Insurance is everyone’s financial safety net. It protects individuals, their family, and their assets from financial risks and losses, including death, medical emergencies, natural disasters, theft, and lawsuits. However, understanding insurance can be challenging.
Even worse, navigating its complexities can be daunting, causing people to make many wrong decisions that prove costly in the long run. However, we’ve got you covered. Here are five of the many costly insurance mistakes you should avoid.
The rule of thumb is to buy insurance as early as possible to fully enjoy the maximum policy benefits. As we get older, our life risks tend to aggravate more, which, in turn, increases the insurance premiums.
Unfortunately, many younger people put off getting insured because they still pay off other obligations, such as car and student loans. While paying off debt sooner is highly recommended, avoid missing out on purchasing insurance at a young age.
If your financial goal is to save more and spend less, it’s all the more reason to invest in insurance. Specifically, insurance premiums increase by 8-10% every year a person ages. If your current finances are tight, look for a budgeting system that can ideally help you pay down debt, save for retirement, and get insured. It’s also recommended to seek professional advice.
The insurance industry is heavily regulated and protected. Insurance commissions monitor not only insurance products but also license agents and brokers within their jurisdictions. They also help insurance providers pay the covered insurance obligations if they falter.
Despite this guarantee, insurance commissions highlighted that it’s not enough to choose insurance providers with affordable premiums and competitive prices only. They must also look for established companies with a history of meeting financial obligations and solid financial health.
The Insurance Information Institute recommends policyholders and other consumers to perform their due diligence before purchasing an insurance product. The first step is to visit or contact the nearest insurance commission. Inquire about the legitimacy of an insurance provider and whether they have complaints filed against them.
While you’re at the local insurance commission or in contact with them, ask about situations that may increase your premiums. For example, whether one’s report income increases while on Medicaid. This will help you save more time. As mentioned, the sooner you’re insured, the lower the risks of possible financial burden.
Additionally, consult friends, family members, and Internet users about their experiences with insurance providers. Once you have gathered enough information, choose an insurance company that responds to your needs and handles claims efficiently and fairly.
In the United States (US), flooding is the most common and costliest disaster. However, many Americans lack flood insurance despite flooding risks and reported damages. Even if they live in low-risk zones, they shouldn’t lower their guard. It has been reported that 25% of all flood damage unexpectedly occurred in less flood-prone areas.
Note that standard homeowners’ and renters’ insurance policies typically don’t cover damage caused by floods. Instead, homeowners and tenants purchase flood protection as a rider of their current home insurance or with another policy, usually available from the National Flood Insurance Program (NFIP) and other private insurance companies.
For a cost-effective option, opt for NFIP policies. The NFPI is the biggest flood insurance provider in the US, which aims to avoid affordable insurance premiums. As of 2022, its average annual insurance cost is only $771, while other private policies cost two times higher.
Another way to save is to choose a property in a less risky area before purchasing one. Check with the NFIP for it. Besides offering affordable flood protection, they also create maps showing the likelihood of flooding in all neighborhoods nationwide.
If you already reside in a designated flood zone, consider purchasing flood insurance to reduce damage costs. Also, check other mitigation efforts that can reduce or, better, prevent the risk of flood damage.
For tenants, a renters insurance policy is as important as flood insurance. It won’t only cover damaged possessions but also additional living expenses (like moving costs) caused by an insured disaster. It can also provide liability protection if someone gets injured in a rental property and decides to sue.
Many tenants think their things aren’t valuable enough for them to get renters insurance property coverage. However, this isn’t always the case. For example, possessions in a standard two-room apartment are reportedly valued at $30,000 on average. If damaged, the one-day loss can be higher than a standard renters insurance’s $18 monthly premium.
A non-profit organization reported that one in five policyholders think they’re underinsured. There are several reasons for this. For example, some failed to increase their policy amount as their financial obligations and income grew, while others were aware of their coverage shortfall but chose to use their disposable income elsewhere.
Note that being underinsured results in economic losses for the policyholders. It’s essential to be mindful of the changes in your life to avoid this from happening. Specifically, revisit the amount and type of insurance coverage and update your insurance provider if there are changes in your family size, status (single/married), work, income, debt, and financial goals.
Purchasing insurance policies is one of the most crucial financial decisions we make. Hence, we mustn’t make unnecessary, costly mistakes. Avoid them by doing your utmost due diligence. Take time to read and research, and don’t hesitate to consult someone, specifically professionals.