There is some debate amongst experts on whether or not the United States is currently experiencing a recession. Regardless of how you define it, many Americans are experiencing the effects of this economic downturn. We are tightening our belts as our money is not stretching as far as it did in previous years. With costs on the rise, how does this affect insurance for the industry and the consumer?
Here is what you need to know about insurance during a recession and how to prepare.
What is a Recession?
In general, a recession is defined as a temporary reduction in the economy where trade and industrial activities are affected. Many economists determine whether we are in a recession by identifying a decline in the country’s gross domestic product for two quarters in a row.
Using this definition, the United States entered a recession in the summer of 2022, although many Americans felt the effects of this recession years ago.
How Does a Recession Affect Insurance?
While recessions affect every industry differently, they tend to have a much less significant impact on the insurance industry. This is due primarily to the fact that insurance is mandatory in almost all states and required by various institutions, such as banks and mortgages.
Insurance also transcends typical demographics in that insurance is necessary regardless of where you are in life. For example, you may not own a home or car, but you will most likely need health insurance. Fortunately for insurance companies, because there are so many insurance requirements, they are less likely to be severely impacted by a recession.
It is possible that companies may not collect as much premium as they would otherwise, especially if customers are canceling their policies. But they typically have enough of a cushion that they fare well.
Consider Markel Insurance, for example. Due to its disciplined underwriting, and diverse financial portfolio, experts expect this company actually to see an increase in the value of its stock. This is good news for consumers as it means they most likely will not pay more for Markel’s insurance products.
Can I Afford Insurance During a Recession?
In regard to whether you can afford insurance during a recession, that is something only you can determine. However, here are some factors you should consider when reviewing what you can afford for insurance.
- Coverage: Rather than forgoing insurance entirely, you should review the coverage you can afford. It is better to lower the amount of coverage you carry than not having any at all. For example, consider removing roadside assistance or rental car coverage from your auto insurance.
- Deductibles: If you have an insurance policy with a deductible, you can quote what it would be to increase the deductible amount. This would help you save money every month on your insurance premium. However, be sure to determine whether you can afford the new deductible in the event of a loss.
- Discounts: Look for discounts or credits you might be eligible for that you are not getting. It is always worth calling your insurance company or agent to ensure you get all applicable discounts on your policy.
- Shop Around: Depending on what type of insurance policy you are trying to afford, it is helpful to shop around for the best price. Base rates and discounts can vary by company, and what one company charges for coverage might not be what another company charges. Shopping around ensures you are finding the best price.
Final Thoughts
Regardless of the state of the economy, the affordability of your insurance policy is paramount. Before you decide to cancel your policy or not purchase the one you need, research what other companies are charging or other ways you can save. Chances are, you might find something you can afford without having to sacrifice the coverage you need.
