Costly Insurance Mistakes Consumers Make

By Richard A. McGrath, CIC, LIA

Many Americans are vulnerable to serious losses that are not covered by insurance and they don’t even realize it.

That’s one of the findings of a new national independent survey conducted for Trusted Choice® and the Independent Insurance Agents & Brokers of America (IIABA).

The survey found that 38 percent of consumers have never researched their insurance needs before purchasing insurance, while almost 40 percent of consumers said they were not confident or only somewhat confident that they have adequate and appropriate insurance coverage.  In addition, about 61 percent of survey respondents said they were only somewhat familiar or not familiar with the details of their insurance policies.

It’s critical that consumers understand the basics of insurance, so they can protect their family, home and property.  A lack of understanding can lead to serious and expensive insurance coverage mistakes.  If you don’t know what your insurance covers, you won’t know whether you’re adequately covered and whether you’re getting value for what you’re paying.

Addressing the most common mistakes that consumers make can not only improve insurance coverage, it can save money.  Trusted Choice® independent insurance agents identified the following as some of the most common errors they encounter.

Mistake 1: Not Knowing Your Limits.  Most consumers do not know the limits of their coverage and only 29 percent of respondents surveyed considered coverage limits the most important criteria when selecting an insurance policy.

Consumers also don’t understand how inexpensive it can be to increase their limits.  For example, the liability limits on a typical homeowner’s policy can be increased from $100,000 to $300,000 for as little as $25 a year.  Many consumers also lack umbrella liability coverage, even though protection of $1,000,000 is available for as little as $130 a year.

Mistake 2: Disregarding Discounts.  Consumers may qualify for discounts that they are not aware of.  Discounts may be available on homeowner’s insurance for installing a security system, living in a gated community, updating the roof or wiring, and remaining free of claims.  Discounts may be available on auto insurance for teen drivers with good grades, for graduating from certain colleges or universities, or for carpooling.  Discounts are also often available if you purchase two or more policies from the same insurance carrier.

Mistake 3: Failing to Consider Insurance in Estate Planning.  Many people put their homes in trusts as part of their estate planning, but fail to tell their agent that the trust owns the home.  In such cases, the home is no longer insured, because the owner is not on the policy.  This can create problems when a claim is filed.

In addition, consumers sometimes don’t list valuables or collectibles as part of their estate, because they don’t want them to be subject to estate taxes.  Valuables, such as jewelry, and collectibles, such as art, require special insurance coverage.  If there is a loss, your heirs will not be compensated and will be deprived of your gift, unless everything is properly documented and insured.

Mistake 4: Not Assessing Your Biggest Asset.  Your home is your biggest and most important asset.  While anyone who has a mortgage is required to obtain homeowner’s insurance, many homeowners have gaps in their coverage.

Specialty coverage is often needed in addition to a basic homeowner’s policy.  Failure to purchase sewer and drain back up insurance, flood insurance, earthquake insurance, and ordinance or law coverage can result in claims not being covered.

Also be certain to inform your agent of any changes in your property and to adjust coverage as improvements are made.  Otherwise, your insurance may not cover you when you need it most.

In addition, if you sell, rent or leave your home vacant for an extended period, it will change the terms and conditions of your coverage.  You are no longer in control of what happens to your home, so, if there is a loss, your insurance company could deny the claim.  Homeowners who plan to rent, sell or leave their home vacant should check with their agent to learn the time limit on vacancy or change of occupancy before it alters or cancels their homeowner’s policy.

Mistake 5: Taking the Cheapest Route.  One out of four respondents to the survey said that price is the most important criteria when selecting an insurance policy.  Although price should be a factor in insurance decisions, choosing coverage based on price alone could be a costly mistake.

Insurance policies differ widely, with varying deductibles, coverage limits and exclusions.  If you purchase insurance based strictly on cost, you will save money, but only until you have to file a claim and find that you’re either not covered or that you have to pay a large deductible.  Cheap insurance is only cheap until you need to use it.

Mistake 6: Not Meeting With Your Agent.  The survey also found that more than a third of policyholders have not met with or even talked to their insurance agent within the past year.  Insurance is complex.  To make certain you have adequate coverage, you’ll need to sit down and review your coverage with your agent.

Be sure to keep your agent updated about changes in your family or to your property.  A new baby, marriage, divorce, a death, home renovations or a major purchase can have a significant impact on your insurance needs and costs, and can affect your existing coverage.

Richard A. McGrath, CIC, LIA is President and CEO of McGrath Insurance Group, Inc. of Sturbridge, Mass. He can be reached at

This article is written for informational purposes only and should not be construed as providing legal advice.

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