5 Insurance Policies You Are (Probably) Overpaying For
Written by
Jordan Rosenfeld
Edited by
Rebekah Evans
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Insurance is an expense people rarely question once it’s set up.
But over time, even good coverage can become outdated, inefficient or just plain expensive. Below are the insurance policies you are most likely overpaying and how to fix this, according to insurance experts.
Also here are five types of insurance that are usually a waste of money.
Life Insurance
Life insurance is the only type of insurance “where insurers are permitted to quote a low premium while instead actually charging high costs, without disclosing the risk of additional premium calls later to cover those high costs,” said Barry Flagg, certified financial planner (CFP) and founder and president of Veralytic.
This can lead to confusion about what you’re actually paying for.
However, the more common reason for overpaying is that a person forgot to revisit their policy when life events changed, according to Jarad Stolz, retirement planning specialist, vice president of insurance sales and associate chief underwriter at Diversified Insurance Brokers, Inc.
“Rates change, products improve and people’s lives evolve, but their policies stay the same,” he added.
Homeowners’ Insurance
Homeowners insurance is a major source of overpayment, especially when people pay for coverage on structures that don’t reflect the actual replacement cost of their home, according to Anthony Lopez, CEO of Your Insurance Attorney.
“Or they’ve accepted whatever policy their mortgage lender pointed them toward without ever questioning it,” he added.
For homeowners’ insurance, Lopez warned that a dwelling coverage limit that doesn’t reflect current construction costs is a red flag.
Auto Policies
Duplication is also common in auto coverage, particularly for things like roadside assistance they’re already getting through a credit card or manufacturer warranty.
However, he suggested that the larger problem is a lack of transparency. “The insurance industry is not in the business of volunteering savings to you,” he said.
Disability and Long-Term Care Coverage
More coverage is not always better in disability and long-term care, Stolz pointed out.
“It should match a specific purpose. Life insurance should replace income or cover obligations, not just be a big number. Same with long-term care — there are smarter ways to structure it than just trying to insure 100% of the risk,” he added.
Bundling, Loyalty and Auto-Renewals
Convenience can come at a cost, too. “People assume they’re getting a deal because everything is packaged together, but over time, premiums creep up,” Lopez said.
Here’s another problem: “Some agents, brokers or insurers automatically include riders for additional coverage that’s not needed but adds cost,” Flagg explained.
Make sure that any bundled insurance “yields meaningful discounts,” Lopez said. “Don’t bundle bad policies just to save fifteen percent.”
Red Flags That You’re Overpaying
Overpaying isn’t always obvious, but there are warning signs if you know where to look.
“If a policy hasn’t been reviewed in a few years, that’s usually the first sign,” Stolz said. Also, if the coverage doesn’t really line up with where someone is today — income, assets, family situation — that’s another.”
Another is a high premium paired with a very low deductible on a low-risk peril. “You’re essentially pre-paying for small claims you’d be better off self-insuring,” he explained.
Most of all, “if [the] agent, broker or insurer hasn’t told you what you’re going to be charged each year over the life of the policy, that that’s a sign you could be overpaying,” Lopez said.
How To Lower Premiums Without Increasing Risk
When looking to pay less, make sure you’re paying appropriately for the protection you actually need.
“Look at deductibles, remove anything that’s not adding value and make sure the structure of the policy still makes sense,” Lopez said.
This may mean paying a higher deductible. “Treat your policy renewal the same way you’d treat renewing a lease: you have leverage at that moment and if you don’t use it, you’re leaving money on the table,” Lopez added.
Insurance should evolve as your life does — if it doesn’t, that’s usually where inefficiencies start to show up, Stolz said.
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