Saving money is something that all of us want. But reducing your coverage just for the sake of keeping your insurance rates low is not smart. There are lots of common mistakes most homeowners and auto owners do that lead them to be underinsured.
Like cutting coverage to save, not knowing that the coverage is important. We must always bear in mind that the reason we get insurance is to make sure that in case of a loss, we will be covered. And neglecting important things should not be an option.
Hence, here are the examples of the worst practices that you should avoid:
- Insuring your home for its market value and not for its rebuilding cost.
This is one of the most common mistakes many homeowners make. Ensuring your house just for the amount of its real estate value will get you in trouble in case of a claim. You should always remember that your insurance must be able to cover if your house needs to be rebuilt again. Moreover, most insurers require that you should ensure your home for the maximum cost to rebuild it or at least close to the amount. This kind of requirement is called the Co-Insurance Clause. You need to insure your home for at least 80 percent. Because if you fail to comply, you will get penalized which leads to reducing the money that you can get after a loss.
To ensure that you will be fully covered, you might consider doing these options:
- Automatic Inflation Provision- You can opt for this if you don’t want to make a yearly calculation because it is just too much work for you. Although this may
increase your premiums. So it is better to ask your insurance agent if ever you want to have this policy.
- Extended Replacement Coverage- This option will let your insurer pay for your house to be repaired or rebuilt again to its condition before the damage. And if ever that the amount of the repair is more than the dwelling coverage policy limit, it will still be covered. Generally, insurers will provide you an option to extend the coverage for an additional 25-50% on top of your dwelling coverage limit.
- Guaranteed replacement cost coverage- It is the most expensive protection you can have. It will let you rebuild your house even if the amount exceeds the policy limit. In other words, no matter how much the replacement is, it will be covered. That being the case, most insurers require homeowners to inform them regarding any changes, upgrades, or renovations made in your house. It should be reported within 90 days after the work has been started. This is to ensure that your policy is updated and all the additional features of your home are documented.
Moreover, a proper estimation of your rebuilding cost is a must. So to do that, you should make a list of all the things you have in your house. Remember that all things count, even the smallest ones. From the materials used to build your house like what type of cement, floorings, ceiling, marbles, tiles, or wood. Also, keep the receipts of your stuff. It will be faster to process in case you file a claim if you have documents to support it.
You should also add extra coverage for your over-the-top possessions like jewelry, art, antiques, gadgets, furs, or collections. And if you want to save, you can raise your deductible by $500 to $1,000 so you can save up to 25% on your premiums. If you are unsure of what to do, ask your trusted insurance agent about your options.
- Purchasing only the legally required liability coverage for your car.
There is a minimum auto insurance coverage required by law for all auto owners. If you happen to be one of those who just like to buy the minimum without considering what you really need, then you will be in a big problem in case you file a claim. Because just
like home insurance, you must always take into consideration if your insurance can cover your car if ever it got totaled.
There are six common auto insurance options in the market:
- Auto Liability Coverage
- Comprehensive Coverage,
- Collision Coverage
- Uninsured and Underinsured Motorist Coverage
- Medical Payments Coverage
- Personal Injury Protection
Now here are other types of auto insurance coverage that you can add:
- New car replacement coverage
- Ride-sharing Coverage
- Gap converge
- Rental reimbursement coverage or transportation expense coverage
- Sound system coverage
- Towing and labor cost coverage
- Classic car insurance
Although coverage from each insurance company still varies and also, depending on
where you live. Some of these coverages are mandatory, but some are optional. Hence, you need to know what are your state’s requirements to get the right insurance.
The main goal is always to have just the right insurance. Not to become over or underinsured. Drivers who choose to have just the minimum level of coverage could face an enormous bill if proven that they are responsible for an accident. Especially if another driver got injured. Any amount needed for the repair of their car plus the hospital bills are all on you. So if you only have the minimum coverage, once the limit is up you need to pay the remaining amount out of your pocket.
- Choosing your insurer based on the price
This is one of the things we are all guilty of. Anything with cheap price tags is surely attractive for many. And just like shopping at the mall, choosing your insurance is almost the same. You need to look around and ask for the lowest price they can offer. But unlike clothes that you can return if proven defective, insurance is something you can
just give back. It includes a contract to sign with an obligation. Therefore, careful thinking is a must. There is no room for panic buying when it comes to securing your home where your family lives and your car that you and your loved ones use.
That being said, don’t just focus on the cheap price when looking for insurance. Instead, look for the coverage and policy. No matter how much you think you can save if you choose the lowest insurance doesn’t matter if you will be underinsured in the long run.
Moreover, make sure that the insurance company that you are eying is capable and is known for its credibility. Going for an insurer just for the price without considering the quality of service they can provide is not right. You must choose a well-known company for their good service. It is also better if you can ask anyone you know maybe a family member or friends who have experience with the insurer that you like.
- Not adding flood insurance to your policy
Standard homeowners insurance does not cover damages from the flood. However, some private insurance companies offer flood coverage as well as the National Flood Insurance Program or NFIP. Most people think that they do not need to add a flood policy because they are not living in a flood-prone area. But that thinking is wrong because 25% of flood losses came from low-risk areas. Moreover, global warming and sudden change in weather can cause flooding. In other words, we can never be sure these days. So if you want to be ready for whatever might happen, it is always best to be prepared by having the right coverage.
TIP: Before you purchase a house, check first with the NFIP if the location of the home you are eyeing is not located in a flood-prone area. If it is, look for all the options to reduce the risk of flood, like purchasing additional flood insurance and other mitigation efforts. Homes with mortgages that are regulated by federal law or insured lenders are required to carry flood insurance if they are living in a flood zone area.
- Failing to shop around
Not comparing different insurance plans is not a smart thing to do. Whether it be home or auto insurance, you should always check all your options before buying one. Even if you already have insurance, shop around and compare coverages, premiums, and deductibles. Make a side-by-side comparison.
Generally, 70% of car owners just renew their auto insurance every year without making changes. While most homeowners forget or just didn’t bother to update any upgrades made in their house and review their policy.
Remember, this insurance can save your investments so take your time in choosing the best insurance that best fits your needs. Don’t just look for the easiest way or cheapest price to have insurance. There is no shortcut in doing this important matter to secure your house and car. So take your time and check each insurance company that you think will be best for you. There is no wrong question so don’t hesitate to ask for help.
Contact us! We are working with the top-of-the-line insurance companies here inDenver, Colorado, or any other part of the United States. We are always happy to provide you all the guidance that you need to achieve your goal of securing your investments.