Saving money feels good, and shopping around when you’re looking for insurance coverage is a great way to do it. However, simply reducing your coverage or dropping important coverages altogether is like diet without exercise, focused only on numbers, not on results. Don’t risk ending up dangerously underinsured and on the hook for much bigger bills in the event of a disaster.
Therefore, we are going to be sharing the most common auto, home, flood, and renter’s insurance mistakes people make, along with suggestions to avert those pitfalls while still saving money.
1. Insuring a Home for Its Real Estate Value Rather Than for the Cost of the Building
When real estate prices go down, some homeowners may think they can reduce the amount of insurance coverage on their homes. However, insurance is designed to cover the cost of rebuilding and 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.
The best way to save money is to raise your deductible. An increase from $500 to$2,500could save up to 25% on your premium payments.
2. Selecting an Insurance Company by Price Alone
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. The best way to save money is by checking the financial health of a company with independent rating agencies and asking friends and family members about their experience with insurers. Then select an insurance company that will respond to your needs and handles claims fairly and efficiently.
3. Dropping Flood Insurance
Damage from flooding is not covered under standard homeowners and renter’s insurance policies. Coverage is available from the National Flood Insurance Program (NFIP) and some private insurance companies. You may not be aware that you’re at risk for flooding, but keep in mind that 25% of all flood losses occur in low-risk areas. Furthermore, yearly weather patterns, spring runoffs from melting winter snows, for example, can cause flooding.
The best way to save money is that before purchasing a home, check with the NFIP to determine whether a property is situated in a flood zone. If it is, 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.
4. Only Purchasing the Legally Required Amount of Liability for Your Car
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. On top of that, if you are sued, these costs can jeopardize your financial well-being.
The best way to save money is to 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.
5. Neglecting to Buy Renter’s Insurance
A renter’s 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. The best way to save money here is to look into multi-policy discounts. Buying several policies with the same insurer, such as renter’s, auto, and life insurance, will generally provide savings.
6. Under Insuring Yourself
Another common mistake is to under insure yourself. This can be quite costly when you realize that your basic insurance will not cover needed expenses. You should consider the maximum amount your insurance will pay for each accident.
7. Choosing Not to Have Basic Insurance
Deciding to save money by not having insurance is a costly mistake that you do not want to make. You should have car insurance that covers accidents and thefts. You should have renter’s or home owner’s insurance to cover thefts and fire.
Additionally, you need basic health insurance. Medical bills can add up quickly, and not having it can cause you to suffer a financial blow. If you cannot afford a comprehensive health insurance policy, you should at least get a high deductible or catastrophic health insurance plan. Many people struggle to afford health care even with health insurance, and going without it may lead to bankruptcy if you have one catastrophic health event.
The Affordable Care Act also requires you to carry health insurance; otherwise, you will face fines when you file your taxes. Be sure that the health insurance policy that you sign up for meets the minimum requirements. Disability insurance can also protect you if you are seriously injured or become ill.
8. Not Shopping Around for a New Policy
It is important that you shop around for a basic insurance policy. You should do this every few years. You can save money by switching to a new policy. Additionally, you should look at policies that offer discounts for where you work or where you went to college. It does not take much time to shop around for insurance policies every two years. This will help you to keep your rate low.