Insurance allows consumers and businesses the ability to protect themselves and their possessions from the risk of loss. For a seemingly low annual payment, an insurance company will issue a policy on nearly any type of asset or item (or individual in the case of health insurance) and pool that risk of loss along with other policies it issues and collects premiums on.

The concept is simple, but there is a dizzying array of options to consider when taking out an insurance policy. And though the annual payment is usually a fraction of the cost to replace the item being insured, there are wide differences in the premiums across insurance providers. Below are six common sense and rather straightforward ways to save on any insurance. (For an in-depth look at the industry, see our Investopedia Special Feature: Insurance 101.)

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Shop Around

As with any type of shopping, do your homework to ensure that you found the best deal possible. When looking for new insurance, get at least three quotes and compare the differences. The internet also makes it easy to have insurers bid for your business by filling out just one application. This can also ensure that the same policy options are chosen and the comparisons are on an apples-to-apples basis. An independent insurance agent can also help you shop around, though they will earn a commission that may increase the cost of the insurance.

Go Direct
Insurance agents can be extremely helpful in assisting with finding affordable insurance and identifying any discounts that can be earned, but they receive a commission for doing so. The commission is usually included in the cost of your insurance. There are insurers out there that go directly to consumers and cut out the insurance-agent middle man. Geico and Progressive insurance are two auto insurers that sell policies directly. Direct policies may not always be the cheapest, but they have a good chance of being the most affordable option, as commissions are no longer part of the equation. (Interested in earning some of those commissions? Check out Becoming An Insurance Agent to find out more.)

Raise Your Deductible

A higher deductible lowers the amount an insurer is liable for and therefore can lower insurance premiums. A common deductible amount is $250 but it can easily be raised to $500 or $1000 for nearly all types of insurance. Insurers can easily crunch the costs of an insurance policy with the different deductibles. The savings can be substantial. For example, raising the deductible to $1,000 from $250 can result in annual savings of 15% to 20%.

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Use a Single Insurer

Insurers usually offer discounts if you use them to cover your home, multiple cars, or separate jewelry or umbrella policy. Larger insurers usually offer multiple insurance lines so it can be your best bet. Insurers are willing to offer a discount because the fixed costs of maintaining your records and carrying out customer service are needed for the first policy and this makes additional policies less costly. It also increases the stickiness-factor, as it's more difficult to switch all policies at once while maintaining the discount, and it's also a time consuming process that consumers may not want to deal with.

Avoid Claims
This point is easier said than done and it is the reason one needs insurance in the first place, but it basically boils down to avoiding smaller claims that are likely to raise your rates. In other words, pay for smaller claims out of monthly expenses if you can. As previously mentioned, raising the deductible also helps ensure that only larger claims are made. (For more, see Will Filing An Insurance Claim Raise Your Rates?)

Pay for Insurance Less Often
Insurers usually offer the option to pay a monthly premium to cover insurance, but they usually charge extra for the convenience. Paying every six months or annually can be slightly less expensive, and though it requires discipline to save up each month to make the payments, it can save you money in the long run.

The Bottom Line
Again, the above tips are a way to save on insurance in general. There are thousands of other ways to save on individual types of insurance. For instance, keeping a car in good working condition and a home with a fire extinguisher and alarm system can lower insurance costs as they lower the chances a claim will be made. Staying healthy is perhaps the best advice for keeping health insurance costs low. Overall, though, the above advice represents the simplest way to save on insurance. (To learn more, check out our Intro To Insurance Tutorial.)

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