The bulk of the article below was borrowed from “3 Costly Myths About Insurance” on the MSN website. There are many informative articles for you there and I encourage you to visit it at: http://articles.moneycentral.msn.com/Insurance . From time to time this year, I’ll borrow from them again because they say so many things that hit home. Although I don’t always agree with everything you’ll find there, for the most part they are trying to do the same thing we are …
inform the consumer.
Many people think about insurance in the wrong way.
They act according to “guidance” given them by non-professionals and rely on certain myths about insurance, and those myths can cost them -- big time. They buy too much or not enough. They get blindsided by huge increases in their premiums, or they get dropped by longtime carriers. They get mad about insurance instead of getting smart.
Myth: Your benefits should roughly equal the premiums you've paid
Many people feel cheated if they aren't "using" their insurance -- in other words, if they pay premiums for years and never make a claim.
That, however, is exactly what you want to happen with most types of insurance.
Sound insane? It's really not. Most of the time, insurance should be thought of as your protection against true financial catastrophe, not as a buffer against the normal ups and downs of daily living.
Here’s an axiom you should remember:
The purpose of insurance is: To mitigate the impact that a loss will have upon you financially and/or personally.
For example, you want your homeowners insurance to be there if your house ever burns down because you probably don't have enough savings to rebuild your home or pay off your mortgage otherwise. On the other hand, you can easily swing the cost of replacing a window pane when Alex down the street tips a foul ball into your kitchen.
So why pay extra for a policy with a low deductible, just so you can get your insurance company to cover a cost you could readily handle on your own?
Opting for deductibles of $500 to $1,000, instead of $100 to $250, can save you money.
Myth: Help will always be there when the unlikely happens
More than 80% of California homeowners don't have earthquake insurance. That figure often stuns people from out of state, because of the widely held notion that the GoldenState is a bowlful of geological jelly.
Californians, however, know that serious earthquakes are pretty rare. Most are mild, and almost all are very localized. So the chances of your own home getting totaled in one are actually pretty slim. That excuses Californians from buying coverage, right? Hardly. Similarly, you may not be off the hook if you lack flood or windstorm insurance.
Remember, insurance is meant to protect you from financial catastrophe -- disasters from which you could not easily recover on your own.
Some people ignore this advice, figuring the federal government will come through for them in a disaster. You should know, however, that typically this help isn't free. Most help comes in the form of low-interest loans.
One look at the wake of Hurricane Katrina should make you wary of relying on government help.
Even with such aid, many people lost their homes in the 1994 Northridge quake in California. They found they couldn't simultaneously pay their mortgages and afford places to live while their homes were being rebuilt.
So, if you don't have enough cash saved up to rebuild your home or pay off the mortgage, and you live in an area where natural disasters are a distinct possibility, you need appropriate coverage.
Myth: Insurance is a rip-off; buy only the minimum required
People's suspicion of the insurance industry can be so profound that they'll put themselves in real financial danger -- the old cut-off-your-nose-to-spite-your-face response.
It's scariest when people skimp on liability insurance. This pays for the damage you do to other people or that they do to themselves on your property.
Say you're held responsible for an auto accident in which somebody is paralyzed. You can be on the hook for that person's medical expenses, lost income and care for the rest of his or her life. Injure more than one person, and the cost goes up exponentially.
If you don't have liability insurance, or you're carrying too little, most of what you own could be at risk. You could be sued and lose just about everything you've spent a lifetime working and saving to accumulate, plus perhaps your future earnings as well. All this because you wanted to save a couple of bucks on your premiums.
A smarter choice is to get enough liability coverage at least to equal your net worth (Your net worth is everything you own minus everything you owe.) If your net worth is $250,000, for example, boost the liability coverage on both your auto insurance and your homeowners insurance to at least $250,000.
You can get more coverage for not much more money, and that's an especially good idea if you might be a lawsuit target: a doctor, a lawyer or a public figure of any kind.
Because most auto and homeowners policies have an upper limit on how much liability coverage they provide, you might need to buy an additional policy, called a personal liability or umbrella policy. These are relatively inexpensive: Around $300 for $1 million of coverage.
And I’ll add one more myth of my own:
You can’t trust your insurance agent because they work for the company.
That is so wrong. No matter what those lawyer commercials say on television, your insurance agent is a licensed professional and most of us are dedicated to you. You are the ones that keep us in business and we appreciate your trust. We strive every day to learn and to educate you about our industry so you can make wise decisions. You know everybody has opinions about insurance. A wise consumer, however, has informed opinions. So I ask you to learn a little about your insurance coverages this year, read a little, ask questions and get the most you can for your money. We’re here to help you.