How Laid-Off Workers Can Cut Insurance Costs

Unemployed workers looking to save cash should take a good, hard look at their insurance bills. Taking advantage of discounts and making some other smart moves can help shave hundreds, if not thousands, of dollars off premiums a year.

Eliminating coverage you don't need, like collision insurance for a car that's several years old, for example, can save you as much as $1,000 a year, says Scott Simmonds, an independent insurance consultant in Saco, Maine. Meanwhile, using shopping comparison sites like Insurance.com and NetQuote.com allows you to make sure you're getting the best offer on a policy. For example, conducting a health insurance search on Insurance.com for a 38-year-old woman living in Chicago who doesn't smoke came up with a wide range of options. Blue Cross Blue Shield offered a health insurance PPO plan with a $1,750 deductible for $170 in monthly premiums, while an Aetna PPO plan with a higher $2,500 deductible would charge her $255 per month.

Just don't cut back too much, says Simmonds. Speak with your insurer about ways to cut premiums so you don't end up sacrificing the quality of your coverage.

For those who have lost their jobs, here are ways to cut insurance costs without leaving yourself in a coverage lurch:

Losing your salary is bad enough, but absorbing those hundreds of dollars in monthly health-insurance payments can make a layoff even more financially devastating. Opt to go without coverage, however, and if you fall ill or have an accident the medical bills may be even more destructive than the premiums. (Medical expenses are responsible for nearly half of personal bankruptcy filings, according to a study published in 2005 in Health Affairs, a policy journal.)

By law, laid-off workers can retain the health coverage they had through their employers for up to 18 months through Cobra. Typically, Cobra is a pretty pricey option, costing an average of $400 for a single person per month and $1,078 for a family per month, according to the Kaiser Family Foundation (KFF), a health care nonprofit. However, thanks in part to the government stimulus package, those who retain coverage through Cobra will receive a 65% subsidy on premiums for up to nine months – resulting in a significant cost savings. This brings the average monthly payment for an individual to $140 a month for the first nine months and $377 per family per month for the first nine months, according to the KFF. To apply, speak with your former company’s human resources department, says Cynthia Depew, spokeswoman for America's Health Insurance Plans.

Low mileage discounts
The silver lining to getting laid off: Dropping that daily commute to the office. Not only will you save on gas, but -- by putting fewer miles on your car -- you could save on insurance as well.

The average driver’s policy is based on 12,000 miles per year, says Michael Barry, spokesman for the Insurance Information Institute, an industry trade group. Many insurers start discounting premiums once the annual mileage drops below 7,500, he says. Of course, discounts can vary based on several factors, including the number of miles you used to drive to work, your state and your insurer. Travelers (TRV) says it offers to cut annual premiums by up to 10% and State Farm and The Hartford (HIG) say they will cut up to 20% for policyholders who reduce their mileage (mileage amounts vary by insurer).

Drop collision coverage
Dropping collision coverage for a car that’s more than eight model years old can cut between $200 and $1,000 in premiums a year, says Simmonds. After all, there’s no point in paying $1,000 a year in collision coverage for a car that’s only worth $3,000.

Take a defensive driving class
Take defensive driving classes and save up to 7% with MetLife (MET) or up to 10% with Travelers. At Allstate (ALL), drivers in most states can save up to 10% with a car that has factory-installed antilock brakes and up to 30% with a car that has airbags or motorized seatbelts. Also, policyholders can qualify for discounts by buying their car and home insurance from the same company (up to 15% with Travelers and MetLife).

Reassess your coverage
As home values continue to drop, a common misconception among homeowners is that they'll have to change the amount of their home insurance policy to reflect the home's entire value, says Barry. In fact, what they need to reassess is what it will cost to rebuild the home in its current location. Often, when a house is destroyed, the land is left intact so the policy doesn't have to include the value of the property. By eliminating that cost from the equation, homeowners could save hundreds of dollars in insurance payments.

Add Security Devices
This year, homeowners will pay an average of $841 in insurance premiums, says Barry. To help cut the bill, buy a fire extinguisher or install a smoke alarm. MetLife, for example, offers homeowners a 10% discount for having a fire alarm that’s connected to the local fire department and a 5% discount for having functioning fire extinguishers, dead bolts and smoke alarms in their home.

Quitting smoking or lowering your cholesterol are no small feats, and that’s why some life insurers cut up to 40% of your annual premiums for such accomplishments, says Brian Ashe, former chair of the Life and Health Insurance Foundation for Education. Typically, your life insurance policy will need to be in effect for at least one year, and you’ll have to show medical records or undergo tests as proof.

Individuals who had life insurance through their employer and end up in an individual plan should opt for a term policy, which lasts for a set number of years (typically no more than 30) and has cheaper premiums than a whole policy, says Barry.