Maximize Your Insurance Dollars While Avoiding Five Common Insurance Mistakes
Facing higher tax rates, sluggish job growth and a faltering economy, consumers are reevaluating the way they spend their money. There are many smart ways to save on homeowners and auto insurance, but making the wrong choices can result in being dangerously underinsured, according to the Insurance Information Institute (I.I.I.).
“There are simple steps you can take to cut the cost of your home and auto insurance while continuing to be financially protected against a catastrophe,” said Loretta Worters, vice president with the I.I.I.
Following are five of the biggest insurance mistakes consumers make—not only will we show you how to avoid them, we also have some practical suggestions for better ways to cut your insurance costs:
1. DON’T: Confuse Real Estate and Rebuilding Value
Insuring a home for its real estate value instead of for the cost of rebuilding is false logic. With home prices still down in many parts of the country, you might think it makes sense to reduce the amount of insurance on your home, too. But insurance is designed to cover the cost of rebuilding your home Make sure you have enough coverage to completely rebuild your home and replace all your belongings in the event of a disaster.
DO: Raise your deductible. An increase from $500 to $1,000 could save up to 5 percent on your annual premium. Go even higher and save more.
2. DON’T: Judge a Policy Just on Price
Competitive pricing is important, but should not be your only criterion for choosing an insurance company. It is a good idea to also make sure the company is financially sound, provides good customer service, and offers the policy that is right for you.
DO: Check the financial health of a company with independent rating agencies and ask friends and family for recommendations. You should select an insurance company that has a reputation for excellent customer service and will respond to your needs and handle claims fairly and efficiently. Also, ask questions as different insurers companies may offer different services or coverages.
3. DON’T: Neglect to Purchase Flood Insurance
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. Many homeowners are unaware they are at risk for flooding, but in fact 25 percent of all flood losses occur in low risk areas.
DO: Check with your agent about flood insurance If you are purchasing a new home, make sure that you factor the cost of flood insurance into your housing budget. If you can’t afford the insurance, you can’t afford the home. If you already own a home in a high-risk flood zone then you should get flood insurance. And, remember, even if you live in a low-risk zone it does not mean floods can’t happen.
4. DON’T: Do the Minimum
Purchasing only the legally required amount of liability insurance for your vehicle means you are likely to pay more out-of-pocket if you are sued—and those costs may be steep in today’s litigious society. The insurance industry and consumer groups generally recommend a minimum of $100,000 of bodily injury protection per person and $300,000 per accident.
DO: Consider shopping around for best policy, taking a higher deductible and dropping collision and/or comprehensive coverage on older, less expensive cars. It is also smart to consider the cost of insurance when purchasing a new or used vehicle.
5. DON’T: Count on Your Landlord
Too many people neglect to buy renters insurance thinking that their landlord is responsible for their belongings. But your landlord is only responsible for the structure of the building not your personal possessions. A renters insurance policy covers your possessions and additional living expenses if you have to move out of your home due to an insured disaster such as a fire. Equally important, it provides liability protection in the event someone is accidently injured in your home. And your injured guest can submit medical bills directly to your insurance company. If someone were to decide to sue you, renters insurance would also include coverage for your legal defense and possible court judgments up to the limits of the policy.
DO: Look into all available discounts. Buying several policies with the same insurer, such as renters, auto and life will generally provide savings. You may also receive a discount for installing dead-bolt locks, fire extinguishers and alarm systems.