When it comes to insurance, there are several myths that continue to persist, like the one that red cars are more expensive to insure. Car color has no impact on insurance premiums. Instead, factors like your driving history, annual mileage driven and the cost of your vehicle will affect how much your insurance will cost.
Insurance is one of the most useful investments you can make to protect your family, belongings and financial assets, but it’s important to know what you’re actually purchasing. Here are four things you should know about your auto, homeowners or renters insurance policy to ensure adequate protection in the event of an unforeseen or unexpected loss.
Misconception: Your homeowners insurance policy covers everything.
One of the biggest misunderstandings many policyholders have is that if their home is damaged or destroyed, their homeowners insurance policy will cover the cost of everything. Homeowners insurance covers losses or damages to your house and personal belongings in the event of a fire, sudden flooding caused by a broken pipe, or theft, but there are some situations that your policy may not cover.
“Generally speaking, homeowners insurance is designed to help you rebuild your home and replace personal property if it is damaged or stolen,” says Christopher O’Rourke, vice president of property claims at Mercury Insurance. “However, you may need to purchase separate flood or earthquake insurance to protect your home from coastal flooding or seismic activity if you live in areas prone to these events as they are usually not covered by a homeowners policy.”
Renovating your home or installing any expensive upgrades must also be reviewed by your agent in order to ensure you have adequate coverage.
Misconception: You only need the minimum auto liability insurance coverage required by your state.
Most states require drivers to carry auto liability insurance, but this coverage only provides financial protection if you’re found to be legally responsible for causing injury to another person or their property. Auto liability doesn’t cover damage to your vehicle, items stolen from your vehicle or damage from a storm or vandalism.
Collision insurance covers you if, while your vehicle is in motion, you crash into another vehicle or a fixed object, like a pothole, guardrail or light post. This coverage is typically required by a lender when you finance a vehicle.
Comprehensive insurance is coverage that protects your vehicle when it’s damaged while not in motion. This could include vandalism, theft or weather-related damage like a hailstorm or fire.
“If your vehicle is older and it has been completely paid off, comprehensive insurance may not be the right coverage because a vehicle’s value decreases with age,” said Kevin Quinn, vice president of auto claims at Mercury Insurance. “Consider whether the savings of not having comprehensive insurance are enough to offset the risk of potentially having a large repair or replacement bill.”
Misconception: Renters don’t need insurance.
Renters insurance is affordable; however, only 41 percent of renters purchase it. Without renters insurance, you’ll have to pay out of pocket if your personal belongings are damaged in a fire or are stolen.
“Your landlord’s insurance policy will not cover any of your personal belongings and it won’t provide liability protection if a lawsuit is brought against you because a visitor slips, falls and injures themselves inside your rental unit,” O’Rourke says. “Renters may not be responsible for repairing the home they live in, but there’s always a chance their possessions and valuables will need to be replaced if they are damaged or stolen, so purchasing a renters insurance policy is a smart way to provide financial security.”
Misconception: If you’re hurt in an accident caused by another driver, their auto insurance will pay.
Even if an auto accident is caused through no fault of your own, you may not be able to recover damages if you’re hit by someone who is uninsured or underinsured. The best way to safeguard yourself is to have uninsured motorist coverage, which is usually an add-on protection. This can protect you if you’re hit by someone who doesn’t have adequate insurance.
Insurance is a sound investment, but can be complicated, so it’s always a good idea to speak to a highly trained agent that can provide expert advice and guidance to help ensure you are adequately protected.