By David Heitmiller

"Huh!" you say to yourself. "This guy must be nuts! Simple insurance? Give me a break!" Well OK, simple insurance is somewhat of an oxymoron, for insurance is anything but simple. But I have found that insurance can be a lot simpler and a lot cheaper.

Are you an over-insured security nut? Are you paying through the nose for coverage you don't need? What do those of us living simply do about insurance? We have to have it right? Well, maybe. But it’s worth taking a look at all your insurance policies and the coverage and really determining if you need them. Here's how to simplify your insurance.

I'm not suggesting that you must become totally knowledgeable about the nuances of the insurance industry, most of which will never apply to you. But you do need to become knowledgeable about your insurance and your insurance needs if you want to simplify your insurance and not get ripped off. You don't have to do it all at once either. If you are like me, your various insurance policies come up for renewal throughout the year, so a good time to bring yourself up to speed and review your needs is a month or two before renewal time.

First of all -- question everything! Take out your existing policy, renewal statements and declarations and look at them. At first they may seem like a baffling pile of gibberish, but with just a little concentration, you can probably sort out the basic coverage and the associated costs. First ask yourself, do I even need this insurance anymore? Who's covered? Under what circumstances would this policy pay off? Does the deductible seem to make sense? Has my situation changed since I bought this policy? Like me, you probably bought your insurance at some time in the past, partly out of fear, and then just kept paying -- and paying -- and paying. Many homeowner's policies, for example, have escalator clauses that automatically bump up your premium based on some assumed inflation factor. This might be a good idea if you live in a rapidly appreciating area, but most areas are not appreciating in value like they used to and some are even declining.

In analyzing your policies and coverage, don't hesitate to call your insurance agent or insurance company to explain any coverage you don't clearly understand. Have your agent or company representative explain, in plain English, exactly what each provision means and how it would cover you in the case of a claim. Ask your agent to give you an example or better yet, propose an example yourself and have them validate your understanding. Take notes, if you think you might forget later. The key here is to be polite but firm, and watch out for sales pitches. You might even explain that you are downscaling your life and reviewing all your insurance policies and have them offer suggestions on ways to reduce your premiums. They won't want to do this of course, but will probably cooperate if they think they might lose your business completely.

If you are not satisfied with your current insurance company or agent or they are uncooperative in your review process, then perhaps now is the time to make a change. Comparison shop. There are often large differences in premiums, but be sure you compare "apples to apples." Different companies package their products differently making comparisons difficult, so be prepared to do some homework. Watch out for offers that seem "too good to be true" -- they probably are. Ask other simple living friends about their coverage and experience with specific insurance companies. Cheap is good, but not if they don't pay when needed. Let's take a look at some specifics:

Auto Insurance

If you own a car, by law you do have to have auto insurance. The good news for simple living people is that an older, more economical car with fewer fancy features means cheaper auto insurance. Make sure you are getting all the possible discounts like good driver, non-smoker and multi-car. If you take public transportation, bicycle or share-a-ride to work, your car should be rated for "pleasure" driving only. Low annual mileage also may qualify you for a lower rate -- ask your agent. If you have moved recently, make sure you are rated for the area in which you live. Rural areas usually have lower rates, for example.

If you own your car outright then you are not required to carry "collision." Collision insurance fixes your car if you cause and accident and all lien holders (lenders) require it to protect their interest. If you drive an older car and are good driver, then seriously consider dropping collision coverage. If you ever have this kind of accident, that is when you dip into the ol' emergency fund. Look at your deductibles. Again if you have an emergency fund, then it probably makes sense to have higher deductibles which means lower premiums. Be careful though. I found out there was a very small difference in premiums between a $300 vs. $500 deductible with my insurance company. The small savings in the premium may not be worth going with the higher deductible. What about your liability coverage? If you have few tangible assets, then you have less to lose and could go with the minimum liability coverage. But if you own a home and other assets or live off of investment income like I do, then don't scrimp here. Medical Payments? If you have health and accident insurance, you probably don't need this on your auto policy. "Comprehensive" coverage covers theft, glass breakage and any other non-collision damage. This is usually cheap protection, but again if you drive an old car it may not be worth it. Finally, if you have any other special coverage like towing, emergency road service etc., just ask yourself what's the likelihood that you will every need those services and could you afford to pay outright for the service if you had to.

Homeowners/Renter's Insurance

If you have a mortgage, you are usually required to have homeowner's insurance. Just make sure you are not overpaying for contents coverage and any extras. I found out, for example, that contents coverage is usually just calculated as a percentage of the estimated value of the dwelling -- which is automatically increased every year! This can be overridden though if you want a lower coverage. The only real way to know the value of your home's contents is to do step 1 in Your Money or Your Life. That is, do a home inventory! This is even more important for renters as we found out when we sold our home. For renter's insurance, the premium is largely based on the value of your contents since you don't own the dwelling.

I believe the only sensible way for simple living people to decide how much contents coverage they need is to seriously think about what would happen in the case of a fire or other disaster that wiped you out. Are you really going to go out and try and replace every item in your house? This is where tough-minded reality and sentiment come into conflict. Would you really go out and try and replace grandma's rocking chair or Uncle Freddie's tool chest if you were burned out? Sentimental items can't be replaced even if you wanted to -- so why are you insuring them? What about items left over from your pre-simple living days (gulp!) -- are you going to replace those after a fire? What you really want is a basic restart kit -- that is clothes, blankets, basic furniture, dishes etc. So that is the contents value that you want coverage for. We reduced our renter's insurance coverage by about 65% by taking this approach.

Finally, if you own a home, make sure the estimated value of the dwelling on your policy is in line with current replacement value. (This is not necessarily the same as market value.) If you are not sure or if the market has changed radically in your area, you may want to have an appraisal done. (And remember, you don't insure the land the house sits on!)

Life Insurance

Here's one you may not need -- and I'm a guy who actually collected on a life insurance policy 13 years ago when my first wife died suddenly. Really think about why you have (if you do) life insurance. It's really to make sure your heirs don't go broke when you die. Some people also use life insurance as a form of mortgage insurance -- to assure that there is enough cash available to pay off the mortgage when you die. If you truly are living simply and believe in the philosophy of voluntary simplicity, then I will assume you do not expect your heirs to live in luxury upon your death! Depending on your age, family composition, income sources and emergency fund size, there is a good chance that you don't really need life insurance at all.

If you are living off of retirement and/or investment income like we are, then your heirs should be able to live just fine on that same income, so why do you need life insurance?

We cancelled ours and immediately added $600 to our annual income! If you are young with no dependents you don't need life insurance. If you are older and the mortgage is paid off and you are not supporting anyone else, you don't need life insurance. Could your spouse or other family members support themselves upon your death? Then you may not need life insurance either. If you are a sole supporter and have small children or other dependents, then life insurance may make sense, but be reasonable about how much you really need.

Sickness Insurance (sometimes called "Health" Insurance)

This is probably the most difficult and the scary of all insurance to deal with. Someday our government may get their act together so that we have basic health insurance for all. Until then, we must continue to deal with it individually. If you still work at full-time paid employment, then there is at least a chance that you have company paid health insurance. If you don't, private sickness insurance is available, but can be costly. When my wife and I became financially independent and were soon to be dropped from my old company plan, we began to shop around. We finally settled on a middle-of-the-road plan with a $500 per person per year deductible. The policy does not have nearly the comprehensive coverage that I had as part of a group plan, but has proven to be adequate. Even more basic plans with much higher deductibles are available and may be appropriate if you are in good health. Again, be prepared to do your homework, understand the terminology and make "apples to apples" comparisons when choosing sickness insurance.

Umbrella Insurance

Here's one to consider that you probably don't have. No, I'm not talking about a special policy for that thing you hold over your head in the rain! If, like us, you are living the simple life on investment income, you must protect that income-producing "nest egg." Depending on the size of your nest egg, you may want a higher level of liability coverage than is offered under the liability sections of your auto or homeowners policies. In this suit-happy country, there is always the possibility that a law-suit could wipe out all your assets. An umbrella policy offers an extra level of liability protection up to a specified amount, if your basic policy should fall short. The good news is that it is relatively cheap.

There are many other kinds of specialized insurance that I have not mentioned, such as earthquake, tornado, flood insurance, business insurance and so on. If these things apply to you, use the same review principles outlined above to determine if you really need them and how much coverage is reasonable. Insurance agents like to play on our fears of worst-case scenarios, but we must balance our insurance needs with a realistic analysis of the odds of ever needing to make a claim versus the cost.

OK, so insurance is not simple! But it can be simpler and cheaper if you educate yourself and take it a piece at a time. The payoff is that once you do the research based on your own needs and make the appropriate changes and adjustments, you can then relax and forget about it for a long time.

© 1995 David A. Heitmiller

First printed in Simple Living Journal, Fall 1995. Reprinted with permission.