Is Cutting Back on Insurance A Good Way to Find Debt Relief?
Taking Care of Debt
Many consumers are ready to do just about anything to find debt relief. The recession has left people in difficult situations, not knowing when or if they can pay their bills on time. One area where people are showing major cutbacks is in insurance. For example, last year Barry Miller of Charlotte, North Carolina, assumed that because he was relatively healthy, he didn’t need as much disability insurance. In an effort to save money, he scaled the cost back. This year, however, he was diagnosed with chronic facial paralysis. Due to his change in disability coverage, he won’t be receiving monthly $3,000 payments that would have been standard with his old policy.
The New Frugality
The recession has caused people to make many difficult decisions on where to apportion their finances. It has become more and more popular to be thrifty and find new ways of cutting back. Insurance is one of the main areas where people are cutting back because it brings almost instant savings to consumers. It’s a tricky situation, though. As Mark Gibson, assistant VP of advertising for State Farm Insurance said, “The economy is prompting a lot of people to reassess or reevaluate everything everywhere and they are looking to make sure they are getting the most for their money.” Unfortunately, it is also making people vulnerable should disaster happen. Being underinsured is a result of this newly adopted coverage frugality.
Consumer Justin Gregonis said, “I was willing to go with [insurance coverage that] was going to get me the best rate and have the best coverage. Insurance is like playing the lottery. It’s just a gamble, but you have to have it.” Gregonis received rate increase notices and went on a high-energy search for the same coverage at a lower rate. He was able to find it at a savings of about $1,200 and at the same deductibles.
Insurance Companies Respond
Insurance companies are working hard to retain customers. Allstate Corp and Travelers Insurance have both introduced moderately priced products and new discounts for their policy holders. Clint Hessman, spokesman for Allstate, stated, “We want to do everything we can to work with people because we understand the stress they are under due to the economy. We know debt is a priority… without sacrificing quality, we want to meet their needs at affordable rates.”
The Obama administration is also stepping into bring some debt relief to customers. The health care reform policies that are being formulated could push private insurers to sustain reasonable premiums for their customers. State regulations aid consumers because they cap how much insurance companies can charge their customers for insurance products.
Is Cutting Back on Insurance a Good Idea?
Research is showing that insurance is not impervious to customer cutbacks. Al Tobin, managing director of Aon Corp, said a good number of their customers are renewing policies, but at different limits. In particular specialized policies, such as California earthquake coverage, is being scaled back or eliminated altogether. “We have seen a trend for quite a few months,” he added, “where clients are buying less.”
In the end, debt relief can be found in many different ways. Cutting back on insurance is one way to create extra funds, but consumers need to be wise. They need to set strict limits on how much coverage they need, what deductibles they can manage and what they want their payments to be. Once they have these numbers, it’s fine to comparison shop. The danger lies in cutting back too much on any one insurance product. Wise decision-making needs to occur with any insurance policy. Consumers must remember that if the unforeseen happens, insurance coverage can be the one thing that saves them from complete disaster.