There are several formulae recommended for the man on the street to hunker down and endure crises, and one of the central ones refers to eliminating unnecessary expense. 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 only own “things” – and that’s all right because “things”, if they are not superfluous, have intrinsic values which 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. Your car also – so long as it isn’t smashed up or hasn’t been 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 which 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 like 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 poor house. 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 damned 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 that INS is giving you the corresponding No-Claims bonus.

On those policies where “things” are insured, 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 a web site www.crautos.com. To overstate the value of a vehicle is to throw premium money down the drain. Neither is it sensible to understate the value – but between overstating and understating it is the lesser of the two evils. In regard to cars, there is another consideration. In the past, when there have been economic downturns in Costa Rica, unemployment has increased – and so has the theft of cars! If you can ill 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 & Natural Disaster policy, which in most cases is indexed to automatically adjust for inflation. Policies for other types of building – 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 non-combustible - it is their fear of earthquakes, landslides and floods. So if your house is not especially vulnerable to those risks you may consider letting your Home Fire & Natural Disaster policy go until better times come again. However, I feel that in most families the dwelling is worth the sacrifice to keep insured, because the asset is vital to family wellbeing, and the premium as a percent is relatively low.

Regarding MEDICAL INSURANCE, 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 which, if they materialize, you would be financially hard pressed to overcome. Typically, this means you should forget coverage for minor ailments – coughs and sneezes, for example. In other countries you would increase the deductible on your Medical policy in order to reduce the premium. INS’s Medical policies, however, don’t make this a sensible option – so it’s question of making sure you have the correct policy for your needs. If you have the option of getting “Caja” coverage and you 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 pre-existing conditions - or you could have reached an age at which insurance companies will not consider you for a new policy.

You may wish to space out 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 makes 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 perhaps you would only want to consider doing this for the larger premiums.