Your house, your car, your health, your life: there’s insurance for everything, and each one comes with hundreds of different options and caveats. Insurance mistakes are common.
Here are some common insurance mistakes- and ways you save money – to look out for when insuring something that’s precious to you.
1. Underinsurance after total loss
Out of 9,100 homeowners surveyed, 16% were found to have less coverage than they needed to rebuild their home, according to a survey by market research firm J.D. Power, reported by Reuters in 2011.
The Insurance Information Institute (III), an industry organization, recommends insuring a home at the cost of rebuilding, not the real estate value, since rebuilding costs are likely to stay at a high level.
And United Policyholders (UP), a non-profit dedicated to protecting insurance holders, recommends doing a calculation of how much you’re insured per square foot, citing the average $180-300 cost per square foot in California. This goes for the valuables in your house, too.
2. Dropping life insurance to save money
A 2010 study by the Life Insurance Marketing & Research Association found that ownership of life insurance is at a 50-year low, and that 11 million families with children under 18 have no life insurance for the primary breadwinner. That could be a big insurance mistake.
While this can save money in the short run, it can potentially compound a family tragedy if you die and leave dependents behind with little or no income.
3. Buying life insurance if you don’t have dependents
On the other hand, if you don’t have anyone else depending on your income, there is no need to buy life insurance, warns Ginita Wall, author of the book “The Way to Save: A 10-Step Blueprint for Lifetime Security.”
Don’t let insurance agents talk you into buying a policy you don’t need.
4. Buying life insurance for children
Another tip from Ginita Wall that may sound gruesome: buying life insurance for your kids is a waste of money.
Losing a child is a tragedy, but their death doesn’t harm you financially.
5. Not having disability insurance
According to the non-profit Council for Disability Awareness (CDA), nine out 10 workers grossly underestimate their chances of becoming disabled, and three out of 10 workers entering the workforce today are going to become disabled at some point before their retirement.
The average disability actually lasts for two and half years, the CDA says – disability insurance will protect you from suffering financially during that time.
6. Only purchasing minimum car insurance
With the high chances of being sued in today’s society, the III recommends having insurance above the minimum legal requirement, to avoid out-of-pocket expenses.
The organization recommends $100,000 of bodily injury protection per person and $300,000 per accident, and says that a better way to save is to drop collision/comprehensive coverage on old cars worth less than $1,000.