posted in Insurance

Finding additional funds can change your financial position permanently for the better. But, without changing spending habits first you will never begin to uncover money that you can take advantage of for future investment opportunities.

Before I continue with the insurance buried treasure, the first thing you must do is to reduce any existing debt. You may often achieve a higher return by reducing debt than by committing funds to new investments.

The interest rates are quite high on funds borrowed through charge accounts, credit cards, or consumer finance companies. It is seldom less than 15 percent and often 21 percent or more. You will want to reduce or eliminate these debts before committing to investments with lower expected yields.

The general practice is simple: Pay down or eliminate existing debt whenever the interest cost saved is above the prospective gain on the alternative. If the prospective returns are only slightly above the cost of the debt, you may still prefer to reduce the debt. The interest saved is a certain gain, the prospective return is not!

Look Deep Into Your Insurance

Whole life insurance policies and a few others allow you to build up a sizable cash value that you can put money into for efficient use. The insurance company will lend most of the cash value to you at an attractive interest rate. You can then invest that money, earning a much higher return than any interest the insurance lender charges.

Currently, the U.S. tax law states that the interest expense on a loan from your life insurance policy may be considered consumer interest and not deductible. If you can’t borrow the cash value on your life insurance policy, take another hard look at the policy. Eliminate unneeded coverage to reduce your premiums, and use the savings for other investments. But, it’s the same story as with bankers: Insurance agents will not tell you that you need less coverage. This initiative must be yours.

To do this, simply increase deductible limits for auto and home loans $250 — $1,000. The higher premiums you pay every year that has a low deductible is not worth the few extra hundred dollars you would get with your claim in the unlikely event of damage or loss of property. What is amazing to know, people do not even make a claim for less than a large damage loss, because they fear their premiums will increase.

You can make an even larger savings by raising the deductible on your health insurance plan. This is of course unless your employer pays for your coverage. The so called first dollar coverage is the most expensive health insurance you can buy, and the price tag for having the insurer pay for routine doctor visits and occasional prescriptions may be greater than it’s worth. A policy with a $250 or $1,000 deductible generally will cost hundreds of dollars a year or less.

If your vehicle is over five years old, take the maximum deductibles on comprehensive collision coverage. You may also want to eliminate this coverage altogether if the repair/reimbursement will be relatively low due to the vehicle’s age. Some insurance companies allow you to insure against the damage to your vehicle with a few dollars premium that applies only if you don’t carry regular collision coverage and the damage is proven to be the fault of the other driver.

To go even deeper, discuss your policies with your insurance agent to be sure you are receiving all discounts to which you are entitled. Make sure any changes in status since you bought your coverage are reflected in your policies. Some of the things for which auto owners can get premium discounts include:

a) Having two or more cars on the same policy.

b) Having student drivers in the family take driver’s ed class.

c) Installing a security system.

d) Having a driving record free of accidents or violations.

e) Living in low risk — low accident area.

Homeowners can benefit on their insurance, which include:

a) Being non-smokers.

b) Having smoke detectors.

c) Living near a fire station.

Depending on your insurance company, these factors can make you eligible for premiums lower than those that you started with. If they do not, then consider changing companies and find one that will listen and work with you. You may also want to compare larger reputable companies. This may allow you to save hundreds of dollars each year on auto, life, and homeowner policies. After all, you are entitled to the full value of what you pay for.