Common Insurance Buying Mistakes

Insurance coverage is a key component of everyone’s personal finances.

We all need coverage. The premiums you pay may seem expensive, but insurance protects you from uncertainty. Insurance coverage, however, is often misunderstood, so use these tips to avoid common insurance buying mistakes.

Cheap Insurance?

There is no such thing as “cheap” insurance.

Why, then, do you see so many ads about “saving money on XYZ insurance?”

Consider this explanation and draw your own conclusions…

First, understand that insurance is one of the most heavily regulated industries, and each state has detailed rules about how insurance is offered, priced, and sold to consumers. Second, insurance companies hire more college math majors than just about any other industry.

Why?

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Insurance is all about risk and probability, and these factors are evaluated by math majors- who become actuaries. Take car insurance, for example. The insurance company has a pool of people that are sold car insurance, and the premiums generated each month are supposed to cover insurance claims,  business costs, and generate a profit.

What’s the risk that someone in the pool will have an accident? It’s based on historical data, probability, and other math calculations.

Given the heavy regulation and math component, there really isn’t “cheap” insurance- only insurance that covers less, or pays out less often. That cheaper insurance policy you see advertised may not cover all of your car’s damage if it’s totaled- only up to a dollar amount.

It’s not cheaper, it just pays out less in claims.

Low Deductibles?

 

Getting the balance right between premiums and deductibles can be difficult. Many people do not realize that they can adjust the features on their policy to reduce the amount of money they pay per month. If you set your deductibles at a higher rate, this means that your premiums will be lower as a consequence..

 

For those who are unaware, your deductibles relate to the amount that you need to pay before an insurer will pay out. Therefore, you also need to make sure that this is at a rate that you can afford.

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Gritty Details

You should never sign a contract without reading each and every word of the policy, and without fully understanding the terms and conditions and the full implications. After all, there are a lot of insurance plans that come with hidden fees and terms that you really need to know about.

These terms come back to bite you if you are not careful, so make sure you read the details. Take as much time as you need to find the right insurance plan for you. It may take more time, but it will definitely be worth it in the end.

The Benefit of Groups

In many cases, group insurance plans offer you a much better value than buying insurance on your own. Many employers offer group insurance policies as part of their employee benefits packages. This gives the employees access to cheaper insurance, and it also offers tax benefits to the business, it’s a win-win!

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What About Online Reviews?

Take the time to do your research and make certain that the insurance provider has a good reputation, and read online reviews. After all, you want to make sure that the insurance company has a good record for paying out and that it deals with its customers well.

Make sure you read comments on independent review platforms, rather than directly off the company’s website. If you use the likes of Trustpilot, you can be sure that the comments are genuine. You need to consider the reviews as a whole, rather than focusing on one comment specifically.

You Got This!

 

Use these tips to avoid common insurance mistakes and get the coverage you need.

You got this!

 

Ken Boyd

Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies

Co-Founder: accountinged.com

(email) ken@stltest.net

(website and blog) https://www.accountingaccidentally.com/

(you tube channel) kenboydstl

 

Image: Bullseye, Jeff Turner CC by 2.0