Having proper insurance coverage is a key pillar of any solid financial plan. However, making the wrong insurance choices can leave you dangerously under-protected or overpaying unnecessarily. Avoiding common mistakes when arranging policies can save you significant sums over time. This guide will examine the 10 most expensive insurance errors to steer clear of.
Insurance plays a vital role in protecting what matters most – your life, health, home, assets, income, and business. However, securing adequate coverage at reasonable prices requires diligence. Too often simple mistakes result in insufficient protection, steep rate hikes, or denied claims down the road.
By learning the most frequent insurance pitfalls others make, you can dodge costly problems through informed decisions when arranging your policies. We will look at mistakes like shopping for coverage, understanding policies, filing claims, and maintaining insurance. Sidestep these snags and keep more money in your pocket.
Not Shopping Around for Better Rates
Failing to compare insurance options by getting quotes from multiple providers is one of the easiest ways to overpay. Rates for identical coverage can vary dramatically between insurers. But many simply renew existing policies year after year without checking competing options.
Shopping your coverage to at least 3-5 top insurers every renewal period through an independent insurance broker optimizes chances for saving. Be sure to compare apples to apples by asking for the same coverage details each time.
Another mistake is falling for discounts that entice you to buy add-ons you may not need. Focus on base policy premiums first when judging price competitiveness. With a little time investment upfront shopping rates, the premium savings earned could be substantial.
Overlooking Plan Limits and Exclusions
Glossing over the fine print of an insurance policy rather than reading thoroughly can lead to expensive surprises later on. Policies contain key limits on coverages that you need to be aware of upfront before purchasing.
For instance, home insurance may cap replacement costs for belongings, car insurance may limit valuations on totaled vehicles, and travel insurance may exclude certain types of trips. Make sure you understand exclusions as well.
Additionally, ensure you know coverage amounts for key areas like liability limits, dwelling protection, medical payments, etc. Understand any deductibles and copays you would be responsible for. Reading just the highlights leaves you exposed. Master the details.
Making Claims on Non-Covered Events
Many people learn the hard way that an incident isn’t covered under their policy, only when it’s too late after the loss occurs—making claims on uncovered events results in denial of reimbursement and sunk costs on premiums paid.
Avoid this by carefully reading what kinds of damages, accidents, or causes of loss are included and specifically excluded on the policy upfront. For example, most policies deny claims stemming from illegal acts. Understanding gray areas around coverage also prevents this problem.
Know what events you are and aren’t protected for. Filing a claim without verifying you have applicable coverage often leads insurers to rightly deny the claim, leaving you to absorb the costs out of pocket.
Underinsuring Property and Assets
One of the most common yet avoidable mistakes is failing to insure your property for its full value. This leads to massive out-of-pocket expenses if the home or asset is completely damaged or lost. Unfortunately, many learn this lesson after disaster strikes their underinsured property.
When purchasing a home, auto, or valuables insurance, do your due diligence to properly appraise the possessions’ current values. For homes, this means paying for a professional replacement cost estimate rather than just basing it on market value or purchase price.
Regularly reviewing the limits as assets appreciate avoids coming up short on reimbursements to fully replace or repair them after an incident. Don’t let undervaluing lead to underinsuring.
Exaggerating Information on Applications
Providing inflated or erroneous information on insurance applications in hopes of getting better rates or approval may seem harmless. But this mistake can come back to bite you.
Insurers thoroughly vet and verify application details. Getting caught overstating income, assets, or health status will quickly get your policy declined or canceled.
Worse yet, fraudulent disclosures could get you charged with insurance application fraud and make obtaining coverage in the future extremely difficult. Always provide accurate details no matter how it may impact your rates. Honesty saves headaches.
Skipping Annual Policy Reviews
Once you have insurance in place, it’s easy to go on autopilot and let it renew as-is each year without reassessing your coverage or market alternatives. However annual reviews help avoid issues from changing needs, new offerings, and life events.
Re-evaluating deductibles, limits, and carriers periodically ensures you don’t end up underinsured or overpaying as conditions evolve. Rate shop at least every 2-3 years to find potential savings with competitors.
Reviewing beneficiaries, insured assets and drivers can also prevent painful problems from failing to update your policies as needed. Mark your calendar to review insurance annually as part of spring cleaning.
Dropping Coverage Too Soon
Some choose to drop certain insurance coverage like life or disability insurance after a few years believing the policies are no longer needed. But canceling coverage prematurely can leave you dangerously exposed.
Life insurance is still crucial for protecting the family even after the kids are adults and the mortgage is paid off. Income replacement needs don’t disappear. Health issues also arise later in life that make reinstating policies costlier or impossible.
Disability and long-term care insurance provide vital income replacement and expense support that young healthy people underestimate needing later on. Be certain before canceling coverage – it’s tough to get back.
Paying Premiums Late
Paying insurance premiums late or missing payments altogether is an obvious yet costly error. Depending on grace periods, a single missed premium can get policies canceled leaving you without vital protection.
Set up automated payments from your bank account to prevent any unintentional lapses in premiums. Most insurers apply small penalties to late premiums even if within the grace period.
Having a policy cancelled for non-payment also stays on your public insurance records making new coverage more expensive. Protect your insurance investments by simply making sure premiums are paid when due.
Being Dishonest on Claims
Insurance fraud not only risks serious legal consequences but also risks chances of current and future coverage. Unfortunately, many still inflate claims through dishonest reporting hoping for a bigger payout.
Insurers have teams dedicated to identifying and investigating fraudulent claims. From hidden pre-existing damages to staged accidents, most exaggerations get uncovered in the process.
The penalties when caught are severe. Beyond denial of the claim, policies can be rescinded and you may face steep financial penalties or even criminal prosecution for insurance fraud. Total honesty is the only prudent policy when filing insurance claims.
Not Retaining Proper Records
Sloppy documentation can thwart insurance claims and renewals down the road. Not retaining copies of past policies, proof of past claims, valuations, or health records complicates matters when filing claims or shopping for coverage again.
Insurers require the submission of various past insurance records and concrete proof to process claims and applications properly. Disorganized paperwork also leads to accidental lapses in coverage at renewal periods if details needed get buried.
Develop digitally and physically organized long-term file storage for all insurance-related documents. These records are critical for confirming values, event timelines, previous claims, and health history when required.
Insurance Mistakes FAQ
How much could shopping insurance quotes save annually?
Savings will vary by coverage and market conditions, but many find rates 20-30% lower or more by comparing 3-5 top insurers when renewing policies. Shopping insurance saves significant sums.
What happens if my car insurance lapses?
Driving uninsured, even briefly, risks fines, suspended registration, penalties on new policies, and personal liability for any damages. Avoid coverage gaps at all costs.
Can an insurer cancel my policy for making too many claims?
Yes, insurers can decide to non-renew policies on renewal dates if they consider a customer too high-risk due to frequent claims made. Too many claims raise underwriting risks.
Where can I learn about typical coverage exclusions?
Insurance policy documents outline all inclusions and exclusions in detail. Insurers also publish common exclusions on their websites that you can review before purchasing a policy.
Can I coordinate insurance benefits across multiple policies?
Yes, with proper planning you can optimize coverage across different policies for the same event, referred to as “coordination of benefits”. An insurance broker can advise you on how to properly structure this.
Conclusion
Avoiding common mistakes customers make is crucial to receiving maximum value from your insurance. Shopping coverage wisely, understanding policy fine print, retaining thorough records, and staying honest in all disclosures save you substantial sums over the long haul. Use this guide as a checklist to sidestep expensive insurance errors and keep more money in your pocket.
