Saving money is a priority for many consumers these days. But the New York City-based Insurance Information Institute advises thinking twice about reducing insurance coverage. Here’s what the III describes as the six biggest insurance mistakes:
- Insuring a home for its real estate value rather than the cost of rebuilding.Because the value of real estate has declined in many areas, some homeowners are reducing homeowner insurance coverage. But homeowner’s insurance is designed to cover the cost of rebuilding a house. It’s not linked to the market value of the home. Forget market value–and buy enough insurance to build your house in the event of a total loss, as well as replace all the contents. Another option: Increase your deductible to at least $500. If you can raise it to as much as $1,000, you may save up to 25 percent on your homeowner’s insurance premiums.
- Selecting an insurance company by price alone.Select a company that’s financially sound and offers good customer service. Check the financial health of an insurance company by using ratings from independent rating agencies. Contact your state insurance department to find out whether it provides consumer complaint ratios for each company. Another option: Ask friends, relatives and business acquaintances about their experiences with insurance companies. Base your selection on a combination of rates and reputation. You want to find a company that will be responsive to your needs.
- Surrendering a whole-life insurance policy for its cash value. Cash strapped life insurance policyholders may decide to surrender a whole life insurance policy for its cash value. But think twice: you may have a hard time replacing the insurance if your health has deteriorated since the first policy was issued. Another option: Investigate borrowing against the cash-value of your whole life policy.
- Dropping flood insurance. Damage from flooding is not covered under standard homeowners and renters insurance policies. Unfortunately, most people underestimate the risk of flooding. In fact, 90 percent of all natural disasters in this country involve flooding, according to the National Flood Insurance Program. Another option: Get detailed information on the risk and cost of flood insurance at FloodSmart.gov.
- Only purchasing the legally required amount of liability protection for a car. The state mandated minimum coverage may not offer sufficient protection, experts warn. You may want to talk to your agent or company representative about purchasing higher liability limits to reflect your needs. You can also consider purchasing an umbrella or excess liability policy, which kick in once your underlying coverages have been exhausted. A typical umbrella policy costs between $200 and $300 per year for a million dollars in coverage. Another option: Many insurers offer discounts for features that reduce the risk of injuries or theft, including air bags, anti-lock brakes, daytime running lights and anti-theft devices. You can also get a discount for taking a defensive driving class. Make sure you’re getting all possible discounts.
- Not purchasing renters insurance. Renters insurance covers personal possessions in the event of a fire or other insured property disaster. It pays to replace your belongings as well as provides additional living expenses and liability protection in the event someone is injured in your apartment. The average policy costs about $200 per year. Another option: Get renter’s or homeowner’s insurance from the same company that insures your car. You’ll usually get a multi-policy discount..