Trying to Save Money? Avoid the Five Biggest Insurance Mistakes!

Tips For Saving Money On Home and Auto Insurance, From the I.I.I.

With nearly one in 10 Americans out of work, and others forced to make ends meet with less money, many people are looking for ways to cut costs. There are smart ways to save on home and auto insurance; however, there are also mistakes that can result in being dangerously underinsured, according to the Insurance Information Institute (I.I.I.)

“When money is tight, it extremely important to be financially protected against a catastrophe with the right amount and type of insurance,” said Jeanne M. Salvatore, senior vice president and consumer spokesperson for the I.I.I. “By taking a few simple steps, it is possible to cut costs and still be protected should disaster strike.”

Following are five of the biggest insurance mistakes that consumers should look out for:

1. Insuring a home for its real estate value rather than for the cost of rebuilding. When real estate prices go down, some homeowners may think they can reduce the amount of insurance on their home. But insurance is designed to cover the cost of rebuilding, not the sales price of the home. You should make sure that you have enough coverage to completely rebuild your home and replace your belongings.

A better way to save: Raise your deductible. An increase from $500 to $1,000 could save up to 25 percent on your premium payments.

2. Selecting an insurance company by price alone. It is important to choose a company with competitive prices, but also one that is financially sound and provides good customer service.

A better way to save: Check the financial health of a company with independent rating agencies and ask friends and family for recommendations. You should select an insurance company that will respond to your needs and handle claims fairly and efficiently.

3. Dropping flood insurance. Damage from flooding is not covered under standard homeowners and renters insurance policies. Coverage is available from the National Flood Insurance Program (NFIP), as well as from some private insurance companies. Many homeowners are unaware they are at risk for flooding, but in fact 25 percent of all flood losses occur in low risk areas.

A better way to save: Before purchasing a home, check with the NFIP to check whether it is in a flood zone; if so, consider a less risky area. If you are already living in a flood zone area, look at mitigation efforts that can reduce your risk of flood damage and consider purchasing flood insurance.

4. Only purchasing the legally required amount of liability for your car. In today’s litigious society, buying only the minimum amount of liability means you are likely to pay more out-of-pocket—and those costs may be steep.

A better way to save: Consider dropping collision and/or comprehensive coverage on older cars worth less than $1,000. The insurance industry and consumer groups generally recommend a minimum of $100,000 of bodily injury protection per person and $300,000 per accident.

5. Neglecting to buy renters insurance. A renters policy covers your possessions and additional living expenses if you have to move out due to a disaster. Equally important, it provides liability protection in the event someone is injured in your home and decides to sue.

A better way to save: Look into multi-policy discounts. Buying several policies with the same insurer, such as renters, auto and life will generally provide savings.

The I.I.I. website has consumer information on insurance, as well as more tips for saving money on homeowners and auto insurance.

THE I.I.I. IS A NONPROFIT, COMMUNICATIONS ORGANIZATION SUPPORTED BY THE INSURANCE INDUSTRY.

INSURANCE INFORMATION INSTITUTE, 110 WILLIAM STREET, NEW YORK, NY 10038, (212) 346-5500

FOR MORE INFORMATION VISIT: INSURANCE INFORMATION INSTITUTE

Making Sure Your Home Is Properly Covered for a Disaster

For many people, their home is their greatest asset. Yet studies show that 59 percent of today’s homes are underinsured by an average of 22 percent (according to Marshall & Swift). To protect their investment from disasters, homeowners should update their insurance regularly to include improvements, major purchases and increased rebuilding costs.

In particular, the cost of building or repairing a home has increased dramatically in recent years. According to the U.S. Census Bureau, homeowners spent over $218 billion on additions, alterations, maintenance and repairs in 2005, up from $201 billion in 2004. Materials like lumber, cement, gypsum and structural steel products have become scarcer, not only because of the devastation from last year’s storms, but also because of increased global demand. In fact, the cost of lumber climbed 6.1 percent in 2005, according to statistics from the U.S. Department of Labor.

To properly insure your home, it is important to ask your insurance agent or company representative four key questions.

1. Do I have enough insurance to rebuild my home?

Your policy needs to cover the cost of rebuilding your home at current construction costs. Unfortunately, some homeowners simply purchase enough insurance protection to satisfy their mortgage lender. Others confuse the real estate value of their home with what it would cost to rebuild it. Quite simply, you should have enough insurance to rebuild your home in the event that it is completely destroyed. Be sure to consider the following:

• Replacement Cost
  Most policies cover replacement cost for damage to the structure. A replacement cost policy pays for the repair or replacement of damaged property with materials of similar kind and quality.



• Extended Replacement Cost
  This type of policy provides additional insurance coverage of 20 percent or more over the limits in your policy, which can be critical if there is a widespread disaster that pushes up the cost of building materials and labor.



• Inflation Guard
  This coverage automatically adjusts the rebuilding costs of your home to reflect changes in construction costs. Find out if your policy includes this coverage or if you have to purchase it separately.



• Ordinance or Law coverage
  If your home is badly damaged, you may be required to rebuild it to meet new (and often stricter) building codes. Ordinance or law coverage pays a specific amount toward these costs.



• Water Back-Up
  This coverage insures your property for damage from sewer or drain back-up. Most insurers offer it as an add-on to a standard policy.



• Flood Insurance
  Standard home insurance policies provide coverage for disasters such as fire, lightning and hurricanes. They do not include coverage for flood (including flooding from a hurricane). Flood insurance is available through the federal government’s National Flood Insurance Program (www.floodsmart.gov), but can be purchased from the same agent or company representative who provides you with your home or renters insurance. Make sure to purchase flood insurance for the structure of your house, as well as for the contents. Excess Flood Protection, which provides higher limits of coverage than the NFIP in the event of catastrophic loss by flooding, is available from some insurers. Keep in mind that there is a 30-day waiting period before the insurance is valid.

2. Do I have enough insurance to replace all of my possessions?

Most homeowners insurance policies provide coverage for your personal possessions for approximately 50 percent to 70 percent of the amount of insurance you have on the structure of your home. So if you have $100,000 worth of coverage on the structure of your home, you would be covered for $50,000 to $70,000 worth of the contents of your home, depending on the policy. Do an inventory of your home to determine if this is enough coverage for you.

You can insure your possessions in two ways: by their actual cash value or their replacement cost. Make sure you review with your agent or company representative which type of coverage is best for your particular situation.

• Cash Value Policy
  This coverage pays the cost of replacing your belongings minus depreciation.



• Replacement Cost Policy
  This coverage reimburses you for the full current cost of replacing your belongings.

3. Do I have enough coverage for additional living expenses?

Coverage for additional living expenses pays the extra costs of temporarily living away from your home if you can't live in it due to an insured disaster. It covers hotel bills, restaurant meals, transportation and other living expenses incurred while your home is inaccessible or being rebuilt. It is important to note that it covers only those expenses that are over and above your regular living expenses, so it would not cover your mortgage, or regular trips to the grocery store. If you rent out part of your house, this coverage also reimburses you for the rent that you would have collected from your tenant if your home had not been destroyed.

Make sure you know exactly how much coverage you have for additional living expenses, and whether there is a time limit. If the standard coverage is not adequate, it can generally be increased for an additional premium.

4. Do I have enough insurance to protect my assets?

Although not a key element in disaster planning, it is also important to have adequate liability protection. This covers you against lawsuits for bodily injury or property damage that you or your family members may cause to other people. It also pays for damage caused by pets. Liability insurance pays for both the cost of defending you in court and for any damages a court rules you must pay—up to the limits of your policy. Most homeowners insurance policies provide a minimum of $100,000 worth of liability insurance, but higher amounts are available.

It is important to purchase enough liability insurance to protect your assets. If the standard liability coverage in your homeowners policy is not sufficient, you may need an excess liability, or umbrella, policy, which provides additional coverage over and above what is covered in your home (and auto) insurance policy.

For more information visit: Insurance Information Institute (I.I.I)

Ten Ways to Reduce Your Homeowners Insurance Premium

Package Your Homeowner’s and Auto Policies Together
Many insurance companies give 5-15% discounts for customers who purchase insurance with them for both their home and auto.

Raise Your Deductible
Raising your deductible to the highest possible price you could pay should a loss occur could save you up to 37%. The higher the risk you assume, the less you will pay on your premium. When choosing the best deductible for you, please always be sure you can afford to pay your deductible should the need arise.

Typical deductible and discounts are approximately:

$500 – Save up to 12%
$1,000 – Save up to 24%
$2,500 – Save up to 30%
$5,000 – Save up to 37%


Make Your Home Disaster Resistant
If you own an older home, keeping its heating, pluming, roofing and electrical systems up-to-date will reduce your risk of water or fire damage. Find out from your insurance agent the best possible ways to make your home more resistant to natural disasters.

Establish Good Credit
By establishing and maintaining good credit, you will qualify for better rates. Keeping limits on credit cards low and always paying bills on time will improve credit scores.

Stay With the Same Insurance Company
By maintaining insurance with the same company for several years could qualify you for a 5-10% discount for long-term policy holders, depending upon the company.

Verify You Have the Correct Coverage Annually
Depending upon the valuables you have in your home, such as expensive jewelry and high-end computers, you may have requested additional coverage for such items. Always verify your coverage’s yearly to be sure you are not paying extra for items you either do not still own, or items that are not as valuable as they once were. You may want to cancel or reduce the amount of coverage you have on these items.

Check Around For Best Rate
When getting insurance quotes, always look around for the best rate. Be advised that though some quotes may be lower than others; always verify they have the correct coverage’s you need. Some companies will give you low premiums, with low coverage’s. Were you to have a total loss on your home, you want to be completely sure you have enough to rebuild completely should you need to.

Pay Electronically
Many companies now charge a mailing fee of up to $5 when sending out a customer’s bill. By making payments electronically, you will save yourself this charge and any additional fees they might add to mail out.

Be Sure Not To Include Land When Determining Coverage Amount
When obtaining homeowners insurance, do not include the value of land when deciding how much insurance coverage you want or need. Land is not considered in the rebuilding cost coverage’s as it will not be at risk from theft, fires, or any additional coverage’s included in your homeowners policy.

Purchase a Security System
By purchasing a security system for your home you could receive discounts for protection against fire and theft. Though these systems are often not cheap, over a period of time they could save you money. Always speak with your insurance agent about recommended systems, and how much you would save on your premium before making any purchases.


For more information visit: I.I.I, Financial Planning, and Money Central.