Insurance - Crucial Do’s and Don’ts
Insurance is what you buy as a safety net against the unthinkable.
However, typically when you file an insurance claim you feel you’ve
got much less than you deserved. “All those premiums over the years
gone to waste” you sigh! Here are some common insurance pitfalls you
can avoid so that you can get the right value for money on your
Your life insurance policy is not a savings account, don’t turn it into
one. Do not buy a cash value life policy when what you actually need
is a term life policy. If you need to invest money long term for
retirement planning, 401(k) is a much better option any day!
Don’t delay buying life insurance policy and don’t underinsure. A rule
of thumb is to consider at least ten times your annual income as the
amount you would want your dependants to have. Remember, the
main purpose of a life insurance plan is to provide financial support to
your dependants when you are no longer around to do it yourself.
Do not let your agent decide what’s good for you. Make sure you
understand the implications and fine print of every word of your
insurance policy. Do not treat the purchase of your life insurance
policy as a one-time-activity. Remember, needs change over time.
Instead of buying just an Accidental Death / Travel Accident insurance,
it makes much more sense to buy a complete life insurance policy,
which might look more expensive initially but will turn out cheaper in
the long run.
Never make the mistake of confusing what you paid for your house
with its rebuilding costs. Land is mostly indestructible and including
land in your estimate to rebuild your home structure just makes you
spend more on premiums without getting corresponding returns. When
you claim, you are paid to rebuild / renovate the structure.
Comb your home insurance policy word for word. Do not assume
anything. Chances are, if you’re living in a disaster-prone area, prone
to earthquakes or floods, either you might need to buy a separate
coverage for these, or your policy may have a separate deductible for
claiming any damage arising out of these major disasters.
Make sure you check the insurance requirements of an area before
buying a house there. After Hurricane Katrina, many large home
insurance companies pulled out of that area. Check companies,
coverages provided and rates prevalent in a location before you buy a
Ensure you update your home insurance company as soon as you
make any modifications/ additions to your original home structure at
the earliest. Not updating your insurance company about changes is
one of the biggest reasons for home owners’ claims being rejected.
If you live in a group housing or condominium scheme, check what is
covered under the group housing insurance plan so that you do not
buy duplicate coverage for the same structure. It’s a better idea to add
on to the policy to cover everything.
It’s not a very good idea to insure your auto to only comply with the
basic liability insurance requirements mandated by your state. Keep
liability amounts much higher. For example, minimum state mandated
liability for AZ auto Insuranceis 15/30/10. However if you are at fault
in an accident and your bill from the aggrieved party exceeds this, you
will have to pay from your own pocket. What if you hit a doctor, or
worse still a car full of kids. Can you imagine the financial implications?
While it’s never a good idea to underinsure, many make the mistake of
over insuring their car. Keeping collision and comprehensive on a very
old car with little resale value doesn’t really get you much if you were
to total your car. Typically drop collision coverage once your car is 7
years and comprehensive coverage once it is older than 10 years.
Before making any modifications in your car, check if your insurance
company is ok with them. Most insurance companies do not cover
engines which have been modified.
Make sure you are aware what the blue book value of your car is,
while filing a claim for your totaled vehicle. A good idea is to look at
the purchase value of at least five similar cars in your area and then
average out their cost. That’s what your car insurancecompany should
be paying you for your totaled vehicle unless it had been insured at an
agreed value. People realize how expensive insurance on a car is, after
buying it. Check the records of cars of different models to see which
one is cheaper to insure before buying your car. You save big $$ and
disappointment later on.