When shopping for insurance, you may be tempted to reduce your coverage or drop important coverages altogether with the goal of saving money. But be careful, you could end up being dangerously underinsured and have to pay a substantial amount in the event of a disaster. In the end, you didn’t save money, you lost money. Here are the five most common mistakes people make when it comes to insurance. This information was provided by The Insurance Information Institute
The mistake: Insuring a home for its real estate value rather than for the cost of rebuilding.
Why you shouldn’t: When real estate prices go down, some homeowners may think they can reduce the amount of insurance on their homes. But insurance is designed to cover the cost of rebuilding, not the sales price of the home. You should make sure that you have enough coverage to completely rebuild your home and replace your belongings—no matter what the real estate market is doing.
A better way to save: Raise your deductible. An increase from $500 to $1,000 could save up to 25 percent on your premium payments.
The mistake: Selecting an insurance company by price alone.
Why you shouldn’t: It is important to choose a company with competitive prices. But be sure the insurer you choose is financially sound and provides good customer service.
A better way to save: Check the financial health of a company with independent rating agencies (some well-known ones: A.M. Best, Moody’s), and ask friends and family members about their experiences with insurers. Select an insurance company that will respond to your needs and handles claims fairly and efficiently.
The mistake: Dropping flood insurance.
Why you shouldn’t: Damage from flooding is not covered under standard homeowners and renters insurance policies. Coverage is available from the National Flood Insurance Program (NFIP), as well as from some private insurance companies. You may not be aware you’re at risk for flooding, but keep in mind that 25 percent of all flood losses occur in low-risk areas. Furthermore, yearly weather patterns—spring runoff from melting winter snows, for example—can cause flooding.
A better way to save: Before purchasing a home, check with the NFIP to determine whether a property is situated in a flood zone; if so, you may want to consider a less risky area. If you are already living in a designated flood zone, look at mitigation efforts that can reduce your risk of flood damage and consider purchasing flood insurance. Additional information on flood insurance can be found at FloodSmart.gov.
The mistake: Only purchasing the legally required amount of liability for your car.
Why you shouldn’t: The minimum is just that—the least you can get away with by law. So buying only the minimum amount of liability means you are likely to pay more out-of-pocket later. And if you are sued, those costs can jeopardize your financial well-being.
A better way to save: Consider dropping collision and/or comprehensive coverage on older cars worth less than $1,000. The insurance industry and consumer groups generally recommend a minimum of $100,000 of bodily injury protection per person and $300,000 per accident.
The mistake: Neglecting to buy renters insurance.
Why you should buy it: A renters insurance policy covers your possessions and additional living expenses if you have to move out due to an insured disaster, such as a fire or hurricane. Equally important, it provides liability protection in the event someone is injured in your home and decides to sue.
A better way to save: Look into multi-policy discounts. Buying several policies with the same insurer, such as renters, auto, and life will generally provide savings.
Remember: shop around for an insurance agent and find one that is trusted and is in good standing with the state. Always discuss your needs and financial abilities with the agent. be sure to read your policy completely before signing it.
