What You Don’t Know About Insurance Is Costing You

Insurance can protect you, but only if you know what it covers before you take out a policy.

As it stands, most of you have no idea if your insurance covers the change you left in your car’s cupholder, that dog bite you got when you walked too close to your neighbor’s fence, or the wooden support beams in your basement currently being devoured by termites. And all of that ignorance is costing you money.

“According to our data, it is apparent that there’s a lot of misinformation—and a lack of awareness—out there when it comes to insurance, from the basics of Obamacare to your standard home and auto policies to what’s covered and not covered,” says Jason Hargraves, insurance analyst at insuranceQuotes.com. “And when a consumer doesn’t have a full understanding of their policies, chances are their pocketbook will ultimately pay a price.”

So what don’t you know? Well, according to insuranceQuotes, 60 percent of Americans are unaware that the mandate for insurance coverage under the Affordable Care Act and the penalties for dropping coverage are still in effect through 2018. That’s a tough lesson to learn, as the penalty for dropping coverage last year was either $695 per adult (with a $2,085 family ceiling) or 2.5 percent of household income, whichever was greater. In 2016, the last year for which figures were available, roughly 6 million opted out and paid the penalty according to the Internal Revenue Service.

Speaking of health insurance, 39 percent of us somehow have no idea that health insurers are allowed to factor in tobacco use when determining their premium. Considering that the Centers for Disease Control and Prevention (CDC) considers cigarette smoking the leading cause of preventable death in the United States, it isn’t entirely surprising that smokers’ insurance rates are 15 to 20 percent higher than those of their non-smoking counterparts.

There is similar confusion surrounding renters and homeowners insurance. Roughly 46 percent of consumers don’t know that standard homeowners insurance won’t cover damage done by pests such as termites and rodents. Home insurance provides liability protection for things like dog bites, but you’re on your own with pests unless you specifically seek out that coverage.

“If your home experiences a rodent infestation or termite damage—or another unexpected event—having the appropriate insurance policy can mean the difference between inconvenience and disaster,” says Hargraves. “When researching and selecting your individual and family policies, it’s always worth it to pay attention to the details.”

Meanwhile, if items are stolen from your car or truck, your homeowners insurance policy absolutely covers that. The 62 percent of consumers who weren’t aware of that coverage have a right to be confused: Car insurance seems like a logical choice for that kind of benefit, but it only covers what was included in your car once it left the factory. Anything else you place in your car is considered personal property, and that’s covered only by homeowners and renters’ insurance.

That said, there are some big events that homeowners’ insurance won’t cover. In any situation where you can be held liable for someone else’s injury, misfortune, or death, liability insurance often takes up the slack. Shomari Hearn, a certified financial planner with Palisades Hudson Financial Group in Fort Lauderdale, Fla., notes that if a guest at your party drinks, gets into a car, and kills someone while driving, you can be held liable.

“Not having adequate liability insurance is one of the most common holes in a financial plan,” Hearn says. “Paying a big judgment out of your own pocket could be financially devastating.”

However, your homeowners’ policy does come with some liability insurance. About 54 percent of all consumers and 67 percent of millennials don’t know that a standard homeowners or renters policy would cover dog bites. That includes incidents where your dog bites someone at the dog park, on the street, or at any other location away from your home.

Yet even having coverage for dog bites on your own doorstep helps tamp down your liability risk. The CDC estimates that 4.5 million people each year are bitten by dogs, and according to the United States Postal Service, the number of postal employees attacked by dogs nationwide reached 6,244 in 2017. That’s 400 fewer than the year before, but attacks on mail carriers became so prevalent in recent years that their scanners now indicate if there’s a dog on the property they’re visiting next.

“Even good dogs have bad days,” says USPS safety director Linda DeCarlo from Los Angeles, where postal workers were attacked by dogs 46 times.

But that bad day comes at a cost. According to State Farm, the average cost paid out for dog bite claims nationwide was $37,051 in 2017, compared with $27,862 in 2013. And while dog-bite claims have risen 9.5 percent since 2003, the cost per claim has nearly doubled in that time.

While homeowners’ insurance has broad liability coverage, there are scenarios in which it isn’t enough. Robert Passmore, senior director of personal lines at the Property Casualty Insurers Association of America, says homeowners policies generally cover gun owners’ firearms as personal property and reimburse damage to or loss of a weapon. But while the liability portion of a policy offers some protection if a homeowner accidentally injures someone else with a firearm, that coverage has its limits and might require extra coverage in the event of serious injury or death.

Hearn notes that homeowners insurance usually includes up to $300,000 of personal liability coverage. The typical renters’ policy, however, offers just $100,000 of coverage. Auto insurance typically covers up to $250,000 for each person and $500,000 per accident involving bodily harm, and less for incidents that involve only property damage. If you have more significant assets or earning power, Hearn suggests backing up your homeowner’s insurance with a personal $1 million umbrella policy that the Insurance Information Institute (III) says costs $150 to $300 a year.

Though some assets are protected by law — a court can’t force you to liquidate a 401(k) to pay a judgment, for example, and states protect both traditional and Roth IRAs — second homes, non-retirement investment accounts, and future earnings are all up for grabs. If a lawsuit judgment or settlement stretches into millions of dollars, that’s going to eat through your homeowners or auto insurance coverage pretty quickly.

“Most companies that sell umbrella insurance require customers to increase their base liability coverage to fill such gaps, but it’s wise to check,” Hearn says. “Sticking to one company for home, auto, and umbrella gives you discounts. It also makes the process simpler in the case of a lawsuit, since you will not have two separate companies handling two portions of your coverage.”

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