Beware these 5 insurance traps

If you're considering buying a trampoline, ask your insurer about its coverage policies first. But also consider the recommendation of the American Academy of Pediatricians, which has long advised against trampolines.

"Despite all currently available measures to prevent injury, the potential for serious injury while using a trampoline remains," the academy says. "The need for supervision and trained personnel at all times makes home use extremely unwise."

'Bad' dogs

As I wrote in "Your dog's bite could bankrupt you," insurers are increasingly concerned about the rising costs of dog-bite claims. (Dog bites now make up one-third of all homeowner liability claims, and the average cost was $24,511 in 2007, up 28% in five years.) Some insurers have blacklisted certain types, such as pit bulls. Others will cover any dog until it bites, and then you could lose your coverage, pay more for it or be forced to sign a waiver that excludes any further damage done by the animal.

Insurers don't necessarily make these policies clear upfront. If you're shopping for homeowners coverage, make it clear you own a dog and what breed it is so you don't wind up getting canceled later. Before adding any dog to your household, call your insurer. Consider getting a different breed, or a different insurer, if the two are incompatible.

Bad credit

In most states, insurers that provide homeowners and auto policies are allowed to consider your credit history when deciding whether to issue or renew a policy, as well as how much to charge. (California and Massachusetts, which both ban the use of so-called insurance scoring, are among the exceptions.)

Why should credit matter to insurers? Several studies, including an influential one by the Texas Department of Insurance, show a strong link between consumers' credit scores and their propensity to file insurance claims. The worse their scores, in other words, the more likely they are to cost their insurers money.

Unfortunately, credit scores don't differentiate between folks who refuse to pay their bills and those who simply can't because of job loss, medical problems or a subprime mortgage they can't handle. (See "Does bad credit make you a bad person?")

That's why some consumer advocates have pushed insurance regulators to suspend or restrict insurers' ability to use credit information, especially as the economy deteriorates. So far, the advocates haven't had much success.

If you've had credit problems, you should shop around for insurance, as not all insurers use credit information. You also should do what you can to improve your credit, such as paying bills on time and not using more than 30% of your available credit limits. Read "7 fast fixes for your credit score" for details.

Mental-health problems

If you've ever taken antidepressants, seen a therapist or been treated for an addiction, you may pay more for life insurance. If your problems are serious or ongoing, you may have to search hard to find a policy at all. (See "Prozac: Hazard to your health insurance.")

Bipolar disorder, ongoing treatment for substance abuse or a history of suicide attempts can make you tough to insure, says Byron Udell, president and CEO of Accuquote, an online insurance broker.

Other problems may be less of an obstacle, particularly as time passes. If you were treated 10 or 20 years ago for substance abuse and have remained clean, for example, you may not get an insurer's best rates, but you won't be turned down just because of your history.

And some "situational" problems may not cause your rates to rise at all, Udell says. If you were treated for depression after divorce or the death of a spouse, for instance, and are fully recovered, "most companies would view this as a nonissue."

• Video: Your biggest investment -- your credit scores

You might be tempted to conceal your troubles and hope your insurer doesn't find out. That's playing with fire. If your insurer discovers your history by, say, talking to your doctors or reviewing your prescription history, it could decide you committed fraud and either cancel your policy (if you're still alive) or refuse to pay out its proceeds (if it conducts the investigation after your death).

"Anything you lie about, if it's material enough to affect their underwriting, that's grounds for fraud," Udell says. "If you lie, you may think you have coverage, but maybe you don't have it. It's better to tell the truth."

Here's another area where having an experienced insurance agent can be an enormous help. The agent should know which insurers are most receptive to applicants with mental-health issues and will be able to advocate for you.

Liz Pulliam Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "Your Credit Score: Your Money & What's at Stake." Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board and helps middle-class families cope at Building a Brighter Future.

Updated Nov. 3, 2009

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