Saving money on car insurance or home insurance is one of the most gratifying ways to cut expenses. After all, it’s not like dropping cable or eating out less. If all goes well, you save money and it doesn’t even feel like penny-pinching. Shopping around regularly for lower premiums has a high payoff for the time invested.
But in the course of cutting your premiums, make sure you’re not inadvertently cutting out financial protection that you actually want. Insurance policies come with a great deal of fine print, and if the unexpected does occur, you can find yourself high and dry without the coverage you thought you had. Here are five situations that may trigger a nasty insurance claims surprise.
1. Leaving your home for an extended period
Did you know that your regular homeowners insurance can be voided if your home has been vacant for too long? Your home may be deemed “vacant” in less time than you think. While policies vary by insurer, many insurance companies consider your home to be vacant if no one has lived in the home for more than 60 days.
If something happened to your house and you forgot to mention the vacancy to your insurance company, you could be stuck holding the bill for your entire loss.
2. Dropping comprehensive coverage
Dropping comprehensive coverage on auto insurance is a great way to drop premiums, especially if you have an older vehicle that’s worth less. But if you elect to drop comp coverage and just get liability and collision coverage, know that you’re forgoing coverage entirely if an act of God destroys your car. An act of God, also called an act of nature, is used by insurance companies to describe events such as fires, windstorms, hail and other weather-related or other natural events.
If you’re involved in a crash with another vehicle, you’d be covered if you still have collision insurance. If a flash flood damages your car — or your car is stolen, for that matter — you’re out of luck.
3. Throwing a big bash
When you host a party in your home or on your property, you may be underinsured for liability claims. You should check with your insurance company, but chances are your standard home insurance policy doesn’t cover major injuries to guests.
If a child gets hurt in a rented inflatable bounce house or a guest slips next to your pool, you may need a special event or umbrella policy to be adequately protected. Supplementing your standard home insurance coverage may be especially important if you’re planning on serving alcohol. As the host, you could be liable for third-party claims should a drunken guest drive off and cause injury.
4. Relying on default property coverage
Many homeowners do not realize that standard policies limit claims on certain types of personal property if they are lost, damaged, or stolen. For example, most homeowners and renter’s insurance policies set a cap of $2, 500 for the loss of items such as jewelry, electronics, artwork, and collectibles. You can quickly reach your jewelry coverage limit if, for example, your spouse owns a nice ring.
You can supplement your regular insurance policy with an additional rider that covers valuable items over the standard limit. Insurance riders typically offer additional coverage for a relatively low premium.
5. Mixing business and personal
If you use your home or your personal car for business, you may also find yourself underinsured. For example, personal car insurance policies may have clauses against using your personal vehicle for a business purpose other than commuting to work. If you take a job that relies heavily on use of your personal vehicle — let’s say, as a pizza delivery driver — you may not be properly insured without a business car insurance policy.
Similarly, if you run a business from your home, you may want an in-home business policy with coverage for business liability, ongoing expenses such as payroll, and equipment replacement.
Finding the right insurance coverage balance
The downside of adding riders and supplemental policies for every eventuality is that you could end up overinsured, paying premiums for coverage that you don’t need or could stand to pay out of pocket. Everyone has to make his or her own decision based on the cost of insurance and the amount of risk taken. But simply assuming that you are covered just because you have car insurance or home insurance — without understanding the clauses in your policy — is a recipe for disaster.
Have you ever been denied a claim against your car or homeowners insurance because of fine print that you were not originally aware of?
7 Responses to “I’m Not Covered? Five Ways to Trigger Nasty Insurance Surprises”
Insurance stinks, no way around it. But on the day you need it, you’ll be glad you have it. So you might as well get good coverage at a reasonable price. The key is to insure yourself properly – not too little (so you get screwed when you need it) or too much (so you get screwed every month).
I lost ALL of the contents of my home in Hurricane Irene, and was not covered by my homeowners insurance because it was due to flood (interesting clause in my homeowners coverage). My flood insurance only covers structure. I would have been better off if my house burned to the ground. In hindsight, I wish I had an additional rider to my homeowners insurance to cover the contents of my home, but it is impossible as it is completely unaffordable.
Great article! A couple of points.
1: Leaving your home – most policies will only reduce coverage for certain types of losses. An example would be a carrier dropping coverage for vandalism.
2 Collision Coverage – Great for cars over 10 years old. Carriers will typically use the Kelly Blue book to determine the limit of your coverage.
3: A big bash – I am not aware of a carrier declining coverage as a result of a party.
4: Default limits – Great Point.
5: Business – This is really when you need to have a conversation with your agent.
Policy Price Check
These are some good starting points to discussing things with your agent if you think you might not have coverage. Some other notes I have to add:
– Comprehensive or broad form coverage does not cover everything, even though the term comprehensive has colloquially come to mean “including everything feasible.”
– Dropping comprehensive coverage will likely open you up to personal property theft of items in the vehicle itself (sometimes this can be covered under your Homeowner’s or Renter’s insurance policy, but don’t count on it).
– Dropping comprehensive coverage may also open you up to non-vehicular collisions. If you hit a deer, comp probably covers it, but it will likely be denied without comp. If you hit a house, the same thing may also apply. Verify with your agent if you live in an area with lots of deer or homes crossing the street. 🙂
– Riders such as for jewelry typically do not have a deductible attached to them, so if you end up having to make a claim for the item and your rider for it has no deductible, you may want to double-check the claim rep’s explanation to ensure you receive the full value of your claim (claim reps do so many claims with deductible, it’s very easy to miss when no deductible applies and it may not be caught for a while).
– Some other common limits for Homeowner’s policies are tools, water craft, small vehicles like golf carts or 4 wheelers, tow-behind trailers, or boat trailers. If you have something like these, discuss your coverage with your agent and see about a rider or maybe a different policy.
@Steve You will find that coverage can differ from company to company. If you routinely have large parties, the most sure way to deal with it is to just ask him about it. You might already be sufficiently covered.
Great article Hank! An easy alternative to adding different riders and supplemental policies is to add an emergency fund. This can help especially well for older cars if you decide to drop comprehensive car insurance.
How big does a bash have to be to get excluded from coverage? Or what other factors determine it?
Great post. Looks like I’ll have to go through my insurance policies to find out what I might need covered. Thanks!