How to Avoid Unexpected Risks and Costs in Insurance

For the average personal lines auto or homeowners’ insurance consumer, coverage needs are based on various factors, including real estate value, assets, economic conditions, income, lifestyle, driving habits, geographic location and more.

A recent survey found that being underinsured is a concern for nearly 60 percent of home and auto policyholders. The risk of being underinsured usually occurs when the policyholder:

1. Does not fully understand their risk profile and coverage needs and/or fails to reassess their risks and coverage needs when factors change
2. Needs to cut their spending budget due to deteriorating economic or personal socioeconomic conditions; insurance policy premium costs are often one of the first places consumers look to save costs.

Failing to Reassess Coverage Needs Can Drive Up Costs

When consumers purchase homeowners’ insurance policies, they sometimes “set it and forget it,” which is a potentially costly mistake. By reexamining policies and coverages every few years or when life transitions occur, policyholders can ensure they remain appropriately covered and don’t risk incurring uninsured or underinsured losses.

Consider Potential Long-Term Risks Before Lowering Insurance Premiums

When people need to make tough budgetary decisions, they often look for ways to cut costs on their insurance bills as a seemingly straightforward, low-risk savings strategy. While the move may not have an immediate negative impact, policyholders must consider the long-term risk and potential negative consequences.

It’s crucial to complete a risk assessment before dropping collision or comprehensive coverage on older vehicles or vehicles with no lienholder.

For example, consider a consumer carrying $500K in auto liability limits, collision and comprehensive coverages. To save premium costs, they lower their liability limit to $50K and drop collision and comprehensive altogether without taking a few moments to do a risk assessment.

Making those cost-cutting moves may be an acceptable risk to undertake if the vehicle is older, has high mileage, low value, and drives 15-20 miles per week in rural or non-congested traffic settings where speed limits rarely exceed 30 MPH.

However, the risk profile changes if the policyholder drives a newer, higher-value vehicle nearly 300 miles per week on poorly maintained congested interstates where speed limits range from 70-80 MPH. In this second scenario, if the driver gets into an accident and totals their vehicle or is liable for damages exceeding their liability limit, they may put their personal assets at a higher risk.

The bottom line is: when considering reducing premium costs by increasing personal exposure, it’s in your best interest to take a 360-degree view of your risk profile and coverage needs.

Taking time to do an assessment will offer a comprehensive understanding of the positive (premium savings) and negative consequences that could occur as a result of budget-cutting moves.

What Can Consumers Do to Save on Costs?

Some potentially safer ways to save money on insurance policies include:

• Ensure you are not “overcovered” in terms of dwelling replacement cost coverage and vehicles based on age, condition and mileage
• Identify opportunities to bundle homeowners’ coverage with auto and umbrella coverages
• Shop homeowners and auto coverage and limits with multiple insurance carriers to ensure you get the best deal possible.
• Explore “pay as you drive” options to lower auto premiums

For more information, check out Hi Marley’s Beginner’s Guide to Homeowners Insurance and Auto Insurance.