7 Shrewd Insurance-Buying Tips
Insurance mistakes can be among the most expensive financial mistakes. Own too much insurance or the wrong insurance, and each year you’ll pay hundreds or thousands of dollars in premiums that don’t do you much good. Own too little insurance, and you could end up paying for losses that easily and cheaply could have been insured. Here are the sources of frequent and costly insurance mistakes.
It pays to shop around. The old saw is that “insurance is sold, not bought.” That means people tend to buy a policy from the insurance agent or broker who took the time to contact them and explain the policy. People will spend a lot of time comparison-shopping for a car or even a television. But few people shop for insurance.
What many people don’t realize is that insurers charge vastly different premiums for very similar or even identical policies. It doesn’t matter which type of insurance is involved. You’ll be amazed at the price differences if you shop around.
Shopping around for most types of insurance is easier than ever. A number of insurers sell directly to consumers and advertise heavily. GEICO sells auto insurance directly, and Ameritas sells life insurance. Several services offer comparisons over through either 800 telephone numbers or the Internet. And of course, there are insurers such as State Farm and Nationwide that sell only through their nationwide networks of agents. Check each of these sources before purchasing or renewing a policy.
Should you buy auto rental insurance? Should you buy that collision insurance option when renting a car? It depends. Call your auto insurer and ask if you are covered. Most personal insurance policies cover the driver, regardless of the car being driven. But if you drive a car more than temporarily or occasionally, the insurer wants to know that so it can compute an appropriate premium. (If you drive a 10-year-old Taurus to work, but drive your spouse’s Lincoln on weekends, you should have both policies listed on the policy.) If you rent for more than a week or so, depending on the insurer, you might have to pay an additional premium to be insured. When your insurer does cover you, be sure to bring proof of insurance to the rental counter. Some credit cards still carry rental insurance, if you use their cards to pay for the rental.
Is your auto coverage high enough? Most states require a minimum amount of liability coverage for drivers. But take a look at the limits on your policy and determine if your personal liability is likely to be higher should you cause a major accident. It usually doesn’t cost much to increase the limits. Or you might want to add a personal liability umbrella to your homeowner’s policy. An additional $1 million of coverage usually is inexpensive.
Is your home fully insured? It used to be that if your home was destroyed or severely damaged, you knew that the insurer would pay to replace it regardless of cost. That’s known as guaranteed replacement coverage. But many homeowners’ policies now either don’t offer such coverage or have a ceiling on the cost. A streak of natural disasters, rising building costs, and more burdensome building codes drove the replacement cost to levels the insurers weren’t prepared for.
Now the coverage generally is restricted to a percentage of the policy limit or home value stated in the policy, say 125% of the policy limit. Review your policy and be sure the policy limit or home’s stated value is realistic. You might even want to ask a contractor or appraiser how much it would cost to rebuild your home.
Finally, be sure your policy has a rider that covers costs incurred because of new building code requirements that were enacted after the home was built.
Is travel or trip insurance worth the cost? There are two types of insurance to consider. There’s “trip cancellation” insurance that pays when for some reason you can’t take a trip and lose your deposits. This can be worthwhile if you booked a nonrefundable charter or group tour. But read the policy exclusions carefully. You might not be covered if a pre-existing health condition keeps you at home. Also, buy from a third-party insurance company, not from a tour operator. If the operator goes bankrupt, you might not get a pay off. Independent trip insurance companies include Access America (800-284-8300), CSA (800-348-9505), and Travel Guard (800-826-1300).
But you probably don’t want trip insurance for regular travel. Airline tickets usually can be rebooked for a fee of $50 or $75 within one year of the planned trip. Hotel reservations usually can be cancelled without penalty, or you might have to pay for the first night’s planned stay.
Travel health insurance is the other type. Medicare and many private health insurance policies don’t cover care received outside the United States. Some will cover emergency overseas care. Even when you are covered, you might have to pay the cost and wait for reimbursement. And what about getting back into the U.S.? You want “air ambulance” or evacuation coverage that will bring you back to the U.S. if you are sick or injured. Your first move is to contact your health insurer to ask what is covered. For items not covered, ask if you can purchase a rider or if there is a recommended travel policy.
Consider using one insurer. Most insurers give a discount of 10% to 15% if you purchase both auto and homeowner’s insurance through them. Compare that cost with the cost of the two best individual policies.
Ask for discounts. Insurers offer many discounts that aren’t advertised and most people don’t know are available. Auto and homeowner’s insurance generally get discounts for anti-theft devices. Airbags and antilock brakes can cut premiums. If you drive less than 10,000 miles annually, you might get a discount. Insurers often ask the questions when you first get a policy. But if they didn’t, or you’ve been renewing the same policy for a few years, call up and ask about available discounts.
