them.
Another option if you have an older car is to drop collision coverage. This is the coverage that pays for losses or damage to your car that is your fault. You don’t want to drop liability coverage. But a number of advisors believe that once a car is older than seven years or so, the cost of paying for collision coverage exceeds the benefit.
Here’s how to do the calculation. Determine the current value of your car from Kelley Blue Book or the National Automobile Dealers Association. (Each has a website.) That’s the maximum value if the car is totaled. Subtract from that your deductible. The difference is the maximum you would receive from the insurer. Most premium statements list the amount paid for each type of coverage. Consult your premium statement or ask your insurer how much the collision coverage is costing you.
With that information, you can decide if the coverage is worth the amount you have at risk. You might be paying $300 or more per year to insure a car worth $5,000 to $7,000.
If you drop the collision coverage and do total the car, you’ll have to buy a replacement car on your own without any insurance payment. You have to decide if the certainty of saving the annual premiums is worth the risk of the loss. If you don’t have enough cash reserves to replace the car, saving the premiums is not a good idea.
Some advisors also say to consider dropping comprehensive coverage. This covers losses from theft, vandalism, fire, flood, and similar events. Do the same calculation to see if this is worth the cost to you.
Long distance bills. The major long distance telephone companies gave up competing on lower costs after rates dropped through the floor a couple of years ago. Since then, they have been raising rates or imposing higher minimum monthly fees. A new strategy for them is bundling. Consumers are encouraged to pay one price for basic phone service, long distance, and sometimes cellular phone service. You have to determine your average cost of the three services separately to see if bundling makes sense for you.
To lower long distance telephone bills these days you generally have to seek out the little-known long distance resellers or the “10-10” services. Good price-comparison services on the Internet are trac.org, www.abtolls.com, www.TollChaser.com, and www.LowerMyBills.com.
One source not to overlook is low cost prepaid phone cards. Low cost phone cards can be purchased at discount stores such as Costco, Sam’s Club, and BJ’s. To use the cards you have to dial an 800 number and a 12-digit PIN before dialing the number you’re calling. You also have to check the terms of the card. Some offer very low per minute rates but impose a surcharge or minimum charge per call that is listed in the small print. Be sure you know the full cost of each call before using the card.
AAA Plus. If your car is a few years old, membership in the American Automobile Association can be a great benefit. Free towing, battery jumps, and other services nationwide can more than pay for the membership fee. There also are the discounts for hotels and other services.
We’ve discovered that the membership level known as AAA Plus is well worth the extra cost. This coverage offers free towing up to 100 miles. Though I own a trusty old Honda Accord, I’ve used the benefits enough to more than pay for the annual fee.
Books and more. The Internet has lowered the cost of many products, but searching a number of sites for the best price can be tedious. Instead, consider using a service such as www.BestBookBuys.com. Type in the name of a book, and the site compares prices at 21 sites. It also compares prices for CDs, DVDs, electronics, and bikes.