Insurance Mistakes
Saving money feels good. And shopping when you’re looking for insurance coverage is a great way to do that. However, simply reducing coverage or dropping important coverages entirely is like a diet without exercise – focusing only on numbers, not results. Don’t risk ending up seriously insured and uninsured for much larger bills in the event of a disaster.
Here are the five most common auto, home, flood, and renter insurance mistakes people make, along with suggestions for avoiding these pitfalls while still saving money (we call them the “best ways to save”):
1. Securing a home for its real estate value rather than the cost of rebuilding
When real estate prices drop, some homeowners may think that they can reduce the amount of their home insurance. But the insurance is designed to cover the cost of rebuilding, not the selling price of the home. You should make sure you have enough coverage to completely rebuild your home and replace your belongings – no matter what the real estate market does.
A better way to save: Increase your discount amount. An increase from $500 to $1,000 can save up to 25 percent on your insurance premiums.
2. Choosing an insurance company is the price alone
It is important to choose a company with the best competitive prices. But make sure that the insurance company you choose is financially sound and provides good customer service.
A better way to save: Check the financial position of a company with independent rating agencies (some well known: A.M. Best, Moody’s), and ask friends and family members about their experiences with insurance companies. Choose an insurance company that responds to your needs and handles claims fairly and effectively.
3. Drop the flood insurance
The flood damage is not covered under the standard homeowners and renters insurance policies. The coverage is available from the National Flood Insurance Program (NFIP), as well as from some private insurance companies. You may not be aware that you are at risk of flooding, but keep in mind that 25 percent of all flood losses occur in low-risk areas. Moreover, annual weather patterns — spring runoff from melting winter snows, for example — can cause flooding.
A better way to save: Before buying a home, check with the NFIP to determine if the property is in a flood zone; If so, you may want to consider a less risky area. If you already live in a particular flood area, research mitigation efforts that can reduce the risk of flood damage, and consider purchasing flood insurance.
4. Only purchase the legally required amount of liability for your vehicle
The bottom line is that – the least you can get away with by law. So, buying only the minimum amount of the liability means that you are likely to pay more out of your pocket later. And if you are sued, these costs could put your financial well-being at risk.
A better way to save: Consider collision drop and/or comprehensive coverage for older cars under $1,000. The insurance industry and consumer groups generally recommend a minimum of $100,000 for bodily injury protection per person and $300,000 per accident.
5. Neglecting to purchase renters insurance
A renters insurance policy covers your belongings and additional living expenses if you have to move because of an insured disaster, such as a fire or hurricane. Equally important, it provides liability protection in the event someone in your home gets hurt and decides to sue.
A better way to save: Look into the multi policy discounts. Buying several policies with the same insurance company, such as renters, auto, and life will generally provide savings.