8/8/2013 8:15 PM ET|
12 terrible pieces of insurance advice
Not all advice is good advice. Here are some common bits of insurance wisdom that, it turns out, aren't so wise after all.
When you have an insurance claim, the last thing you want to discover is that you didn't buy the right coverage. While it's easy to point the finger at agents, coverage gaps could be a two-way street.
Sometimes friends and family members offer bad advice, including tenuous, illogical and even illegal strategies, hoping to save you a few bucks. But the eventual losses can be huge.
"When people shop for insurance, a lot of times they're looking for the best deal," says Ron Reitz, an independent insurance adjuster and president of Quality Claims Management in San Diego.
We asked some insurance veterans about the bad advice they've heard over the years. Here's what makes them cringe.
No. 1: Lock up all insurance policies and other important documents in a safe deposit box
Do not keep your life insurance policy in a safe deposit box. If yours is the only name on the safe deposit box, no one but the executor of your will can get into it without Power of Attorney. If your life insurance policy is locked in there, your beneficiaries will have to wait until the estate is opened by a government entity and an executor is appointed.
If you want the assurance of having important documents locked up, buy a fire-safe box.
"Just make sure documents aren't stored in a place where they can be lost in a flood or fire," says Reitz. With today's technology, there's no excuse not to scan everything and create electronic copies of important papers that can be put on disks or in other storage devices.
No. 2: You don't need flood, earthquake or other disaster insurance
If an earthquake destroys your home, you won't recover a penny unless you have an earthquake insurance policy. The same rule applies to floods.
Decisions about flood insurance should be based on your proximity to a body of water that could overflow, not whether the area flooded before. On the plus side, if you're in a low-risk area, your policy will cost less while still providing the maximum protection.
"Floods occur in all 50 states, and in many cases flood damage happens in areas that aren't high-risk flood zones," explains Peter Moraga, spokesperson for the Insurance Information Network of California.
No. 3: Renter's insurance is a waste of money
Many renters mistakenly assume that their belongings are covered under the landlord's policy. Not the case! If some calamity were to occur, such as a fire, your landlord's insurance won't cover the contents in your apartment, nor will it pay for you to live in a temporary space while your place is uninhabitable, says Amy Bach, executive director of United Policyholders.
If someone is injured while visiting you and sues you, your landlord's insurance won't cover that either.
No. 4: Get the best rate even if you have to lie a little
It might be tempting to fudge the truth on a life insurance application, especially if you have a serious health condition. "Don't do it," advises Steven Modell, president of Modell Brokerage Group in Wayne, Pa. "Not only is it insurance fraud and a felony in most states, but it could prevent your beneficiaries from receiving the death benefit."
No. 5: Base your home insurance policy on the real estate value of your home
Experts recommend setting the structural limit of a home insurance policy on what it would cost to rebuild the home if it were destroyed, not the real estate value. Trouble is, the rebuilding cost is a subjective number.
"Many agents use online tools to estimate the rebuild value, but those tools can be misleading," says Moraga. "It's more important to talk to a contractor and find out what the local costs are for your home's particular type of construction, whether it's in a tract home or custom construction."
No. 6: Set your dwelling limit low
Some insurance agents try to give customers the lowest premium possible in order to close the sale.
"One of the ways they're doing it is by underestimating the value of the dwelling and slapping a 100 percent extended coverage endorsement on the policy," explains Bach. "Most policies have four separate categories of coverage: 1) Dwelling. 2) Contents. 3) Other structures. 4) Additional living expenses. Three of the four pay a percentage of the dwelling, so if you lowball the dwelling value because you have 100 percent extended coverage endorsement, you'll be underinsured for your contents, other structures and additional living expenses."
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Everyone complains about insurance until they need it. When you are standing in front of a pile of smoldering debris that used to be your house there is no better sight than that insurance adjuster pulling up. Same is true of flood or liability claims. When a sheriff arrives at your house to "serve papers" because little Johnny burned down your neighbors shed its nice to know the insurance company will not only bear the burden of an attorney but also settle that claim with the Plantiff. People quit complaining. If you hate insurance companies...Don't buy the product. Just remember that when something bad really does happen its you against the world without adequate coverage.
an old friend of mine built a new home in a '500 year' flood plain. he was trying to sell his old home so he had to finance construction of the new one until the old one sold. the lender required flood insurance, so my friend angrily complied with the demand.
old home sold after the second premium payment and the note on new home was paid off. friend asked his wife to cancel the flood insurance, she forgot, in spite of repeated requests. four months later, flood waters reached the top of the lower widow in double hung windows.
I asked him if he had flood insurance and he told me 'wes, you are looking at the happiest mad man you have ever seen!'
Hope you don't die in a house fire...but if you do, I hope it happens before you pay the mortgage balance and drop the home policy. Does your wife and kid(s) know that you're a complete idiot???
There was a time when we didn't need insurance. Matters of liability were settled over the sights of a dueling pistol. Cars didn't exist, & if your house burned down, family, frioends, & neighbors would get together to build you a new one.
Unfortunately we were losing too many good people in duels (see Alexander Hamiltion). Cars were invented, & could reach speeds beyond the average human's ability to handle safely. And while your brother-in -law may be the nicest guy in the world, do you really want him hooking up a gas line in your house (see Great Chicago Fire)? How about the electricity?
At least with insurance professionals can be paid to do sensitive work, disagreements can be settled with money, & you have your own vile, low-life, blood sucking lawyers to deal with the other fellows vile, low-life, blood sucking lawyers. Win/win.
Anyone who has been into the hospital for any kind of traumatic care knows they always get asked if the injury is the result of an auto accident. There's an excellent reason for this.
Look at your medical bill. You will note a column giving their full rate, and another column for what they are allowed to bill the insurance company. You only care about this column forward when you pay the hospital bill after your health coverage takes care of things.
Things aren't the same in an auto accident. There, it works off the FULL rate, not the discount they give insurance companies. This is why hospitals always ask that question.
For example, a $15,000 medical bill can easily be $30,000 full rate. Factor in a multiple of 3 for pain and suffering you are now up to $90k, and this is a pretty optimistic scenario if you liable in an auto accident.
Probably wise not to skimp on the liability portion of auto insurance.
Suggestions # 5 & # 6 doesn't make any sense, I have been quoted very high outrageous replacement costs for my home every time I have shopped for homeowners insurance.
I live in a new starter home community where the current builder is building new homes the same size of mine with the same finishes and they are selling for around $125,000. When I shopped around for homeowners insurance most companies quoted my homes replacement cost between $225,000 to $255,000.
They only do this so they can charge outrageous premiums and to reduce claims due to the higher deductibles on the over inflated replacement costs. I worked in residential construction for over ten years and I know these replacement costs are a scam.
If your company gives you a match on your the 401(k) you MUST do the amount to get the match-no more than that! Life insurance is much better than a "Qualified Plan" like a 401(k) if it is funded properly! Pay the maximum premium (yes the IRS "Limits" the amount of money you may put in a life insurnce contract because it is so very good) and buy the least Death Benefit and you would be amazed at how well these policies will perform in later years, especially if they are "indexed".
With a 401(k) you must accept that "ALL the RISK" is on you and your family! INFLATION, DEFLATION, STAGNATION, RECESSION, DEPRESSION, AND THE EXPENSES AND LOSSES OF THE COMPANIES WHOSE STOCK YOU BUY, THINK ABOUT IT. 72% OF ALL TEN YEAR PERIODS SINCE INCEPTION OF THE MARKETS HAVE UNDERPEREFORMED THE "AVERAGE" RATE OF RETURN BECAUSE IT IS THE MATH - NOT THE MONEY! 2000 - 2009 COMBINERD S&P 500 AND DOW LOST ABOUT 72% - Hard to make that up in this market!
If flood insurance doesn't cover wind driven water (hurricane flooding ) what good will it do me
other than a busted water pipe? So will wind and hail cover hurricane flooding, since hurricane coverage didn't? Yes insurance is a rip if you can't afford 15 different policies.
First renters. I've been battling this for 41 years. The landlord won't cover your property. You can't insured something you don't own. It's illegal, & for a very good reason. If someone who doesn't like you could insure your car, would it still be there in the morning? How about your life? If your worst enemy could insure your life, would you even make it from the front door to the car?
Second, term insurance makes sense if you know exactly when you're going to die. If not, buy whole life. Term is fine for conditions which have a term; loans, college tuition, income replacement (assuming there's going to be social security when you retire), & so on.
Finally, insurance is not an investment. It can protect your investments, but if you start having so many, or such expensive claims you're turning a profit, expect a termination notice.
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