Not all advice is good advice. Here are some common bits of insurance wisdom that, it turns out, aren’t so wise after all.
When you have an insurance claim, the last thing you want to discover is that you didn’t buy the right coverage. While it’s easy to point the finger at agents, coverage gaps could be a two-way street.
Sometimes friends and family members offer bad advice, including tenuous, illogical and even illegal strategies, hoping to save you a few bucks. But the eventual losses can be huge.
“When people shop for insurance, a lot of times they’re looking for the best deal,”.
No. 1: Lock up all insurance policies and other important documents in a safe deposit box
Do not keep your life insurance policy in a safe deposit box. If yours is the only name on the safe deposit box, no one but the executor of your will can get into it without Power of Attorney. If your life insurance policy is locked in there, your beneficiaries will have to wait until the estate is opened by a government entity and an executor is appointed.
If you want the assurance of having important documents locked up, buy a fire-safe box.
“Just make sure documents aren’t stored in a place where they can be lost in a flood or fire,” With today’s technology, there’s no excuse not to scan everything and create electronic copies of important papers that can be put on disks or in other storage devices.
No. 2: You don’t need flood, earthquake or other disaster insurance
If an earthquake destroys your home, you won’t recover a penny unless you have an earthquake insurance policy. The same rule applies to floods.
Decisions about flood insurance should be based on your proximity to a body of water that could overflow, not whether the area flooded before. On the plus side, if you’re in a low-risk area, your policy will cost less while still providing the maximum protection.
“Floods occur in all 50 states, and in many cases flood damage happens in areas that aren’t high-risk flood zones.”
No. 3: Renter’s insurance is a waste of money
Many renters mistakenly assume that their belongings are covered under the landlord’s policy. Not the case! If some calamity were to occur, such as a fire, your landlord’s insurance won’t cover the contents in your apartment, nor will it pay for you to live in a temporary space while your place is uninhabitable.
If someone is injured while visiting you and sues you, your landlord’s insurance won’t cover that either.
No. 4: Get the best rate even if you have to lie a little
It might be tempting to fudge the truth on a life insurance application, especially if you have a serious health condition. “Don’t do it,” Not only is it insurance fraud and a felony in most states, but it could prevent your beneficiaries from receiving the death benefit.
No. 5: Base your home insurance policy on the real estate value of your home
Experts recommend setting the structural limit of a home insurance policy on what it would cost to rebuild the home if it were destroyed, not the real estate value. Trouble is, the rebuilding cost is a subjective number.
“Many agents use online tools to estimate the rebuild value, but those tools can be misleading,” It’s more important to talk to a contractor and find out what the local costs are for your home’s particular type of construction, whether it’s in a tract home or custom construction.
No. 6: Set your dwelling limit low
Some insurance agents try to give customers the lowest premium possible in order to close the sale.
“One of the ways they’re doing it is by underestimating the value of the dwelling and slapping a 100 percent extended coverage endorsement on the policy,” explains Bach. “Most policies have four separate categories of coverage: 1) Dwelling. 2) Contents. 3) Other structures. 4) Additional living expenses. Three of the four pay a percentage of the dwelling, so if you lowball the dwelling value because you have 100 percent extended coverage endorsement, you’ll be underinsured for your contents, other structures and additional living expenses.”
The other problem is that most insurance companies either no longer offer the extended coverage option or they cap the additional coverage at 25% above what you actually purchased.
No. 7: Purchase the state minimum coverage for auto insurance
Many drivers buy the minimum coverage their state law requires for auto insurance.
“In Florida that minimum was set in 1972” A lot has changed since then. So when you look at your auto policy, understand that if you’re only getting what’s mandated by law, you may be woefully unable to pay any kind of a claim.
The limit on liability for property damage in California is $10,000. That can be exhausted quickly, even with just a fender bender.
For personal injury to you, the limit per accident in Florida is $10,000. For injuries you cause to someone else, Florida says you only need $10,000 of Bodily Injury coverage and to make it worse, they don’t require you to have it in the form of insurance. The other driver could “self insure” for the $10,000 under the financial responsibility provision in the law. This is where you need uninsured/underinsured motorist coverage to protect you against those drivers that don’t carry Bodily Injury coverage or don’t have the money to self-insure.
“If your policy has a $10,000 limit on Bodily Injury and the medical expenses of the person you hit is $100,000, you’re on the hook for that $90,000.”
No. 8: Ignore uninsured motorists coverage
Protection against underinsured and uninsured motorists is an important add-on policy for anyone who spends a lot of time on congested roads.
“If you drive frequently in a city where there’s a lot of traffic, your odds of having an accident with someone who isn’t covered rise.” The added protection can be invaluable. In Florida it is estimated that over 30% of the drivers do not carry the Bodily Injury coverage to protect you and nearly 50% are underinsured.
No. 9: List your vacation home as your primary address on your auto insurance
The ZIP code of your vacation home might qualify you for better car insurance rates than your primary address. But don’t lie about the principal place where your car is garaged.
“If you have a loss and your insurer finds out, they may delay your claim settlement or take other adverse action.” Most people don’t grasp the concept that insurers want to know about the risks they’re undertaking, and if you mislead them there can be serious consequences.
No. 10: Drain your retirement accounts to fund a life insurance policy
You should never stop contributing to your 401k because an agent tells you to put that money into a life insurance policy.
“Funding a tax savings retirement account should come before you buy anything except term life insurance, which is quite competitive (in pricing).” “Buy enough life insurance to protect your family, but fund all retirement accounts that save on taxes first.”
No. 11: It’s no problem to take cash out of a permanent life insurance policy
“Agents often mislead people about cash value policies, saying you can borrow on it later to fund a college tuition or retirement.” But if you take the cash out, you won’t have the insurance.
Withdrawals from cash value reduce the coverage amount.
Also, unless you’re young and you’re putting a lot of money in an insurance policy, it’s not going to develop enough cash for you to take money out and still have adequate coverage.
“You have to be 100% sure you’re happy with the policy indefinitely.”
No. 12: Term life insurance policies are always the best choice
“Most people die without insurance.” “If you’re in your 50s or 60s and you want a burial policy, don’t buy term insurance. That’s not the purpose of term insurance.” If, on the other hand, you have young kids and a mortgage on your house, buying term insurance makes sense.
“Our blogs are for general education and information only and may not represent your unique needs. Coverages will vary. Please contact your insurance agent to verify your specific policy terms and conditions.”