Buying insurance can be confusing, but when the unexpected
happens – a house fire, a fender bender or a broken bone – it's a relief to
know that some of those financial losses will be covered. But how do you know
how much coverage you need? And what questions should you ask before buying a
policy? Many consumers aren't sure. Insurance coverage is far from one size
fits all, so here's a look at mistakes some consumers make when buying
insurance.
1. Assuming insurance
is out of reach. The U.S. Census Bureau reports that 48 million Americans
had no health insurance in 2012. And about 30 percent of U.S. households have
no life insurance, according to LIMRA, a worldwide research and consulting
organization for insurance and financial services. In some cases, consumers
skip insurance because they think it's out of their budget. Often, that's not
the case, according to Marvin Feldman, president and CEO of the LIFE
Foundation, a nonprofit organization that educates consumers about financial
planning and insurance. The LIFE Foundation collaborated with LIMRA on the 2013
Insurance Barometer Study, which found that the average consumer thinks life
insurance is three times more expensive than it actually is. "[Consumers
are] not researching it to determine what the cost is," Feldman says.
When buying health insurance or property and casualty
insurance, ask about potential discounts. "Two-thirds of consumers don't
realize they can get financial help if they buy their own health insurance, and
they can get financial help if they go and buy in these health insurance
marketplaces," says Lynn Quincy, senior policy analyst with Consumers
Union, a division of Consumer Reports. "You may be way overpaying if you
don't investigate this possibility." While health insurance discounts are
often income-based, homeowners and auto insurers offer discounts for everything
from being a member of groups like AARP, to being a good student or a good
driver, to having a home security system.
2. Relying on
assumptions or outdated figures. Changing economic conditions mean you
might need more insurance coverage than you had in the past. Take life
insurance. In the past, consumers might have based their life insurance
coverage on their current income, but "if something happens and you're no
longer around, you need more capital at work to provide the same income [to
your beneficiaries]," Feldman says. Disability and long-term care
insurance are even more complicated than traditional life insurance. "For
disability, do you want coverage that lasts forever? Are there health issues in
your family?" Feldman asks. "That's where you need to speak to
somebody to get some guidance."
In the case of homeowners insurance, your home could be
underinsured if you've renovated or if the cost to build a home has increased
due to higher material costs or other factors. That's why experts recommend
reviewing insurance coverage once a year to make sure it still fits your needs.
Talk to your insurance agent if you're unsure.
3. Shopping on price
alone. Comparing insurance policies can be confusing, but resist the urge
to simply choose the policy with the lowest premium. Consider the company's
reputation and the coverage you'd get for that premium. "As a general rule
with health insurance, the higher the premium, the lower the amount you pay
when you go to the doctor," Quincy says. Private health insurance plans
must provide coverage examples showing what your estimated out-of-pocket costs
would be for, say, having a baby or managing Type 2 diabetes. Some examples might
not apply to you, but they can help you compare plans and see how much you
might pay in coinsurance and copays.
"Make sure you're shopping apples to apples and getting
quotes based on the same coverage that you have," says Lori Conarton, a
spokeswoman for the Insurance Institute of Michigan. Your property and casualty
insurance may not cover things like food spoilage in the event of a power
outage or stolen electronics worth more than $1,000, so you may want to
purchase extra endorsements to cover those possibilities, she adds.
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