Lower Premiums, Higher Risk: The Hidden Cost of “Cheaper” Insurance and Self Insuring

A calm, practical guide to lowering premiums without creating a claim-time surprise

Most people cut insurance coverage for one reason: cash flow. Premiums go up, groceries cost more, and it feels like something has to give.

In this article, I want to help you understand three things before you reduce coverage:

• What 'cutting coverage' actually means, and what you are giving up
• Why the savings can look good on paper but create a serious financial gap
• A safer way to reduce premiums without accidentally self-insuring a major loss

At Trailstone, our job is to explain the why first, give you clear next steps, and reduce surprises by documenting everything we recommend. We serve families and business owners in Colorado, Arizona, Utah, Oregon, Washington, Idaho and Kansas, and we see this exact situation show up in real claims.

The uncomfortable truth: when you cut coverage, you keep more risk

Insurance is a simple trade:

You pay a predictable premium so you do not have to write an unpredictable check later.

When you lower limits, remove coverages, or raise deductibles to save money, you are not making the risk disappear. You are moving more of it onto your own balance sheet.

That is called self-insuring, whether you use that phrase or not.

Sometimes self-insuring is reasonable. Most of the time, people do it by accident.

Why this catches people off guard

Most people remember the monthly savings, not the financial exposure.

For example, the Insurance Information Institute reports that in 2024 the average auto bodily injury liability claim was $28,278 and the average property damage liability claim was $6,770. The average collision claim was $5,489.

Those are averages, not worst cases.

So here is the teaching moment:

If you save $20 to $40 per month by gutting coverage, that is $240 to $480 per year. One average claim can erase years of savings in a single afternoon.

The same thing shows up on the home side. In 2023, 5.3 percent of insured homes had a claim, and the average claim severity for homeowners losses was $20,062.

Again, those are averages.

The 3 most common 'money saving' cuts, and what they really mean

1. Lowering your liability limits

This is the most dangerous cut because liability is the category where losses can get truly catastrophic.

Auto liability pays for injuries and damage you cause to other people. Homeowners liability pays for injuries and damage you cause to others on or off your property.

Homeowners liability losses are not rare, and they are not always small. Over the five-year period 2019 to 2023, the average severity for homeowners liability claims was $29,880, and the bodily injury and property damage portion averaged $37,174.

If you reduce your liability limits to save money, you are making a bet:

If I cause a serious loss, the damages will stay under my new lower limit.

If that bet is wrong, the remainder does not go away. It becomes your responsibility.

This is the part many people miss. When insurance does not pay it, you do.

2. Dropping uninsured and underinsured motorist coverage

This cut is common because people assume, 'Everyone has insurance.'

They do not.

In 2023, 15.4 percent of motorists were uninsured, which is more than one in seven drivers.

In addition, the Insurance Research Council reported that 33.4 percent of drivers were either uninsured or underinsured in 2023.

Underinsured means they have insurance, but not enough to cover the damage they cause.

So if you remove UM/UIM to save money, you are making another bet:

If I get hit, the other driver will have enough coverage to make me whole.

If you drive regularly in Denver, Phoenix, Salt Lake City, Portland, Seattle, Boise, or Kansas City, you already know how many close calls happen in normal traffic. This is not a rare, theoretical risk.

3. Dropping collision and comprehensive on your auto policy

This is the cut that feels the most reasonable, especially on an older vehicle.

Collision and comprehensive protect your vehicle. If you drop them, you are saying:

If my car is damaged, stolen, or totaled, I can afford to replace or repair it myself.

Sometimes that is true.

But many people drop collision and comprehensive while still depending on that vehicle to get to work, get kids to school, or run a business. When the car is totaled, the financial pain is not just the repair bill. It is the rental car, missed work, and the scramble to buy another vehicle fast.

Also, car repairs are not cheap anymore.

In 2024, the Insurance Information Institute reports the average collision claim was $5,489, and the average comprehensive claim was $2,306.

If you drop these coverages, you are self-insuring those amounts and potentially more.

I raised my deductible, so I'm fine. Maybe. Here is the test.

Raising a deductible is not automatically bad. It can be a smart move if you have the money set aside.

The risk is when someone raises their deductible to a number they cannot comfortably pay. At that point, they are not reducing risk. They are making it harder to recover.

Use this simple test:

If you had a claim tomorrow, could you write a check for your deductible without using credit cards or draining retirement accounts?

If yes, raising a deductible can be a reasonable way to reduce premium.

If no, you may be creating a fragile situation where a normal claim becomes a financial emergency.

This comes up constantly in homeowners insurance, especially with wind, hail, and water losses.

Over 2019 to 2023, the average severity of homeowners wind and hail claims was $14,747, and water damage and freezing claims averaged $15,400.

A high deductible does not make those losses smaller. It just means more of the bill is yours.

A calm way to think about coverage cuts: keep the big protection, self-insure the small stuff

Here is the framework we teach clients:

• Protect your financial life from the big losses. That usually means keeping strong liability limits and considering an umbrella policy if your situation warrants it.
• Self-insure the small losses only if you have the cash. That might mean a higher deductible that you can truly afford.
• Do not create a gap you cannot recover from. If a single claim would force you into debt, you are not saving money. You are borrowing from your future.

This is especially important in the seven states Trailstone serves, where a normal year can still include hail, wildfire smoke impacts, windstorms, freezing temps, and heavy commuting traffic.

What to check before you reduce coverage

If you do nothing else, do this first.

Pull your current declarations pages for auto and home.

Circle anything you are planning to change (limits, deductibles, coverages).

Ask one question: 'If the worst reasonable loss happens, who pays the gap?'

Here are the specific items we recommend reviewing:

Auto

• Bodily injury liability limit
• Property damage liability limit
• Uninsured motorist and underinsured motorist coverage
• Collision and comprehensive (especially if you rely on the vehicle daily)
• Deductibles (only raise them if you can fund them)

Homeowners

• Dwelling coverage (are you insured to rebuild, not just to sell)
• Liability coverage
• Deductible structure (flat deductible vs percentage deductibles where applicable)
• Water-related coverages and endorsements (where available and appropriate)

If you are not sure what a line item means, that is normal. That is why a good agent should teach it, not just quote it.

Better ways to reduce premium without sacrificing the wrong thing

• Shop the policy with multiple carriers to make sure you are not overpaying for the same coverage.
• Adjust deductibles intentionally and set aside the deductible amount in savings.
• Remove duplication (for example, paying for roadside assistance twice through a carrier and a membership plan).
• Review vehicles and drivers (mileage, garaging address, youthful drivers, usage).
• Ask about discounts you actually qualify for (bundling, defensive driving, telematics, safety features).

None of these options require you to quietly remove the coverage that protects your assets.

What to do next

If you are considering cutting coverage, you do not need to guess.

Here is a simple plan that takes about 10 minutes:

• Send us your auto and home declarations pages.
• Tell us what number you are trying to get your premium down to.
• We will show you options in plain English, including what you save and what you give up.
• You will receive a written summary of what we recommend so everything is documented and there are no surprises later.

At Trailstone, we teach before we sell. We act quickly and thoughtfully. We do the right thing, and we document everything we do.

Trailstone will provide a complimentary review of your insurance.

Reach out to Trailstone via our website www.trailstoneinsurance.com or give us a call. We will help you reduce premium where it makes sense, and protect you from accidentally self-insuring the kind of loss that changes your financial future.

Written by Mark Rodgers, President and Founder, Trailstone Insurance Group

Educational note: This article is general information, not legal advice. Coverage options and rules vary by carrier and state.