Personal Financial Planning: Common Insurance Mistakes
Third installment of a five-part series
To many Americans, insurance is commonly misunderstood subject, so mistakes are
common. And because the consequences of making insurance mistakes can be great,
it is best to proactively catch them. Surprisingly, if you are aware of typical
pitfalls, then avoiding insurance mistakes might just be easier than you may
think. Below are a few areas of opportunity for consideration.
Assess Your Life Insurance Needs
Ranked first among common insurance mistakes is not having enough life
insurance. Having too little life insurance can leave your dependents in a tough
situation, but this area can be easily adjusted with a call to your insurance
company while the coverage is most affordable. Proactively addressing and
reviewing this need (particularly after any life changes) provides a sustainable
solution for your family.
The other extreme is having too much life insurance to the point that heavy
premiums preclude your family from enjoying the best possible lifestyle. To help
avoid the high cost of insurance, consider the flexibility that term insurance
offers to extend your budget by providing more coverage per dollar expended.
It is advisable to review your life insurance needs every few years—especially
if you are making major life changes. How much insurance is enough? The correct
answer depends upon an accurate analysis of your family’s needs and your phase
of life.
Evaluate Your Need for Health and Long-Term Care Insurance
Health insurance mistakes can be just as costly. Many health insurance plans
cover families up to $150,000 in medical bills. But if you or a family member
has an extended stay for a serious illness, you may need supplemental
coverage—up to $500,000 or more.
Additionally, long-term care insurance provides benefits when a person needs
care from a nursing home or other assisted care facility. It can also provide
for someone receiving similar care from within their home. Such policies
typically pay a fixed daily amount and are subject to a maximum lifetime total
benefit. Long-term care insurance isn’t for everyone, but it is often worth
evaluating.
Determine Your Need for Disability Insurance
What happens if you are disabled and cannot work? Disability insurance can
provide the answer by replacing most of your income or at least enough to
maintain your family’s needs. There are several types of disability insurance
coverage, including those which cover your inability to work at all and others
which cover you working within your own occupation.
Understand Your Insurance Policies.
Making assumptions about your coverage can prove to be a mistake you can’t
afford to make. It is important to dig deep into the language of your policies
and ask plenty of questions. Otherwise, your coverage may not be what you expect
when you need it.
Adjust for Changes
When making significant life changes, review all of your insurance policies and
make any necessary revisions to your coverage. For example, if you add a wing to
your house, you would need to add coverage to your home insurance. Insurance
experts recommend checking insurance needs every few years—adding or subtracting
insurance as your circumstances warrant. Staying abreast of your current needs
is one more way to avoid common insurance mistakes.
Compare Rates
According to J. Robert Hunter, the director of insurance at the Consumer
Federation of America, the most common insurance mistake is that many people
don't shop around for it. Insurance is often sold based upon relationships, so
people don’t always double check to ensure they are receiving the best rate for
them. Rates can and do vary, but one caveat: don’t overlook the financial health
of the insurance company.
It’s All About Balance
Although the professionals at CRI do not sell insurance, we believe adequate
insurance helps to keep life in balance. We hope this article will help to
ensure that you are properly insured.
Up next in the series? Don't overlook your employer
match.