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Thursday, June 1, 2023

Hard Times May Mean Trimming Insurance Costs

Unfortunately, it looks as though the world economy is going through some hard times because of various factors – fuel prices, food prices, global warming – and perhaps a recession in the United States.

Several formulas are recommended for the man on the street to hunker down and endure crises, and one of the central ones involves eliminating unnecessary expenses. Are insurance premiums an unnecessary expense?

In times of inflation and devaluation, we are told to put our debts in a soft currency and our monetary assets in a hard currency.

A lot of people don’t have monetary assets; basically, they own only “things,” and that’s all right because “things,” if they are not superfluous, have intrinsic values that will remain more or less stable, so long as they remain in serviceable/marketable condition.

Your house is a valuable asset, so long as it hasn’t burned down, as is your car, so long as it hasn’t been smashed up or stolen.

Regarding insurance on unnecessary items, consider dropping the coverage on the Jet Ski and the ATV. If a “thing” is merely recreational or you own the item to keep up a lifestyle you may not be able to afford until the crisis passes, you may find that its value has dropped considerably – perhaps you should reduce or cancel the insurance.

Items such as cars and vehicles are considered more or less indispensable by many people. Automobile liability insurance is very important. If you don’t have auto liability and, for example, you run over a pedestrian, you will probably end up in the poorhouse.

Apart from auto liability insurance, should you protect the car itself? There is no standard answer to this question, but you should ask yourself: If your car were stolen, for example, would this represent a financial catastrophe or would it merely be a nuisance? In the former case, you should keep the insurance on the vehicle itself; in the latter, reduce the insurance to liability only. In both cases, make sure the National Insurance Institute (INS) is giving you the corresponding no-claims bonus.

Regarding policies that insure “things,” make sure they are correctly valued. Cars should be insured at market value, and market values of vehicles are bound to go up and down like yo-yos, so keep an eye on the insured value of your car.

As my readers know, there is no blue book in Costa Rica, and the onus is on the owner to keep the insurance updated per the market value. In my opinion, the best way to be aware of the market value is through the Web site To overstate the value of a vehicle is to throw premium money down the drain. Neither is it sensible to understate the value, but it is the lesser of the two evils.

With regard to cars, there is another consideration. During past economic downturns in Costa Rica, unemployment increased – and so did car theft. If you cannot afford to insure your car, you may want to invest in an alarm, especially if your car is a cream puff.

Buildings should be insured at the estimated rebuild value. Houses are usually insured with INS’s Hogar Seguro 2000 home fire and natural disaster policy, which in most cases is indexed to automatically adjust for inflation. Policies for other types of buildings – apartments, for example – are not indexed, and the values should be revised and adjusted to conform to current rebuilding costs.

Or maybe you should consider dropping the insurance. The reason most people insure their houses is not fire, because most homes in this country are fairly noncombustible; it is fear of earthquakes, landslides and floods. If your house is not especially vulnerable to those risks, you may consider letting your home fire and natural disaster policy go until better times come again. However, I feel that for most families, the dwelling is worth the sacrifice to keep insured, because the asset is vital to family well-being and the premium as a percentage is relatively low.

Regarding medical insurance, here’s a piece of conventional wisdom: If you can’t afford medical insurance, you can’t afford to get sick. This is another way of expressing one of the principles of insurance: You should insure against losses that you would be financially hard pressed to overcome.

Typically, this means you should forget coverage for minor ailments such as coughs and sneezes.

In other countries, you would increase the deductible on your medical policy to reduce the premium. INS’s medical policies, however, don’t make this a sensible option, so it’s a question of making sure you have the correct policy for your needs.

If you have the option of getting Social Security System (Caja) coverage and are willing to put up with a fair bit of discomfort and bureaucracy, you may wish to discontinue your INS medical insurance altogether.

If you are considering this option, be aware that when the days of wine and roses return, you may find that the medical coverage available to you has been curtailed, as you could then have a record of uninsurable preexisting conditions. Or you may have reached an age at which insurance companies will not consider you for a new policy.

You may wish to adjust the frequency of your insurance payments. For example, instead of paying your medical premium once a year, you may want to make two semiannual payments or four quarterly payments.

INS applies a small surcharge if a client wishes to do this, but the percentage of the surcharge is usually less than the percentage of inflation, so, from a financial standpoint, it may suit you. However, there is always the increased hassle of having to remember to pay more times per year, so consider doing this only for larger premiums.

For more information about insurance in Costa Rica, contact David Garrett at 2233-2455 or purpose is to give the reader a better understanding of insurance in Costa Rica. The opinions and viewpoints expressed are those of the writer, and do not necessarily represent the official position of the National Insurance Institute.



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