Avoiding the Underinsured Mistakes

While financial times are tough, one area consumers should think twice about cutting is their insurance needs.

According to the Insurance Information Institute (I.I.I.), too many American consumers think that the coverage limits for their homeowners’ insurance policy are tied to the market value of their residence.

Results from the I.I.I.’s 2011 Insurance Pulse Survey, run by the Opinion Research Corp., shows close to half (48 percent) of those responding believe that the coverage limits for their homeowners’ coverage are connected to the market value of their residence.

According to a spokesperson for the I.I.I., the real estate value of a residence has nothing to do with the figure of insurance necessary to financially protect the homeowner should a fire or other disaster strike the home. The spokesperson went on to say that decreasing insurance coverage due to the fact the market value of residence has fallen can lead to being greatly underinsured.

The survey notes that one out of three consumers reported acquiring less homeowners or coverage for their auto as a means to save dollars.

In order to save money and avoid being underinsured, consumers should think about taking on a larger deductible, a practice that can drop one’s insurance expenses.

Another option for saving money is to shop for multiple quotes so that you have choices available to you.

The I.I.I. advises consumers to shop wisely for their insurance needs and not cut themselves short when it comes to coverage. In order to avoid mistakes with one’s auto, home, renter’s and flood insurance needs, here are some tips for consumers.

First, don’t make the mistake of insuring a residence for its real estate value as opposed to the expense of rebuilding it.

At the time real estate prices drop, a number of homeowners might believe they can decrease the amount of insurance for their residence. Keep in mind the idea behind coverage is to cover the expenses to rebuild.

Consumers should also avoid choosing an insurer just by price.

While competitive prices are important, consumers also need to select an insurer that is financially sound. Consumers can research insurance companies by turning to financial rating agencies to find out the insurers’ standing.

Another option for consumers is to remove their flood insurance.

Consumers need to keep in mind that damage resulting from flooding is not covered through standard homeowners and renters insurance policies. Residents can obtain protection through the National Flood Insurance Program (NFIP), along with options from several private insurers.

As it turns out, a large number of homeowners do not understand that they are susceptible to flooding. Research shows that one-fourth of all flood losses take place in low risks venues.

Prior to buying a home, consumers should inquire with the NFIP to deem whether the property rests in a flood zone. For those properties that do sit in flood zones, consumers should think about a less risky venue. For those individuals already residing in a designated flood zone, review mitigation efforts that can decrease the risk of flood damage. Consumers should also think about acquiring flood insurance.

Another mistake oftentimes made by consumers is only acquiring the legally mandated amount of liability for their auto. With many lawsuits going back-and-forth in this day and age, acquiring just the minimum amount of liability opens the very good chance that you will pay more out-of-pocket in the event you are sued.

One option for saving is thinking about removing the collision and/or comprehensive coverage for older cars that are worth under $1,000. Consumers are generally recommended to secure at least $100,000 of bodily injury coverage per person and $300,000 per accident.

Finally, another mistake consumers need to avoid is not purchasing renter’s insurance.

The renter’s policy covers consumers’ possessions and added living costs in the event they have to move out of their residence because of an insured disaster. The coverage also provides liability protection if an individual is injured in your residence and ends up suing.

Consumers are advised to do their research into multi-policy discounts, thinking about purchasing more than one policy with the same insurance company.