7 common insurance errors

Unless you have major assets to tap, think about getting long-term-disability insurance.

"It's the single most important coverage for anyone who works," Okumura says. "Disability income is more important than life, even though it gets more press," he says, adding that people are much more likely to become disabled than they are to die early. If you become disabled and can't work, long-term-disability insurance can help keep you and your family financially solvent.

Okumura suggests maintaining an emergency fund of three to six months' worth of living expenses to take care of short-term disabilities. Then you can save your money to buy the long-term policy with your employer, if available.

Okumura also advocates getting long-term-care insurance as soon as it becomes feasible to do so. Long-term-care insurance can help pay for the cost of expenses associated with chronic illnesses, as well as nursing-home care and in-home caregivers.

The younger you are, the easier it is to qualify, Okumura explains.

"People think they don't have to deal with it until they're 50," he says, arguing that people can develop multiple sclerosis at 30 or 40 years of age. "You're uninsurable at that point."

6. Buying unnecessary insurance policies

You wouldn't take out a homeowners insurance policy if you didn't have a house, nor would you buy auto insurance if you didn't own a vehicle. But you might make some of the following insurance blunders:

• Buying unnecessary life insurance coverage. Most people don't need life insurance on their kids, says Hunter. While the death of a child is tragic, financially it's not as detrimental as a breadwinner passing away. It makes sense to have life insurance on yourself if you have dependents, but if you're childless and single, you don't need it, either.

• Buying specialized insurance. Be wary of purchasing too-specific variants of broader types of insurance. You may need life insurance, but you shouldn't buy it at the car dealership, Hunter says. He offers this rule of thumb: "Don't buy insurance from somebody you went to buy something else from."

The same goes for dread-disease policies. "Specific illness insurance like cancer coverage . . . I'd read the fine print there, carefully, because you may just be paying double," says Praeger, who also serves as president-elect of the National Association of Insurance Commissioners. If you're insured through a major medical policy, you may not receive additional benefits from these types of extra coverage, she adds.

If you're worried about identity theft, don't rush out to buy identity-theft insurance. "I think there's a lot of discussion and concern about identity theft today, and I think people prey on that concern by offering something that you may already have coverage for," Praeger says. Check your homeowners policy. It might already include some identity-theft protection, Praeger says. Credit cards also offer some protection against unauthorized charges.

7. Not updating your coverage

Evaluate your coverage whenever you go through a life change, such as birth, adoption, marriage or divorce, but at least once annually.

"If your home has gone up in value, make sure you increase your policy limits," says Praeger. "If you have a replacement cost, your replacement cost ought to be about 80% of the value of your home. So, if you've made a room addition, make sure you increase accordingly."

"For a health insurance review each year, if you're a dual-income family and your spouse has coverage, look at both policies and decide if it's more cost-effective for you to be covered under one or if it still works best to be covered under each individual policy," she says.

If the kids have left home, you can get more-affordable auto insurance coverage.

"Make sure you let your insurance company know that it's just you and your spouse driving, that those reckless teenagers are gone and are not driving that car," says Praeger. Also, tell your agent if you're not driving as much and you may be able to reduce your premium.

If you move from a house to an apartment, consider getting renters insurance to protect your belongings against fire or theft. The person who owns the place you're renting will have the structure insured, but your possessions are your responsibility, Praeger says.

For an annual review, do it 30 to 60 days in advance of renewal time, suggests the Consumer Federation of America's Hunter, so you will have time for a thorough analysis. Go to your state's insurance Web site and look over the buyers guide for insurance, he says.

Study it and then look over your policies. Then call your agent or company with questions about your coverage. If you're not satisfied, check out the competition.

This article was reported and written by Leslie McFadden for Bankrate.com.

Published Sept. 14, 2007

< previous |  1 | 2 |