3 Insurance Myths You Shouldn’t Buy Into

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It’s important to make informed choices to get the right insurance protection. Check out three myths consumers can’t afford to believe when getting covered. 

Buying insurance can be confusing, especially since many people have misconceptions about getting covered that can lead them astray. It’s very important to make the right choices when putting insurance policies in place, as mistakes about coverage could do serious damage to a checking account balance.

Consumers should make sure they are not falling for these three big myths when they’re buying insurance, so they aren’t left with regrets.

1. Insurance policies always cover everything that goes wrong

One common misconception is that a particular kind of insurance will cover most everything that goes wrong. For example, a homeowner who is buying home insurance might assume they are protected against all kinds of disasters, from fires to floods to earthquakes and more.

The reality is, this is often not the case.

Most insurance policies have exclusions and provide protection only from certain covered losses. Named peril policies list the specific kinds of events that will result in an insurance payout, but even so-called “all risk” policies still have limitations and won’t pay for damage resulting from an excluded cause.

Anyone buying insurance should read the fine print to find out when an insurer will pay and what types of damage an insurer will exclude. That’s because it’s sometimes possible to buy specific coverage for things that are commonly excluded.

For example, most home insurers won’t pay for flood damage caused by weather, but separate flood insurance is typically available through FEMA. Unfortunately, those getting covered won’t know they need it unless they know their coverage details.

2. Loyalty to an insurance carrier can pay off for policyholders

It’s tempting to believe that sticking with the same insurer year in and year out will come with financial rewards. But, in fact, the opposite may be true. In many states, insurers can set prices based on any criteria they want. And some insurers actually evaluate who is least likely to shop around and compare costs — and then they charge those people a higher premium.

Rather than getting stuck paying more for insurance by keeping the same coverage forever, consumers should shop around for policies about once a year. There may be a better and less expensive option out there, especially since insurance companies don’t usually give special discounts to their repeat customers who stick with them year after year.

There is one caveat to the general rule that loyalty doesn’t pay, though. Many insurers do offer discounts for bundling coverage, so being brand loyal and buying multiple policies from the same carrier can make sense. But even with bundled policies, it pays to shop around and check rates each year to confirm that the policies are being offered at competitive prices.

3. Buying the minimum amount of insurance coverage is a great way to save money

Finally, one last myth relates to how much insurance to buy. Some consumers think they’re better off saving on premiums by buying the bare minimum amount of insurance required by their state. But while this can seem smart if nothing goes wrong, it can lead to financial disaster in the event a home, vehicle, or other insured property is damaged.

Everyone buying insurance should make sure they are transferring an appropriate amount of risk to an insurer. If a policyholder couldn’t pay for out-of-pocket losses if something goes wrong, more insurance is needed.

Fortunately, those who know the truth about these three myths can make sure they have the right protection in place. This is great for their finances, and for their peace of mind.

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