You’ve heard the commercials touting “name your price” for insurance or the promise of saving an average of 15% if you switch your policy. Sound tempting? What you don’t hear about is how the price or the savings is determined. Cutting costs usually involves cutting coverage or reading the fine print in what’s not covered. It is better to consider your “total cost of risk”. This means that saving $200 on your auto policy per year may sound like a good financial decision, but if your liability limits are not adequate, it could cost you thousands or hundreds of thousands on a claim that exceeds your coverage limits. The “cost” to you is not just an insurance premium or rate. Your future wages can be garnished or you may have to liquidate assets like selling your home just to pay for the settlement.
Now, the $200/year in extra premium is looking like a great value!
Worse yet, some auto insurance policies exclude uninsured/underinsured motorists. If you are hit by someone that has no insurance or carries only the state minimum coverage and you do not carry uninsured/underinsured motorist coverage on your policy, you could end up with an uncovered or only partially covered automobile loss.
What about your home? Not all insurance policies are alike. Most carriers you see advertised on TV do not offer or include special personal property on their homeowners form. What’s that? It broadens your perils of loss for the contents of your home. Let’s say someone knocks over your entertainment center and all of your electronics come crashing to the ground. If you have special personal property coverage, it’s covered. If you don’t, there’s no named peril in an insurance policy for someone “knocking something over.” Maybe wine or bleach is spilled on an area rug or a couch. If you have special personal property coverage, it’s covered. If you don’t, it’s not!
These are just a few examples on the types of coverage that are usually lowered or omitted when “choosing your price.” Price is always a consideration, but it should never be the only consideration. You should look at your “total cost of risk” which should include a detailed analysis of your assets and exposures so your insurance and risk management program can properly reflect your needs. One uncovered claim can be financially devastating.
