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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?