5 Insurance Myths

The first and major myth (take it as a bonus) is that insurance is easy to understand and there is not much to know about it. The fact is that insurance is very complex and even small mistakes can cost you a lot of money. I have compiled top 5 insurance myths that we encounter often when working with our clients.

  1. Car insurance is free money for fixing minor damage. Not so fast! In fact, any claim could increase your rates in future and stay on your record for 3-5 years. Did you (or someone else) bump your car and have a small dent? Did you break your headlight? Even if the fix would cost more than your deductible, until a certain level, you should rather cover it from your pocket to avoid the increase in your car insurance. A little claim like this can increase your insurance 10-100s of dollars per period, multiply this times the number of periods it stays on your record and you will see why small claims are not worth filing.
  2. You only need the state minimum coverage for your car insurance. Yes, unless something happens. State minimum in Texas does not include mandatory Uninsured Motorist Coverage and unfortunately, there are approximately 13% of motorists in Texas that are not insured. If one of them hits you, it can cost you a lot. The coverage adds only a few dollars on top of your insurance premium, but you cannot afford not to have it. Actually, at our agency, we would not sell you the insurance without it. Another one is Comprehensive coverage. If your insurance covers only bodily injury and property damage liability, a nice Texas storm with hail size of golf balls that hits your car parked outside will cost you arm and leg. If you need more persuasion, you should read this great article on Why Minimum Liability Car Insurance is Not Enough.
  3. It’s better to choose 2% deductible on homeowners’ insurance to save money. A lot of clients forget that the deductible is calculated from the value of the house and not from the claim. While you may save a little on your monthly (or yearly) premium, you will pay much more, when it comes time to file a claim. For example, a $500K house will have the 2% deductible of $10,000 and if you need a new roof after a major hail storm (approximate cost 10-15K), you will have to shell out most of the money out of pocket. And if you have lived in Texas for a while, you would know that hail storms (or worse) come periodically every few years. Do you want to take that risk?
  4. Flood damage is automatically covered by your homeowners insurance. The truth is that typical homeowners and renters policies do NOT cover flood damage. You have to buy it separately. Insurance (and public works) professionals will tell you that regardless where you live in Texas, you are in a flood area and floods are the most common natural disasters in the US. If you live in a high-risk area, there is 25% chance that you will experience a flood during your 30-year mortgage. Low and medium risk areas apparently account for a quarter of all flood claims. Great source of information about flood risk is FloodSmart.gov. To check the flood risk of your own address, you can use the FEMA interactive map. For more information about flood insurance, check out a great post here.
  5. Water backup coverage costs too much and I don’t need it anyway. Trust me, the opposite is true. This additional coverage will cost you only around $50 a year for $10,000 of coverage for 300K house, while damage that a water backup from your toilet or shower can do to your house after a big rainstorm (imagine your beautiful wood floors warped or carpet soaked and ready for mold, not to mention wet furniture and walls full of sewage bacteria), can cost you thousands to repair.

 

If you have believed any of these myths, don’t beat yourself up, you are not alone. But now you can do something about it. Call us at 972-584-1286 so we can go over your risks and help to cover you and your family better for a safe New Year!

Did you also make any of these mistakes? Let us know!

 

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