10 Common Myths about Insurance Dispelled

1) Red cars cost more to insure than other cars.

        If you prefer red cars and pay too much for auto insurance, the color of your ride is not to blame. Your rate is determined by a number of factors such as the cost to repair your car, your zip code (likelihood of theft or vandalism), your driving history, and your personal credit standing.

2) Flood damage is covered by my homeowners insurance policy.

        We will cover this in greater detail in our next blog about flood insurance. For now, I will summarize briefly by saying that flood insurance is always a separate insurance policy and is regulated by FEMA.  Flood damage is not covered by homeowners insurance. However, most other water damage is covered. Water leaking from pipes is covered, and water backups of sewers and drains coverage can be added to most homeowners policies for very little additional premium.

3) My house should be insured for what I paid for it.

        Nope. Your home gains value every year you own it. The price you paid for it is now (most likely) less than its current value. If your home were damaged beyond repair, you would either a) rebuild it or b) purchase a replacement home. Therefore, insuring your home for its replacement cost (more than what you paid for it) is crucial. This is especially relevant in the event of a partial loss (a smaller claim). Would you want your insurance company to pay only part of the cost for a new roof if yours were destroyed? I didn't think so. More on this topic in an upcoming blog entry titled "The Coinsurance Clause--How to WIN at Insurance Math."

4) No other insurance carrier can beat my rates because I've been with the same company since I was 16... (Also my dad and grandpa had them, that's who everyone in my world has, and I'm paying a fair price for my insurance, etc)

      So, you get the drift.... My favorite response to this line of thinking comes from my father--a seasoned independent insurance agency owner. "What are you waiting on, Sir/Ma'am, a gold watch?!"  It's true, price is not everything. However, when we sometimes manage to save folks half or more of their insurance premiums, they usually wish they'd come around sooner. The value of an independent agency is that they can shop your insurance multiple times with several top insurance carriers rather than just the ONE on a sign out in front of their office. That gives an independent agent a much higher chance of saving you money while serving your insurance needs in the future.

5) My home-based business / my side business is covered by my homeowners or renters insurance.

      Do you make soaps, raise chickens for eggs, sell crafts, provide remote tech support, create your own natural living products, or work on cars? I love seeing so many new and hopeful entrepreneurs start up their home-based business with plans to go big someday and get a storefront. Most of them assume that THEN would be the ideal point to obtain business insurance. However, did you know that the standard liability portion of your homeowners insurance only covers you in your PERSONAL pursuits, NOT in commercial or business ventures?  Some classes of home based businesses can be added to your homeowners policy by asking your insurance agent to endorse the policy to include business pursuits.  Some business ventures require separate commercial insurance. Either way, make sure you are covered legally by setting up a separate LLC or corporation, and of course with proper insurance coverage.

6) My auto insurance rates won’t increase if I don’t report an accident.

       There’s partial truth in this statement. If you have a minor fender bender and decide to call your local body shop for a small out-of-pocket repair without calling your insurance company, your insurance is NOT affected. However, if you have a major fender bender, EVEN IF IT IS NOT YOUR FAULT, it is wise to loop your agent in. The other party in the accident could attempt to call your insurance carrier and turn in a false claim. The body shop who is diligently working on repairing your car may call your insurance carrier on your behalf thinking that they are providing you with good customer service… If this is ignored and you do not contest it, you could experience a rate increase for a “not at fault” accident stemming from claims subrogation. It is possible to consult your agent for advice WITHOUT turning in a claim.   

7) “Full coverage” and high limits of liability are the same thing.

     I frequently get requests for a quote and when I ask “What limits of liability are you carrying?” the person replies with “full coverage.” To clarify, I’ll briefly cover two parts of an insurance policy. The first part is physical damage coverage which consists of comprehensive and collision coverage. These two parts of physical damage coverage can have differing deductible amounts and can be purchased separately. Collision coverage provides the insured person with coverage in the event of an at fault accident. Comprehensive coverage provides the insured person with coverage for fire, theft, vandalism, flood, and animal accidents. These two coverages combined constitute “full coverage” for physical damages.
      The second part of an insurance policy for our discussion is the liability limits. In West Virginia, the state requires a minimum of $25,000 in bodily injury coverage per person in an accident, $50,000 maximums per accident, and $25,000 in property damage per accident expressed as 25/50/25. The next higher split limit coverage is 50/100, then 100/300, and 250/500. We will discuss liability limits in detail in a future blog post.  For now, just remember that full coverage and liability limits are separate coverage parts and have no relation to one another.    

8) My jewelry is covered on my homeowners insurance policy.

     Most homeowners insurance policies contain a $5,000 default jewelry coverage for theft from the home or an otherwise covered loss.  If you have jewelry with a combined worth of over $5,000, I recommend that you schedule it on your homeowners insurance policy.  This coverage, called inland marine is very inexpensive and can protect your jewelry anywhere in the world for theft and mysterious disappearance.

9) When I let friends borrow my car, they are responsible if there’s an accident.

      Actually, insurance coverage follows the vehicle not the driver. This means that you as the owner of the car are responsible if that vehicle is involved in an accident. If your friend is unwilling to reimburse you for the damages resulting from an accident while your car was in their custody and control, your only option is to take them to small claims court in a civil suit.  

10)  Personal property inside my car is covered by my auto insurance if it is stolen.
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     Nope—remove your expensive sunglasses, laptops, purses, and jewelry from your vehicle!  Unless you are carrying an “enhanced” policy where your agent has specifically outlined a personal property rider in writing for you, it can be assumed that you do not have coverage for personal property losses under your default auto insurance policy. However, most homeowners insurance policies will cover personal property losses from vehicles after the deductible is met.

      Do you have an insurance question you’d like to see covered in an upcoming blog post? Send me an email at danielle@insurewithellis.com! Let me know your thoughts by commenting below!