Insurance coverage in the event of a catastrophe is one blessing
insurance customers can be thankful for -- unless you've skipped
some vital steps in making sure your policies reflect your
life.
Your goose could be cooked if you have gaps in coverage, leaving
you with far less insurance money than you expected from a
claim.
Here are five common errors to avoid.
1. Forgetting to add your teen driver to your auto insurance
policy
Typically a
car insurance
policy covers you and the licensed members of your household as
well as anyone else to whom you give occasional permission to drive
the car.
To set a premium that accurately reflects risk, the insurance
company needs to know about the licensed drivers who live with you,
and you're supposed to provide that information.
Conveniently "forgetting" to tell the insurer about a new teen
driver, or any other driver in the household for that matter, is a
bad idea. What happens if the unlisted driver causes an
accident?
Technically, if a company can prove you purposely misrepresented
information, it could deny the claim based on fraud. In addition,
nonstandard insurance companies that cater to risky drivers are
more likely to take a hard line than insurers who market to
moderate- and low-risk customers, says Robert U'Ren, senior vice
president of Quality Planning, a company that helps insurers
identify money-losing policies.
Standard insurance companies typically will cover the claim from
the teen crash but charge you back premiums, he says. Don't assume
you get off scot-free. Misleading the company could prompt it to
not renew your policy, and the record of a claim for an unlisted
driver could put a black mark on your record, which will make it
harder to find affordable car insurance.
"A lot of information is shared among insurance companies,"
notes U'Ren.
Insurers lost out on $2.7 billion in premiums in 2010 because of
consumers failing to disclose information about household drivers,
according to a 2011 Quality Planning report. Those losses don't
just hurt the insurance companies; they get passed on to other
customers in the form of higher premiums overall.
2. Remodeling your house without increasing home insurance
coverage
Review your home insurance periodically to make sure the amount
jibes with current construction costs and takes into account any
improvements you make. You should insure your home for the cost to
rebuild it.
"Anytime you make changes -- adding a room to a house, upgrading
your kitchen or bath -- notify your insurer so that these changes
are reflected in the policy," says Tully Lehman, a spokesperson for
the Insurance Information Network of California.
Otherwise you will be underinsured. Lehman recalls one Lake
Tahoe, Calif.-area homeowner who, over the course of many years,
remodeled a small two-bedroom, one-bath house into a two-story
mountain dream home. Trouble was he never changed the amount of
home insurance coverage. After a fire swept through the area and
leveled the house, the home insurance payout was enough only to
rebuild the original, modest structure.
The problem is surprisingly common.
One year after the September 2011 central Texas wildfires, for
instance, 56 percent of affected homeowners reported being
underinsured by an average of $110,000, according to United
Policyholders, a consumer advocacy group in San Francisco.
Here are
home insurance basics
.
3. Expecting home insurance to cover your home business
Just because you work at home doesn't mean your business is
covered by home insurance. Typically home insurance covers just
$2,500 in business-related property, and includes no liability
coverage for business activities.
What if one of your business consulting clients slipped and fell
on your stairs? Or a batch of cookies from your baking business
sent someone to the hospital? Home insurance wouldn't cover your
legal expenses if you were sued.
Most standard policies define a business as a "trade, profession
or occupation engaged in on a part-time, full-time or occasional
basis" that in the last 12 months earned $2,000, according to
Christine G. Barlow, a Chartered Property Casualty Underwriter and
associate editor of FC&S Online, which interprets insurance
policies for the industry.
Talk to an insurance agent about the type of business insurance
you need.
4. Never telling your beneficiaries about your life insurance
policy
Imagine paying thousands of dollars in premiums for life
insurance, but your loved ones never collect a dime after you die.
Unfortunately this happens all too frequently because policyholders
fail to give their beneficiaries the information they need to file
a claim.
Family members often report knowing there was a policy but
having no idea the type, amount or company. Make it easy for your
loved ones. Give your beneficiaries the company name and policy
number and let them know where you keep your important
documents.
Here's
how to find lost life insurance policies
.
5. Buying a health insurance plan without reading the
details
Starting in 2014, health insurance plans will be standardized.
Even the most basic plans will have to include certain benefits
under the
Affordable Care Act
.
But until then, individual plans vary widely. Some, for
instance, don't include prescription drug coverage. Some plans
might not have your doctors in their provider networks. And many
individual health plans don't cover maternity care. According to
the most recent figures from the National Women's Law Center, only
13 percent of individual health plans available to a 30-year-old
woman across the country provided maternity coverage in 2009.
Here's how to buy the worst health insurance plan ever: 7
scenarios to avoid.
Bottom line: Read the benefits carefully before you buy health
insurance, and don't buy solely by price. Think about your health
care needs and find a plan to match.