- Having too much or the wrong type of insurance can be just as bad as having not enough coverage.
- Use this checklist to avoid some of the most common insurance mistakes people make.
- Balance how much you spend against the protection that coverage provides to get the most from your insurance investment.
Insurance is one of those things you need to have, but hope you never have to use. While it’s important to make sure you're covered, sometimes having the wrong type of insurance or not enough coverage is just as detrimental as having no insurance at all. For example, are you wasting money by spending too much? Paying for something you don’t need? Is there something you’ve forgotten to insure?
Avoid these 10 common insurance mistakes
1. Insuring at the bare minimum (or less)
It’s good to be thrifty but avoid the temptation to save money by going 'too basic' with inadequate insurance. The incremental cost between paying for too little versus paying for the right amount of coverage is usually not much, and certainly not worth the risk of having inadequate protection for you and your assets.
2. Opting for the highest coverage
While it may be tempting to get the highest coverage possible, avoid paying for something you may not need. If you’re not the type to file insurance claims for small losses, you will save money by opting for a plan with a higher deductible and a lower premium. Then, put the money you save with the lower premium into your emergency savings, to be used if you do need to file a claim.
3. Getting the wrong insurance
Did you know that if you only have collision coverage and your car is stolen, you may be out of luck? Does your homeowners policy cover flood damage? Insurance can be complicated, but it's smart to double-check your policies to make sure you have the right coverage. A good insurance broker can tell you how much and exactly what type of insurance you need—and what you don't.
4. Insuring your home for its market value
Insurance is designed to replace what you already have in case of loss. The cost of replacing a home is not related to its market value, but is entirely dependent on the cost of materials, labor, and other things needed to rebuild it. If you insure your home for its market value instead of its replacement value, you could be paying too much, since the market value of your home includes the value of the land. On the flip side, if construction costs have risen in your area, make sure you’re not underinsured in terms of what it would cost to rebuild your home.
5. Not considering flood, earthquake, umbrella, and other add-ons
Not all damage is covered by a standard insurance policy, and costs of ignoring extra coverage could be big. Think you don’t need flood insurance? Flooding is the most common and most expensive natural disaster in the U.S. According to the Federal Emergency Management Agency (FEMA), more than 25 percent of insurance claims come from outside a high-risk flood area, and just one inch of water pooled in a 1,000-square-foot single-story home can cause close to $11,000 in damage.1
Liability is another issue. If you’re found to be liable for an accident and damages exceed the liability limits of your auto policy, the extra could be covered by umbrella liability coverage. And sometimes, even coverage for little things like towing your car in for repair could save the day for you. Talk to a broker to see what extra coverage options you may be missing.
6. Overlooking renters insurance
If you live in a rental house, apartment, or even a college dorm, you still need insurance to cover your personal items, such as furniture, electronics, clothing, jewelry, and other items. Plus, if someone is injured in your rental unit, you could be held liable for their medical expenses. Renters insurance is affordable and easy to get, but easy to forget.
7. Failing to update your agent or broker on life events
We understand that life is extra hectic when something in your life changes—you get married or divorced, you bring a new baby home or your baby leaves the nest, you move or remodel. But these changes can and do impact your coverage and the rates you pay. Be sure that your insurance covers where you are in life.
8. Failing to research an insurer’s complaint record
The National Association of Insurance Commissioners (NAIC) tracks consumer complaints about individual insurance companies. According to their website, the top five complaints for 2022 included those for:
- Delays in handling claims
- State-specific claims handling issues
- Denial of claims
- Unsatisfactory settlement offers
- Poor service in the way an adjuster handled a claim
The NAIC site gives you the chance to not only file a complaint against an insurer, but also to do some upfront research to identify any red flags. Their Complaint Index allows you to compare one company against others in your state. This process is important, especially if you’re considering a small or unfamiliar insurance company that is offering an unusually low premium.
9. Ignoring the benefits of bundling
When you purchase more than one type of insurance—auto and homeowners, for example—from the same carrier, it’s called bundling. Bundling is a good way to save money. One way is through lower premium costs; another is to save by paying just one deductible if one incident, a hailstorm for example, damages both your car and your home. Bundling also saves you time, since you can make just one payment for all policies. That said, ignore the temptation to assume that just because you’re bundling your policies, you’re getting the best deal possible.
10. Neglecting to shop around every few years
We get it—shopping for insurance is not how most of us like to spend our time. But you may be surprised how much you could save just by looking around. Better yet, make it a point to check in with your insurance broker every year to make sure you’ve got the best coverage and the best rates.
Don’t be shy about asking for discounts. People are often shocked to find the savings that are available to them if they just ask. While these vary by insurer, don’t be shy to ask for auto discounts like those for safe drivers, anti-theft devices, low mileage, multi-car coverage, and others. Common home insurance discounts include those from monitored burglar or fire alarm systems, updated electrical and plumbing, and more. Many insurers even give you a discount when you pay your premiums on an annual or semi-annual instead of monthly basis.