2840: Mistakes to Avoid When Buying Insurance by Lisa Harrison of Mad Money Monster on Secure Financial Future

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[00:00:39] [SPEAKER_00]: This is Optimal Finance Daily, Mistakes to Avoid When Buying Insurance by Lisa Harrison

[00:00:47] [SPEAKER_00]: of MadMoneyMonster.com and I'm your host and personal finance enthusiast, Diania Merriam.

[00:00:54] [SPEAKER_00]: Welcome back to Optimal Finance Daily, where I'm here with you each and every day to read from

[00:01:00] [SPEAKER_00]: some of the world's best finance blogs. So with that, let's get right to today's article as we

[00:01:06] [SPEAKER_00]: optimize your life, Mistakes to Avoid When Buying Insurance by Lisa Harrison of MadMoneyMonster.com.

[00:01:20] [SPEAKER_00]: Buying insurance is not exactly the most thrilling way to spend your money,

[00:01:24] [SPEAKER_00]: but the reality, however, is that insurance can be a crucial part of a budget.

[00:01:30] [SPEAKER_00]: And it's possible there is too much at stake to go without it.

[00:01:34] [SPEAKER_00]: It is simple to make a costly error when shopping for insurance, one that could lead

[00:01:39] [SPEAKER_00]: to the loss of valuable possessions or the burden of unneeded costs on your regular budget.

[00:01:46] [SPEAKER_00]: That's why it's important to know what the most common insurance mistakes are

[00:01:50] [SPEAKER_00]: so you can avoid them at all costs. Listen on to find out more.

[00:01:56] [SPEAKER_00]: Number one, thinking you have enough insurance. The average American now has at least two

[00:02:03] [SPEAKER_00]: insurance policies and this can make them think that they don't need to think about their

[00:02:07] [SPEAKER_00]: insurance, whether it's for a life insurance policy, a home insurance policy or anything else.

[00:02:14] [SPEAKER_00]: However, it's important to know exactly what each policy covers and to what extent.

[00:02:20] [SPEAKER_00]: Are they still good enough? This is an important thing to think about,

[00:02:24] [SPEAKER_00]: especially if your insurance policy is a few years old.

[00:02:28] [SPEAKER_00]: You might, for example, have a policy that pays out a specific amount upon your death.

[00:02:34] [SPEAKER_00]: And when you took out the policy, it was adequate. But what if you now have a more

[00:02:38] [SPEAKER_00]: expensive house, bigger debts or a family to take care of? Would that same policy still

[00:02:44] [SPEAKER_00]: be enough? Ideally, you should do a policy review annually and keep up with industry trends

[00:02:51] [SPEAKER_00]: to better adapt to your needs as they evolve. Number two, waiting too long to buy life insurance.

[00:02:59] [SPEAKER_00]: When it comes to your life insurance policy, waiting too long may be the most common mistake.

[00:03:05] [SPEAKER_00]: In fact, young people with a lot of other financial responsibilities

[00:03:10] [SPEAKER_00]: often put off buying life insurance until they have children, which may not happen

[00:03:14] [SPEAKER_00]: until they're in their mid to late 30s or perhaps older. But age is one of the most

[00:03:20] [SPEAKER_00]: important things that affect insurance premiums. In general, the younger you are,

[00:03:26] [SPEAKER_00]: the less you'll pay for insurance. By waiting, you also risk getting a serious health problem

[00:03:32] [SPEAKER_00]: before you buy, which would make your future premiums much more expensive. Or make it so

[00:03:38] [SPEAKER_00]: you can't get insurance at all. Number three, deciding not to get insurance.

[00:03:45] [SPEAKER_00]: Choosing to go without insurance in an effort to save money is a bad idea.

[00:03:50] [SPEAKER_00]: Insurance that protects you against damage to your car and theft is a must.

[00:03:55] [SPEAKER_00]: Insurance against burglary and fire is necessary whether you're a renter or a homeowner.

[00:04:01] [SPEAKER_00]: Basic health insurance is also required. The cost of healthcare can quickly become

[00:04:07] [SPEAKER_00]: insurmountable, leaving people without access to financial stability. Even with health insurance,

[00:04:14] [SPEAKER_00]: many people have trouble paying for medical care and going without coverage puts you at risk of

[00:04:19] [SPEAKER_00]: bankruptcy in the event of a serious illness or injury. There are always policies you can

[00:04:25] [SPEAKER_00]: find that will suit your budget and getting cheap car insurance might not be a bad idea

[00:04:30] [SPEAKER_00]: and it could save you thousands of dollars if you were to get into an accident. Plus,

[00:04:35] [SPEAKER_00]: car insurance is the law. Number four, opting for a high deductible.

[00:04:41] [SPEAKER_00]: Insurance deductibles are a customizable feature for policyholders. This is the cost they must

[00:04:48] [SPEAKER_00]: personally meet before their insurance company starts paying for damages. If a homeowner has

[00:04:54] [SPEAKER_00]: a $500 deductible and a fire destroys their home, they'll be responsible for paying the first

[00:05:00] [SPEAKER_00]: $500 out of pocket and the insurance company will pay for anything over, for example.

[00:05:06] [SPEAKER_00]: While it's true that high deductible coverage can save money overall, because the higher the

[00:05:11] [SPEAKER_00]: deductible, the cheaper your monthly or annual policy payments will be, policyholders shouldn't

[00:05:17] [SPEAKER_00]: ever raise their deductibles above what they can reasonably afford. Should a covered event occur

[00:05:23] [SPEAKER_00]: and they're unable to cover their share of the damages, they may find themselves in a very

[00:05:29] [SPEAKER_00]: difficult financial situation. Number five, getting the wrong insurance.

[00:05:35] [SPEAKER_00]: Having the wrong insurance could cost you money you don't need to spend. It's not necessary

[00:05:40] [SPEAKER_00]: to purchase every sort of insurance there is if you're young and healthy, but it's important

[00:05:45] [SPEAKER_00]: to consider your individual profile and risk before making any decisions. Also,

[00:05:51] [SPEAKER_00]: read the fine print of any insurance policies you're considering purchasing.

[00:05:56] [SPEAKER_00]: When the time comes to file a claim, you won't be taken aback if you know exactly what you were

[00:06:01] [SPEAKER_00]: agreeing to when you joined up. You might also find that you're insured twice. That's not necessarily

[00:06:08] [SPEAKER_00]: a problem, but if you're paying for something you don't need because you're already adequately

[00:06:12] [SPEAKER_00]: covered, you might want to save some money. This mostly happens when people have some

[00:06:17] [SPEAKER_00]: kind of insurance, often travel but not necessarily, included in their bank account.

[00:06:23] [SPEAKER_00]: It's a good incentive for banks to offer this kind of coverage and many people don't realize it's there.

[00:06:29] [SPEAKER_00]: This is another reason why carrying out an insurance review periodically can be useful.

[00:06:35] [SPEAKER_00]: Number six, buying unnecessary riders. Once a life insurance policy has been chosen,

[00:06:42] [SPEAKER_00]: riders can be added to further customized coverage. This means you can get coverage

[00:06:47] [SPEAKER_00]: for things that aren't included in your standard policy by paying an additional

[00:06:52] [SPEAKER_00]: fee on top of your regular premiums. Total and permanent disability coverage is an example of a

[00:06:58] [SPEAKER_00]: rider. If an accident or illness leaves you unable to return to work, this rider will help pay the

[00:07:05] [SPEAKER_00]: bills. However, not everyone needs a rider and buying one could be costly. In order to maximize

[00:07:12] [SPEAKER_00]: the benefits of the enhanced protection, you should first assess your needs and only then

[00:07:18] [SPEAKER_00]: get the appropriate coverage. And number seven, not comparing prices for a new policy.

[00:07:26] [SPEAKER_00]: You should compare prices for any insurance policy, whether it's a brand new policy

[00:07:30] [SPEAKER_00]: or you want to renew an existing one. This is something that needs to be done every few years.

[00:07:37] [SPEAKER_00]: If you move to a new policy, you can save money. Make sure you shop around to get the best

[00:07:42] [SPEAKER_00]: price, but always check that you're paying for what you need. You don't want to make the mistake

[00:07:48] [SPEAKER_00]: of being underinsured. You just listen to the post titled, Mistakes to Avoid When Buying Insurance

[00:07:59] [SPEAKER_00]: by Lisa Harrison of madmoneymonster.com and I'll be right back with my commentary.

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[00:09:06] [SPEAKER_00]: I recently got some advice about shopping for insurance from a new friend in my local

[00:09:11] [SPEAKER_00]: choose-fi group who's a regional operations manager for a national insurance provider.

[00:09:18] [SPEAKER_00]: Insurance just like personal finance is highly personal, so it can be difficult to come up

[00:09:24] [SPEAKER_00]: with the right strategy if you're only considering general rules of thumb. Most insurance agents

[00:09:30] [SPEAKER_00]: advise people who have no savings or emergency fund, so their recommendations on insurance are

[00:09:36] [SPEAKER_00]: going to reflect that. It's important to determine for yourself what kind of deductible you can

[00:09:42] [SPEAKER_00]: handle and if you really need full coverage on your car, assuming you own it outright and don't

[00:09:47] [SPEAKER_00]: have a loan. She also offered some insight on how insurance is sold. It's either through exclusive

[00:09:54] [SPEAKER_00]: agents that work with one provider directly from the provider online or through independent agents

[00:10:00] [SPEAKER_00]: that have access to multiple providers. If you don't need advice and you know exactly what

[00:10:06] [SPEAKER_00]: coverage you need, going direct to a provider might be the best option because this is how

[00:10:12] [SPEAKER_00]: you're going to get the best rates. But if you need help navigating the landscape,

[00:10:17] [SPEAKER_00]: an independent agent could add some value here. Just make sure they're willing to talk to you

[00:10:23] [SPEAKER_00]: and understand your situation and needs as many agents are very transactional.

[00:10:28] [SPEAKER_00]: What's good to know about independent agents is that they aren't all created equal.

[00:10:33] [SPEAKER_00]: They may say they can shop around for you, but sometimes they work with providers

[00:10:38] [SPEAKER_00]: that require them to send the bulk of their policies to that one provider in order to keep

[00:10:44] [SPEAKER_00]: their contract. This results in agents having bias and preference on what policy they'll recommend.

[00:10:51] [SPEAKER_00]: So if you're going to go with an independent agent, it's beneficial to talk to multiple people.

[00:10:57] [SPEAKER_00]: But that'll do it for today. Thank you for being here every day and listening.

[00:11:01] [SPEAKER_00]: Have a great rest of your day and I'll see you tomorrow where your optimal life awaits.