First, here’s how not to save money on insurance: getting the legal minimum liability limits.

For example, with auto insurance this saves you a few dollars extra per month (at most), and if you get in a serious accident, it will cost you everything. A liability limit of $15,000 means your insurance pays the first $15,000 after your deductible, and you pay the rest.

Do you have any idea what the costs are for the average car accident? You could be one left turn away from bankruptcy.

That said, here’s how you should save money on insurance, whether it’s auto insurance, health insurance, or any other sort of insurance: raise your deductibles. A deductible is the amount that you have to pay before your insurance kicks in. A deductible of $1,000 means you pay the first $1,000 in losses, and your insurance pays the rest.

Higher deductibles can save you a lot in premium payments, without putting you at risk of bankruptcy. It’s less risky than lowering your liability limits, and yet it will save you more money.

The thing is, you can only raise your deductibles as high as you have the savings to cover. If you have $2,000 in savings  (over and above your emergency fund), then you can afford a $2,000 deductible. If you don’t have $5,000 in savings, then a $5,000 deductible is too high. You wouldn’t be able to pay it without going into debt.

So, the more you have in savings, the higher you can raise the deductibles on your insurance policies. That’s an incentive to put money into a savings account. You have to save money to save money – how much you pay for insurance is a reflection of your own financial situation.

So, what’s the easiest way to lower your premiums? First, put money in the bank! Then, remember this: raising your liability coverage is cheap, but lowering your deductibles is expensive.

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