There are different situations that can prompt you to have to adjust your budget so that you're spending within your means. Be sure to assess each line item carefully to see if adjustments can be made to the payment amount before removing it completely.
Most people all have times when they need to adjust their budgets and look for areas where they can trim spending, but which items can be removed or reduced? If you’re reviewing your budget, you might start to consider whether or not your insurance premiums are worth the cost. You may be asking yourself — are those monthly life, disability and renter’s insurance premiums really necessary?
The truth is, your insurance premiums are in a different category than your other recurring monthly bills. That’s because they aren’t buying you a tangible item, like an iPhone, a meal from UberEats, or a service like Netflix or Spotify. Instead, your premiums are paying for insurance coverage that’s helping to protect your money — whether it’s your future income or the cost of replacing your possessions from the impact of unlikely, but financially devastating events. This is why you should think twice before dropping insurance coverage from your budget.
Why Spend Money On Insurance Premiums?
The protection insurance provides can be an important part of your overall financial plan and security. For example, if your family relies on your income to pay bills and save towards future goals, life would change dramatically if your income suddenly disappeared. That might be because you get badly injured or become very ill and can no longer work, or — in the worst-case scenario — if you pass away unexpectedly.
So while it may seem like you aren’t “getting anything” in exchange for paying your monthly insurance premiums, what you are in fact doing is transferring the cost of a potential loss to your insurance company. This way, if an unforeseen event disrupts your life and threatens your finances, the payment from your insurance claim can help offset its effects.
What’s The Chance You’ll Need Your Insurance Coverage?
Incidents requiring insurance protection happen more often than one may think. For example, based on a report from the Council for Disability Awareness, the average 20-year-old has a greater than 25 per cent chance of becoming disabled before they retire. And the Canadian Red Cross says that home fires are one of the most common emergencies faced by Canadians.
At times people may choose to manage the financial loss themselves, but that may not be a possible option. Insurance can help provide coverage in case of a sudden and unexpected loss, damage, illness, injury or death. While people don’t want to think about negative things happening to them, it’s important to ask yourself if you’re prepared to manage a loss financially if something does go wrong.
So Where Does Insurance Fit In Your Budget?
Insurance is an important tool to have because it can help you mitigate a potential financial loss due to an unexpected event. Here are some steps to help you determine how insurance can continue to fit into your budget.
Step one: Highlight each insurance premium separately when reviewing your budget.
Step two: Write down the coverage amounts those premiums are paying for. You should be aware that there might be ways to trim the cost of your insurance, without cutting it out of your budget entirely.
- For example, with disability insurance, you could increase the waiting period before your policy pays out if you become disabled, which may lower the cost of your monthly insurance payments.
- For life insurance, you could check to see if you have the right amount of insurance — is there an opportunity to reduce the death benefit amount while still being covered for your family’s needs?
- With renter’s insurance you control the dollar amount you are covered for and the deductible you choose to pay, should something happen.
- For car insurance, with the exception of a leased or financed vehicle, you can choose whether you have coverage for loss or damage to your own vehicle or if you’re only covered for the mandatory third-party liability.
Step three: Prioritize which changes you are comfortable making based on what makes sense for your current situation. Remember you can always discuss this with a licensed insurance advisor and have them review your policy with you to see what changes can be made to help with your payment amounts.
All in all, insurance should be a part of the plans you make for your finances, beyond your day-to-day budget. That means you should understand what you’re getting in exchange for your monthly premium payments, and you should feel confident you have the coverage that’s right for you.
An RBC Insurance advisor can help you understand what kinds and amounts of insurance are right for you — and how to fit them into your overall budget.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.