No one likes spending more than they have to on anything, especially insurance, yet many people could be unaware they’re doing just that.
Of course, cutting back on insurance in the wrong way could leave someone flat-flooted financially if they don’t have enough to cover a loss.
“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,” Loretta Worters, vice president with the Insurance Information Institute, said in a statement.
Following are five of the biggest insurance mistakes consumers make, according to the I.I.I., along with some suggestions for better ways people can cut their 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, homeowners might think it makes sense to reduce the amount of insurance on their property. The problem with that idea is that insurance is designed to cover the cost of rebuilding the home, which could be different than the home’s present-day value. Homeowners should make sure they have enough coverage to completely rebuild their home and replace all their belongings in the event of a disaster.
DO: Raise the deductible. An increase from $500 to $1,000 could save up to 25 percent on annual premium.
2. DON’T: Judge a Policy Just on Price
Competitive pricing is important, but should not be the 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 right policy.
DO: Check the financial health of a company with independent rating agencies and ask friends and family for recommendations. 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, as well as from some private insurance companies. Many homeowners are unaware they are at risk for flooding, but 25 percent of all flood losses occur in low risk areas.
DO: Go to Floodsmart.gov to check a property’s flood risk and the cost of a NFIP flood insurance policy. When purchasing a new home, it’s important to factor the cost of flood insurance into the housing budget. Those who can’t afford the insurance can’t afford the home. Those who already own a home in a high-risk flood zone should get flood insurance. Remember, even those in a low-risk zone can still get hit with a flood.
4. DON’T: Do the Minimum
Purchasing only the legally required amount of liability insurance for a vehicle means the owner will likely to pay more out-of-pocket if they’re sued—and those costs could 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 the Landlord
Too many people neglect to buy renters insurance thinking their landlord is responsible for their belongings. A landlord is only responsible for the structure of the building, not the personal possessions of their tenants. A renter’s insurance policy covers personal possessions and additional living expenses for those who have to move out of their home due to an insured disaster such as a fire. Equally important, it provides liability protection in the event someone is accidently injured in the apartment—an injured guest can submit medical bills directly to the insurance company. If someone were to decide to sue, the renter’s insurance would also include coverage for 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. It’s might also be possible to obtain discounts for installing dead-bolt locks, fire extinguishers and alarm systems.
