The weird thing about insurance is that you never know when you may need it, so you buy it in the hopes that you never need it.
Still, many people loyally buy insurance from the same firm year after year like it’s a fast-food item, instead of considering their actual needs.
Here are four mistakes you must always avoid when buying insurance products.
Not shopping around
Most Americans are very loyal to insurance companies, viewing them as akin to a friend or colleague that demands loyalty.
Loyalty isn’t free. And while you may be loyal to your insurance company, your insurance company will raise rates to reflect market conditions.
More than 26% of American policyholders have never shopped around for insurance companies or compared quotes. Once they are accepted by a company, they stay with them for years or decades.
Researching and shopping around for insurance quotes relative to your needs takes a couple of hours at best. Just comparing car insurance quotes and switching policies every six months can save you almost $130 annually.
Failing to get hidden discounts
You are free to end or switch insurance policies at any time. Always compare prices and quotes. At the very least, ask your insurance company about discounts and benefits for long-time customers — such discounts are not always advertised.
If you are going to be loyal to an insurance company, why not get something out of it?
Buying homeowners insurance to cover real estate value
You should understand the bureaucracy of the insurance system as best you can to make it work for you.
For example, many homeowner insurance policyholders buy policies based on estimated market values. They mistakenly believe that they can reduce their premiums if their home’s financial value goes down.
Rather, homeowners insurance is designed to pay for the cost of home repairs and rebuilding when necessary. Homeowner insurance policies are not designed to protect the value of your home or offer discounts when that value drops.
Always ensure that your homeowners’ insurance policy is adequate to pay for repairs and rebuilding as needed.
Maintaining the value of your home, a fine financial pursuit, is a separate issue.
Forgoing flood insurance
Only about 27% of American homeowners have flood insurance. Yet more than 25% of home flooding incidents occur in low-risk flooding areas, not in high-risk flood zones or hurricane zones.
The average cost of flood insurance is about $700 annually. Paying for unexpected flood damage without it will cost a lot more or could result in a total loss.