Eight Common Misconceptions Regarding Insurance

Due to the complexity of the insurance industry and the endless sea of terrible insurance advice available online, it can be challenging for insurance customers to determine what is the truth, and what is fiction. Over our years in business, we have heard pretty much everything. So in an effort to shed light on some common misconceptions, we have put together a list of common mistakes plaguing the insurance industry.

1. At age 25 your insurance rates drop dramatically.

Although we would very much love for this to be the case, it isn’t. While age 25 is commonly viewed in the insurance industry as the age when a driver is no longer considered a “youthful operator,” there is not a substantial discount that will be applied for merely having a birthday. However, as you get older it not uncommon to start to see more favorable rates. But keep in mind that this is a gradual process that comes with time and years of good driving.  

2. Your home should be insured for the same amount it was purchased.

While this seems logical on the surface, it is important to note the difference between Market Value & Replacement Cost. Finding home insurance is often a huge part of the home buying process. However, purchasing a home and insuring a home are entirely different. When buying a home, you will be dealing exclusively with Market Value. This will include factors like land value, neighbor features, and area trends. When obtaining home insurance, the focus is to determine the amount needed to replace and rebuild your home, not reimburse the purchase price. So it is essential to discuss your property in detail with your advisor to ensure all bases are covered.   

3. Letting your auto insurance policy cancel is “no big deal.”

On the contrary, a lapse in insurance is a huge deal and is becoming a growing issue in the insurance world. Letting your auto insurance lapse is never a good idea, even for a short period of time. Not only is this against the law in most states, but it also leaves you without valuable coverage while driving. What’s more, many insurance companies will not offer auto insurance to anyone who has had a lapse in insurance. So your insurance options will be significantly limited if there has been a lapse in coverage. Further, insurance companies that will offer a policy after a lapse in coverage will only provide a policy at a substantially increased cost. All insurance companies reserve their most competitive rates for drivers who have had continuous insurance for at least six months with no lapse in coverage. Always talk with your advisor before cancelling your auto insurance policy. 

4. Full coverage means my policy covers everything.

We admit the name can be deceiving, but full coverage does not mean that absolutely everything can be claimed on your auto insurance policy. Full coverage just means that an insurance policy is offering coverage to the vehicle you own, by adding comprehensive and collision coverage. If you have full coverage, you can pay your deductible and have your car repaired after a covered loss damages it. Conversely, if you have liability only, your insurance policy will not offer benefits to repair your vehicle.

5. Insurance rates are negotiable.

If only it were this simple! Unfortunately, insurance rates are derived by compiling numerous amounts of data into a complex algorithm. Once calculated, there is no way to change the rates without altering the information or the coverage. This is why it is nearly impossible for two different people to have the same insurance rate. Each person is unique in some way, and each insurance company will interpret each characteristic differently. 

6. All companies offer the same policies.

Many companies in the insurance industry have worked very hard to establish this myth. However, it is simply untrue. Like any other product in the world, there is a difference in quality from company to company. The same is true for insurance. The details lie within the policy language and the company mentality. Some insurance companies believe in broader policy language to offer enhanced coverage options to ensure a great claims experience for their clients. Others feel that more evasive policy language and only paying claims when it is absolutely required is a better approach. While the name of each coverage on your policy may look the same, the experience you will receive can be very different from provider to provider. It is important to do your research on a company before trusting them with your insurance.

7. I am married, but my spouse has his/her own insurance.

“What’s yours is mine and mine is yours!” Once married, you are not required to combine your auto insurance. However, nearly every reputable insurance company in America will require that spouses are listed on the same policy. This is done to avoid coverage gaps and ensure claims can be paid correctly in the event of an accident. If policies are not combined after marriage, there is a higher risk for denied claims, and there is a good chance your household is paying too much for auto insurance. The bottom line, most spouses have access to each other’s vehicles, so it is safer, and likely more economical, to combine your auto insurance.

8. There is no need for renter’s insurance.

False. For most renters, the only protection available from landlords, neighboring tenants, and damage to rented property is a renter’s insurance policy. While most know renter’s insurance to cover personal belongings, the superstar coverage on a renter’s policy is the liability protection. Did you know, if a renter causes a fire in an apartment complex they can be sued for the damaged caused to their unit as well as any surrounding units? Without renter’s insurance, the renter would be stuck paying for that damage on their own.

Renting is often much more personal and often presents a much higher chance for liability claims than buying a home. Not to mention, renter’s insurance is one of the most affordable insurance product on the market.  Every renter should have a renter’s insurance policy.

June 19, 2017
by Melanie Stout
Client Support