Insurance can be a lifesaver in unexpected situations or when disaster strikes. However, insurance is not simple, and there are a number of common mistakes people make when it comes to obtaining and using their insurance policy. You should be well aware of these pitfalls, so that you can avoid falling into them yourself.
Insuring the Bare Minimum
When selecting your insurance policy, it can be extremely tempting to choose one that only insures the bare minimum. The monthly payments are much cheaper this way and you can save hundreds of dollars every month. After all, what are the chances that you will actually need full coverage, right? Thinking this way is a massive mistake. When disaster does strike, Having bare minimum coverage can leave you financially destitute, or even without a home.
Insuring for Market Value
Many people choose to insure their home or other assets for market value. At first, this seems like a logical decision. It stands to reason that insuring your home for what you paid for it should mean you’ll be totally fine, even if it is completely destroyed. Unfortunately, this is not the case. If the market value of your homes goes down, it is possible that it becomes less than the cost of rebuilding, meaning your insurance payout will not be enough to rebuild your home should it be destroyed. Additionally, if the market value dips enough, your insurance payout may not be enough to pay off your mortgage, leaving you paying a mortgage on a house that no longer exists and you cannot afford to rebuild.
Entering Into An Assignment of Benefits (AOB)
One of the worst mistakes you can make is entering into an assignment of benefits. An assignment provision in insurance means that a third party is the beneficiary of your policy. In the case of an insurance claim, this third party would receive the payout from your insurance company and could do whatever they choose with their funds. At first, this may not seem too risky if the third party is someone you completely trust. However, relationships change, and even the closest of friends or family can end up at odds. There are hundreds of people who have lost everything when, due to an assignment of benefits, someone ran off with their insurance payout, and it was completely legal for them to do so.
Failing to Get Adequate Disaster Insurance
Potentially the most common mistake when it comes to insurance is not obtaining adequate disaster insurance. For example, many people do not realize that flood damage is almost never covered under a basic insurance policy, and do not think to obtain separate flood insurance. Usually, they think the chance of a flood is so low that it is not worth it, but then they are left ruined when a flood does end up taking place. You should obtain insurance for any disaster that could possibly happen, regardless of how low the chances of it happening are.
Not Keeping Detailed Receipts and Records
Almost everyone is guilty of not keeping adequate receipts and records. This can come back to bite you when it is time to make an insurance claim. Receipts and records will prove exactly how new something was and how much it cost, in the event that it is destroyed. This will allow you to ensure that your insurance will cover the full value of something in your payout. Without receipts and records, it is likely that your insurance company will pay you less than what you deserve when you make a claim.
Rushing a Claim
When you have to make a large insurance claim, it is often one of the worst times of your life. You just faced a tragedy and things you held dear are now destroyed. Most people just want the whole situation over with. However, rushing your claim is one of the worst mistakes you can make. Your insurance company will be happy to finish the claim process quickly, and they will pay you less than what you’re entitled to while they’re at it. Take your time with your claim, ensuring that everything that can possibly be covered by your policy is included. In the same vein, when you receive your payout, do not spend it too fast. Think deliberately and spend it on necessities and things that will truly benefit your family. Too many people have rushed to spend their payout on frivolous things, only to realize they now don’t have enough to rebuild the necessities.
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