It’s easy to be confused by insurance. Often there are terms and conditions we don’t understand. Although it is tempting to just sign up and forget about it, not reviewing your policy may leave you with costs that you’re not prepared to handle. Taking the time to get to know your insurance plan and avoiding some common mistakes along the way will be a big help in the long run.
Not Enough Coverage
- It’s really important that you understand what perils a policy will cover and that you have the coverage you need in case of loss. Be aware of perils your policy does not cover and consider purchasing additional coverage. Some perils can be covered by adding an endorsement, for others you may have to purchase an additional policy to cover a specific peril or item of property.
- Reasons you may want extra coverage are floods, earthquakes, wind & hail damage (in some areas), mold, sewage systems, and other plumbing or drain systems.
- Read your policy and be aware of terms used. Some are very broad, and others may be more restrictive. Pay close attention to how the insured and insured location is defined in the policy. If something in your policy doesn’t make sense, speak to your insurer right away so you are informed and have the coverage you need.
Not Planning Ahead for Deductible
- In the event of a loss, you’ll be responsible for your deductible. You don’t want the cost of your deductible to cause added stress to an already difficult situation. Plan ahead, have an emergency fund, and know what you are financially comfortable covering if the need arises for you to make a claim.
- Remember there are options when it comes to deductibles (amount you pay out-of-pocket) and premiums (amount you pay for your policy each month). The higher your deductible the lower your premiums and vice-versa. Premiums can often be reduced by upwards to 20% with a higher deductible however, raising your deductible higher is not always the best choice. If you are financially able and prepared to pay higher deductible funds, then raising your deductible rates could be the right choice for you. You will see a difference in your premium rates but, be aware that if you need to file multiple claims in a year your financial obligations may be higher overall. Multiple claims may also increase premium rates due to your higher liability for a claim. These are things to take into consideration.
Not Knowing Terms of Policy
- It is very important for policy owners to check whether they have a recoverable or non-recoverable insurance policy. Not planning ahead in accordance with your plan may leave you with costs you are not prepared for or comfortable covering.
- With a non-recoverable plan, you will pay more out-of-pocket than just your deductible costs. Your costs will include your policy’s deductible PLUS any depreciation amount for full replacement.
- With a recoverable plan, you will pay your deductible then, receive the actual cash value (ACV) on your claim PLUS the depreciation amount. It’s important to note that some recoverable plans may become non-recoverable if certain conditions like repairs or replacements are not made.
- Knowing your insurance policy will be extremely helpful when it comes to making decisions about a claim. The first thing you need to consider is if the cost to fix the problem is more than the cost of your deductible. Remember, your deductible is what you are required to pay out of your pocket before insurance will pay their portion. If your deductible is higher than what it will cost to make repairs or replace a damaged item, then it may be better to pay those expenses on your own and not file a claim.
- Whenever you file a claim you run the risk of your annual premium going up when it comes up for its annual renewal. There are factors that determine these hikes including the cause of the claim, if you have previous claims in the last few years, the cost of the claim, and your current state of residence. When deciding whether to make a claim you should take a possible rate increase into consideration. Unless it is a substantial loss, it may make more sense, in the long run, to pay for damages yourself.
Missing Out on Discounts
- Insurance companies save money when a customer has two policies. Discounts are often upwards to 20% when homeowners link their auto and home insurance.
- Many insurers offer discounts for behavior that lowers your risk. These might include shutter installation, burglar alarms, deadbolt locks, smoke detectors, and waters safety systems.
- Insurers give better rates to those with good credit history. Work on boosting your credit score to increase your chances of a better rate.
- Discounts may also be available to first time home buyers or certain groups of people like those in the military, or senior citizens.
- Keeping extra insurance money, not paying your deductible, using your claims check for other things, or replacing or upgrading things that were not part of the damage of the claim, is considered insurance fraud. These can cost you a fraud charge, criminal record, or denial of future insurance across the board including health, car, etc.
It’s easy to ignore your insurance policy, but it’s not very wise. The most common mistakes are often easily fixed if you’re willing to put in the time.
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