An example, using a maybe pay contract (they call these “Term Insurance” contracts) is that you and them might agree to a deal whereby you pay them $20 a month between the time you are 20 and the time you are 60 and if you die during that time they give your heirs a few hundred thousand dollars if you die.
If you happen to die during that period, this will be a really good deal. However, it is most likely that you will stay alive during the period and that all of your money will be wasted.
It’s likely that it would be fair for them to charge $15 a month for the same level of benefits, but they are going to guess wrong on this and charge $20 a month anyway, just in case. If they guess $10 and it’s really $15, that could ruin them. That’s why they guess wrong on the “take too much from you” side.
Knowing that, your goal should generally be to try to pay the minimum possible on a “maybe pay” (term) contract. Getting low prices on term contracts generally requires you to assume additional risk yourself. This comes in the form of you agreeing to pay a high portion yourself out of any loss you incur.
For car insurance, the insurer may allow you to choose between yourself paying the first $250, the first $500, or the first $1000 out of any damage your car takes. If you choose one of the higher numbers, your monthly payment for this insurance will be substantially lower. Usually, it will be quite a lot lower, because they have to pay a lot less when you choose the higher numbers. Unless you get into a lot of accidents, it’s usually a good idea to agree to pay the higher amount and save on your monthly insurance payments and then take that savings and use it to pay the higher amount.
Over the long run safe drivers usually end up having a lot of money left over by agreeing to pay the higher amount themselves and then saving the difference. If someone does this with mostly all of their term insurance, they can expect to have quite a lot more money at the end of their life than if they hadn’t. This applies to all different kinds of term insurance: car insurance, fire insurance, flood insurance, home possessions insurance, etc.
You can also usually save money by paying multiple months at once rather than paying month to month. If you can manage it, it’s a good idea to save up enough to pay multiple months at a time. The savings by doing this are substantial.
If you are going to do these things, one reserve that is sizeable enough can generally handle everything and you can use the savings beyond that to make your life financially better by paying off debts or something. You could also just go on vacation with the difference too.