FLORHAM PARK—With the current state of the economy, many people are looking for ways to cut back on spending, including reviewing their insurance coverage. The AAA New Jersey Insurance Agency warns against falling into an underinsured trap when trying to save money.
“Dropping important coverage in an effort to save money could be detrimental,” says Steve Hnath, CPCU, senior vice president of insurance services for the Florham Park-based agency. “Consult with your insurance agent to determine where you can save money while continuing to protect your loved ones.”
Avoid these six common mistakes when evaluating insurance costs:
Insuring a home for its real estate value rather than the cost of rebuilding. Insurance is not linked to the sale price of your home, but rather the cost of rebuilding it in the event of a loss. Make sure you purchase enough insurance coverage to completely rebuild your home and replace your belongings.
Selecting an insurance company by price alone. Do your research and select a company that is financially sound and has a reputation for outstanding customer service. AAA recommends companies that are rated B+ (good) or better by A.M. Best.
Surrendering a whole-life insurance policy for its cash value. Surrendering your policy can potentially hurt the long-term financial health of your family. You might also regret this move if you have to buy another policy in the future. Since older individuals pay higher life insurance premiums, your next policy will likely be more expensive than the first.
Dropping flood insurance. Damage from flooding is not covered under standard homeowner’s or renter’s insurance policies. You must purchase a separate policy. Don’t underestimate the risk of flooding – 90 percent of all natural disasters in this country involve flooding, according to the National Flood Insurance Program (NFIP).
Only purchasing the legally required amount of liability protection for a car. Purchasing only the minimum coverage could cost you significantly more money in the long run. Accidents typically cost more than the minimum limits, so purchase more insurance than the state requires. Also consider an umbrella or excess liability policy, which pays out after your existing coverages have been exhausted.
Neglecting to purchase renter’s insurance. Renter’s insurance covers your possessions in the event of a fire or other insured disaster. In addition to paying to replace your belongings, it also provides coverage for additional living expenses and liability protection in the event someone is injured on your property.
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