Are Your Clients Making Costly Insurance Mistakes?

A new national survey reveals consumers have an alarming lack of knowledge about their own insurance coverage. As 2014 gets off and running, encourage your insureds to get their insurance coverage in order.

An independent survey conducted for Trusted Choice and the Big “I” found that 38% of respondents said they have never conducted their own research prior to purchasing an insurance policy. Almost 40% of respondents said they were not confident or only somewhat confident that they have adequate and appropriate insurance coverage for their needs.

The new survey also found that more than more than 30% of policyholders have not met with or even talked to their insurance agent within the last year. This broad lack of understanding can lead to serious and expensive insurance coverage mistakes. The most common errors include:

Not knowing their limits. Too many customers don’t know the limits of their insurance coverage and don’t understand how inexpensive it can be to increase them. This is especially true regarding liability coverage. And not enough consumers have separate umbrella liability policies. In fact, the new survey says only 29% of respondents considered coverage limits, or the amount of coverage, the most important criteria when selecting an insurance policy. 

Disregarding discounts. A previous study by Trusted Choice and the Big “I” showed that many consumers don’t take advantage of all available discounts. Over the last five years, many companies have begun offering significant new discounts that haven’t even occurred to your clients. Check with your insureds to see if they qualify.

Forgetting you can’t take it with you. Many people put their homes in trusts as part of their estate planning, but fail to tell their agent that the trust owns the home. In those cases, the home is no longer insured since the owner is not on the policy. This can create major problems at the time of a claim.

In order to avoid a larger estate tax bite, people sometimes fail to list valuables or collectibles as part of their estate. But these items require special coverage beyond a standard homeowners policy, or they won’t be insured. If a loss occurs on these items, heirs won’t be compensated. Making certain that everything is properly documented and insured is crucial to guaranteeing the execution of your insureds’ final wishes.

Not assessing their biggest asset. Too often, people do not properly protect their biggest asset—their home. And that leaves them vulnerable to devastating losses—particularly true regarding a change of occupancy. Since selling, renting or leaving a home for an extended period directly changes the terms and conditions of coverage, a company can deny a claim because the client is no longer in control of what happens to the home. Check with your homeowner insureds about the time limit on vacancy or change of occupancy—before it alters or cancels the terms of the policy. 

Failing to secure specialty coverage could also cost homeowners dearly. Whether that means insurance for sewer and drain backup, flood, earthquake or ordinance/law, or simply adjusting coverage in light of property improvements, lack of coverage could have detrimental consequences in the event of a disaster. Make sure you’re aware of any and all changes regarding your clients’ homes, no matter how minor they seem.

Taking the cheapest route. The survey found that 25% of respondents thought price was the most important criteria when selecting an insurance policy. And alarmingly, 61% of survey respondents said they were only somewhat familiar or not familiar with the details of their insurance policies, meaning they don’t properly understand what coverage they might be missing with a cheaper policy.  

International Communications Research, an independent research company in Media, Pa., conducted the survey for Trusted Choice via telephone interviews of a nationally representative sample of 930 U.S. households in November 2013.

Margarita Tapia is Big “I” director of public affairs. Sue Nester is Big “I” broadcast media director.