We all know saving money feels good, and shopping around for the right insurance coverage is a great way to do it. However, if you start reducing and dropping important coverages altogether to save money –– it can hurt you in the long run. Think of it like a diet without exercise. It’s focused only on the numbers and not on results. Don’t risk ending up dangerously underinsured, it can put you on the hook for much bigger bills in the event of a disaster.
Here are the five most common auto, home, flood and renters insurance mistakes people make; along with suggestions to avert those pitfalls while still saving money:
1. Selecting an insurance company by price alone
It is definitely important to select a company with competitive prices. And more importantly, you should be sure the insurer you choose is financially sound, knowledgable, experienced, and provides great customer service.
Our suggestion: Check the financial health of a company with independent rating agencies with sites such as A.M Best. It is also useful to ask friends and family about their experiences with insurers. Whatever you do, be sure to select an insurance company that will respond to your needs, and handle claims fairly and efficiently.
2. Insuring a home for its real estate value rather than for the cost of rebuilding
When real estate prices go down, some homeowners may think they can reduce the amount of insurance on their home. But insurance is designed to cover the cost of rebuilding, not the sales price of the home. 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.
Our suggestion: Raise your deductible. An increase from $500 to $1,000 could save up to 25% on your premium payments.
3. Only purchasing the legally required amount of liability for your car
You may not realize it, but buying only the minimum amount of liability means you are likely to pay more out-of-pocket later. And if you are sued, those costs could completely jeopardize your financial well-being.
Our suggestion: Consider dropping collision and/or comprehensive coverage on older cars worth less than $1,000 in total value. We generally recommend a minimum of $100,000 of bodily injury protection per person and $300,000 per accident.
4. Dropping your 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. You may not be aware you’re at risk for flooding, but do keep in mind that 25% of all flood losses occur in low risk areas. It is also important to know that early weather patterns (spring runoff from melting winter snows) can cause flooding.
Our suggestion: Before purchasing a home, check with the NFIP to determine whether a property is situated in a flood zone. If you are, you may want to consider buying in 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. You may also want to consider purchasing flood insurance. More additional information on flood insurance can be found at www.FloodSmart.gov.
5. Not wanting to buy renters insurance
A renters insurance policy generally covers your possessions and additional living expenses if you have to move out due to a disaster such as a fire, hurricane, flood, etc. It also provides you liability protection in the event someone gets injured in your home and decides to sue. Many homes, apartment complexes, and condos that are up for rent usually require you to purchase renters insurance. If not, we strongly suggest you should.
Our suggestion: Look into multi-policy discounts. Buying several policies with the same insurer, such as renters, auto, and life will generally provide additional savings.