To the average consumer, insurance can be pretty complicated business. Heck, it perplexes even the most seasoned insurance professionals out there sometimes.
When it comes down to it, we all know we need to have it, mainly because car insurance is mandatory in most states and lenders require homeowner’s insurance if we carry a mortgage. Do I even need to explain why we all need health insurance?
Unfortunately, there are a lot of misconceptions out there regarding insurance, which can be pretty dangerous if you think you’re covered when you’re really not.
Top 10 Insurance Myths
10. Your friend is not covered to drive you car under your insurance policy.
False. Remember the phrase, “the insurance follows the car.” This means, if there is an in-force (active) insurance policy on your car, you can allow anyone to drive it, unless the individual is specifically excluded on your policy.
9. Your personal belongings are insured by your apartment complex/landlord’s insurance policy.
Wrong again. Unless you have a renter’s insurance policy, the odds are you are not covered. Your landlord or apartment complex only insures their financial interests, which are the physical building they own, not your “stuff.”
8. A homeowner’s policy covers your home in the event of a flood.
Guess again. Flood insurance is only offered by the Federal Government through the National Flood Insurance Program (NFIP). An independent agent can sell you a policy, but they are simply selling on behalf of Big Brother. Check out more flood insurance FAQ.
7. Auto insurance covers theft of your personal belongings from your car.
Couldn’t be further from the truth. Any personal items left in your car are not covered unless you have a renter’s or homeowner’s insurance policy covering your “contents,” or possessions. You may also purchase a Personal Articles Floater (PAF) policy to cover your more expensive items.
6. Your car, damaged while in your garage, is covered by a homeowner’s policy.
You wish. Homeowner’s policies specifically exclude damage to automobiles. You would need to have comprehensive coverage on your auto policy to cover damage to your vehicle while parked in your garage.
The definition of “collision” is not extended to cover a collision with an animal on most auto insurance policies. Again, you need comprehensive coverage to get reimbursed for damages result from hitting an animal.
4. You don’t need to worry about being sued if you have insurance.
This misconception is dangerous because it may lead individuals to purchase lower liability limits for their home or auto insurance policies. If you are sued and lose, your insurance company is only responsible for paying awarded damages up to the liability limit of your policy. Anything a jury awards the plaintiff above the policy limit is your responsibility to pay.
3. If I suffer a property loss (car or home, for example) my property will be replaced by my insurer.
This may or may not be true. The answer depends on whether or not your policy has replacement cost or actual cash value coverage. Many people, in an attempt to save money, will opt for ACV because it’s cheaper. Then when they suffer a loss, they’re upset to find out they’re receiving quite less than is required to go out and buy a new item of like kind and quality.
2. I don’t need life or health insurance if I am young and healthy.
Bad idea. You can save a lot of money by purchasing a whole-life policy when you are younger and the rates are lower. The older you get, the less money the insurance company can collect from you before the inevitable payout, so they charge more per year.
As far as health insurance goes, you never know when you will be seriously injured or develop a life threatening disease, so it’s always best to be covered. However, it is worth pointing out that if you’re injured on the job, you qualify for worker’s compensation benefits. This only covers injuries though; you would need to participate in an employer sponsored health plan to receive benefits if you become ill.
1. The longer I stay with my insurance company, the better.
You must live under a rock. Every insurance company with a national advertising campaign is telling you to switch companies, claiming 15 minutes could save you 15%, or to call for a discount double check. Nearly every insurer in the country changes their rates at least once per year, some many more times than that. The only thing certain about staying with an insurance company is that your rate is not being shopped for competitiveness versus other companies. What other product do you buy that you don’t comparison shop for?
Bonus myth: Accident forgiveness is free.