Insurance can seem like a nasty word, and I’ve found that most of us would rather not talk about it. However, it’s all about protecting and preserving your assets. Our job is to help our clients grow their wealth so they can achieve all that is important to them. However, we’d be foolish if we neglected to also help them mitigate risks that could eat away at all their hard work.
When it comes to car insurance, I’ve found a few common mistakes.
Too little insurance
Many states require all drivers to maintain a minimum level of coverage in order to drive legally. Some states even require a minimum level of coverage for medical or personal injury. This is just a minimum standard and is often not even enough to cover the average cost of repair from an accident. In every accident, the human body is the weakest link in the chain and the one at greatest risk of injury. Cars are a fixed cost to repair – you know how much a BMW will cost to repair or replace, whereas we don’t know how much it will cost to save or repair a human body.
Rather than getting the minimum, consider carrying coverage based upon the car you drive, and more importantly, the cost of the other cars on the road.
Too much insurance
Every once in a while, I run across a situation where someone has purchased higher limits of coverage. Usually this person is terrified of the risks that exist in the world and will pay absolutely anything to protect themselves. As a result, they often have excess liability or umbrella insurance coverage, which is usually a very wise investment.
This additional insurance is fantastic, and something that I suggest for almost everyone. However, they might be paying more for auto insurance coverage that they just don’t need. If your auto insurance liability coverage is $500,000 and your umbrella coverage begins at $300,000, you are paying for $200,000 of unnecessary coverage. You could reduce your auto coverage to $300,000 and save on your premiums.
This is generally a good idea. However, if your umbrella coverage doesn’t include an additional layer of underinsured (or uninsured) motorist coverage, you might want to keep the higher coverage on your auto policy.
Generally speaking, the higher the deductible, the lower your premiums will be. The deductible is the amount you are responsible for before the insurance company provides protection.
I see situations where the deductibles are far too low and one could easily save 20-40% on their premiums by simply increasing the deductible. If you are able to stay accident free, you’ll often save enough on the premiums over the next few years to be able to cover this increased deductible. This isn’t always the case, though. I had a client looking to increase their deductible from $1,000 to $2,000 and we were both shocked that the premium savings was less than $100 annually.
If you drive an older car, it doesn’t make sense to have a low deductible for collision or comprehensive coverage on a vehicle that is relatively inexpensive to replace. In fact, if your car is older, consider getting rid of collision and comprehensive coverage altogether. If you do this, it’s still important to carry the proper amount of liability protection.
Not combining policies with one company
If you have your auto policy and homeowners policy with the same carrier, you’ll tend to save on your premiums and have better coordinated coverage with your umbrella policy, if you have one.
Failing to review your coverage
It’s very easy to get your insurance in place and then forget about it for many years. There are a few problems with the set it and forget it approach as your lifestyle and potential risks may change over time. It’s always good to have a history with an insurance company. However, you should periodically review your coverage to make sure that it fits your needs today.
Solely focusing on the cost
Insurance is one area where focusing solely on the cost could get you in a lot of trouble and financial pain. I find that many of us don’t want to be educated on the need for various types of insurance coverage, and often view this education as a sales pitch. You may find the lowest absolute cost for any given coverage, but it might pale in comparison with what a competitor offers for just a few dollars more. The devil is in the details, and I suggest looking at the details of the coverage so that you know exactly what you are getting for your money. Also, rather than focusing solely on the cost, you should work with a professional who will take the time to evaluate your situation and help you understand your insurance needs.
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Tyler has been working as an advisor for over 20 years and now serves as our Director of Wealth Management, ensuring our team of advisors has the guidance and support to provide the best possible service for our clients. As someone who knows firsthand how difficult it can be to find the help you need during challenging times, his goal is for Merriman to be your trusted partner.
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