9 Common Myths About Insurance

Know fact from fiction before you experience an insurance loss

If you're like most consumers, it's unlikely you've taken the time to read the fine print of your health, auto and home insurance policies. But it pays to understand what you're purchasing so there are no surprises if you ever need to file a claim. Here is a list of nine common insurance misconceptions from the National Association of Insurance Commissioners (NAIC).

  1. My spouse wants a life insurance policy, but I don't think it's necessary.

    While life insurance covers the life of the policyholder, it is the policyholder's family who benefits from the coverage. If a family's primary breadwinner passes away, how will that person's income be replaced?  Also consider potential losses incurred by the passing of a stay-at-home parent who cleans, takes care of kids and a home. It could cost a lot of money to replace these services. Understanding your family's needs will help determine whether a life insurance policy makes sense.

  2. I only need collision and liability coverage for my vehicle.

    Liability coverage protects you and your family if you're at fault during an accident and will cover damages to property, vehicles or people up to your policy limits. Collision coverage will cover costs to repair your vehicle (minus the deductible) in a collision such as hitting a pole, vehicle or other object. However, if your vehicle is stolen or flooded or if you hit a deer, you'll need comprehensive coverage to recoup your loss. Think about all your risks and the potential costs of replacing a vehicle when deciding on coverage.

  3. If I lend my car to a friend and they crash, their insurance will cover it.

    It may seem only fair that a friend's insurer would cover the accident, but auto insurance follows the vehicle, not the driver. So your insurer would bear the primary responsibility for any damage a friend causes while borrowing your vehicle. If the damage exceeds your policy limits, then your friend's policy would kick in as secondary.

  4. I don't need any additional rental car insurance because my credit card will cover me.

    Many credit cards will only cover collision insurance, not liability which means you'll be on the hook for the other driver's damages if you're at fault. Also, depending on where you travel, your credit card company may restrict coverage. However, your own auto insurance policy might cover a rental car, so be sure to call them as well. Don't make assumptions; take time to find out what's covered.

  5. Health insurance is available for purchase whenever I need it, no matter what.

    Not true. To purchase coverage in the individual market and off the Exchange, you must either purchase during open enrollment or experience a qualifying life event. Additionally, if you get a new job that offers health insurance, you may have to wait 30-60 days before your coverage takes effect.

  6. Health insurance will pay the same, no matter where I receive care.

    Insurers negotiate payment rates with networks of providers.  If you use a provider outside your insurer's network, your insurer may not cover the entire bill and you may be required to pay more out-of-pocket.  Check to see if your provider is in your insurer's network to avoid a surprise bill.

  7. My state's minimum auto liability coverage is sufficient.

    If you're at fault for an accident where you damage an expensive vehicle or more than one vehicle, your minimum property damage limits might not cover the full costs of the damage. Have you checked what your liability limit is for bodily injuries? Serious injuries or even death can translate into millions of dollars in settlement fees. In this case, you're personally responsible for the costs not covered by your auto insurance policy.

  8. A tree in my backyard fell and hit my home; therefore, the removal and damages are covered.

    If the tree was damaged by water or wind, you may not be able to get it replaced depending on the language of your policy.  If not, you're covered for damages to your home and any of your belongings that were also damaged. You will have to pay your deductible, but your homeowners insurance typically will also cover the cost of removing the tree and even replacing it.

  9. Homeowners insurance means I'm covered for flooding losses.

    Think again. Flood insurance is not covered as part of standard homeowners and renters insurance policies. If you want to be covered for flood damage, you'll have to purchase coverage specific to flooding. If you live in a flood zone or if your home could be flooded by an overflowing creek or pond or even water running down a hill, look into buying flood insurance. And buy it before you need it as there is a 30-day waiting period after purchase before the coverage takes effect.

    More information

    The NAIC offers Get Ready resources for life events such as new home, wedding, job change, turning 50 and more. For more information, contact your state insurance department.

    Slideshow: 9 Common Myths About Insurance


About the NAIC

The National Association of Insurance Commissioners (NAIC) is the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer review, and coordinate their regulatory oversight. NAIC staff supports these efforts and represents the collective views of state regulators domestically and internationally. NAIC members, together with the central resources of the NAIC, form the national system of state-based insurance regulation in the U.S. For more information, visit www.naic.org.

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