The Risks of Being UnderinsuredPosted on Feb 26, 2019
You probably know by now how important it is to have insurance coverage.
What you may not know, until you find yourself filing a claim, is that being underinsured on your home, auto, personal umbrella, renters, flood, or liability insurance protection can be really painful as well.
In fact, it can be financially devastating for you and your family.
What Does it Mean to be Underinsured?
When you are underinsured, you do not have sufficient insurance protection to meet your needs. While the purpose of insurance is not to eliminate all financial burdens when claims occur, it can help you avoid significant financial hardship.
As people seek to cut costs on their monthly insurance premiums, underinsurance becomes a problem with many families. It is one reason why working with a professional insurance agent in your community is a better way to serve your needs than working with discount agencies online.
The Risks of Being Underinsured
There are a number of risks of being underinsured whether you’re dealing with home insurance, auto insurance or health insurance. Some risks you may expose yourself to by being underinsured are as follows.
1. The Costs of Emergency Home Repairs Can Add Up
As far as the actual structure of your home, you need comprehensive coverage if you’re a homeowner that will help you replace your home or repair it to current codes and standards in the aftermath of an emergency. Plus, you need insurance that will cover the costs of helping you meet current city codes for your entire home if more than one-third of your home is damaged in a covered event. Those costs can mount quickly.
2. You May Not Be Adequately Covered For Flood Damage
Don’t overlook the importance of flood insurance, especially if you’re in a flood zone. Most homeowner’s and renter’s insurance policies do not cover flood damage, and that leaves you vulnerable. Even with maximum FEMA flood insurance protection, most homeowners need additional coverage to avoid being underinsured.
3. Your High-Value Items Might Not Be Sufficiently Covered
If you have high-value items like jewelry, antiques, electronics, and classic cars, your standard policy may be insufficient to replace them.
4. Your Policy May Be Cancelled
Your insurer could cancel your insurance policy entirely if you’re underinsured and must make a claim. They can actually “void” your policy and refund all the premiums you paid. They could even recall any previous claims’ money paid out.
5. You May End Up With a High Deductible After An Accident
Many individuals often disregard deductibles and give them little importance so they can save some money upfront. They opt for the larger deductibles because it lowers their premium payments.
If this is you, however, you may want to reconsider your deductible. If you become involved in an accident, rather than paying what could have been a $500 deductible and having the damage to your vehicle or medical bills covered, you could end up having to shell out $3,000 or $5,000 just to meet the deductible.
6. Filing Claims Can Become a Nightmare
You get what you pay for when purchasing insurance. You may think cheap, bare-bones insurance coverage is outstanding, but when it comes time to use it, it may not be so great after all. After filing a claim, you’re at the mercy of your insurance provider. If you’re underinsured, it could turn a pain-free, smooth claims process into a living nightmare.
7. You May Pay More for the Little Things Later On
It’s easy to skim over the various coverage add-ons like gap insurance, rental car reimbursement, and personal injury protection to keep your premium payments down. But, what happens if you’re in a car accident and your car needs to go in for repairs? Will you have the extra money for a rental car to get you back and forth to work? Or, will you be able to cover all the medical costs of that accident if your health insurance policy doesn’t cover the injuries you sustain?
While it’s easy to consider these things just hypothetical situations, all too often policyholders end up finding themselves in these situations after being involved in an accident.
How Can You Avoid Being Underinsured on Your Auto Insurance
One of the most effective ways to avoid being underinsured is to revisit your home insurance coverage annually. Make sure you are comfortable with your level of protection in relation to the cost of your home, the value of property around you, and the competitiveness of the local housing market. You can do this with your other insurance policies too.
Underinsuring the liability protection for home or automobile can have detrimental consequences. One way to defend against this is with an umbrella policy that kicks in once you’ve exhausted your additional liability protection.
Liability insurance helps to protect you from the financial fallout if someone is injured near your property, while on your property, or while riding in your vehicles and other covered items (ATVs, watercraft, etc.).
How can you be sure you have the right coverage?
Work with us at Otterstedt Insurance Agency to determine your risks, your needs, and the coverage amount that works best with your acceptable levels of risks and ability to recover, financially