Americans have an insurance problem. More specifically, they have a problem with “a lack of awareness of their own insurance policies.”
Look at these numbers.
According to Lend EDU, 54% of US adults have a life insurance policy, but 33% say they are unsure how the policy works.
Another study by Bend Financial shows that “Half of Americans are hopelessly confused by health insurance – so much so that the average American has a D-level knowledge of their policies.”
Admittedly, consumer insurance isn’t exactly the hottest topic at the hairdresser’s or the local bar, but when it comes to big bucks – and that’s the case with most home insurance policies – it pays to be careful.
Technology and the insurance industry itself can help close this knowledge gap.
“The coverage gap in life insurance can be largely attributed to evolving digital consumer expectations as well as ongoing misconceptions,” said Ladder Chief Actuary Liam Monaghan.
Purchasing life insurance the traditional way can still take weeks and even involve fax machines – a major deterrent in the age of Instant Everything, Digital Everything. “In recent years, digital-first companies have stepped in to fill this need – in fact, 74% of ladder applications are submitted on mobile devices,” said Monaghan.
Beyond digital transformation, the life insurance industry must continue to invest in providing information to consumers.
“The most common misconceptions consumers have are about price, coverage needs and age. For example, 80% of millennials overestimate the cost of life insurance and may therefore view it as a luxury they cannot afford,” noted Monaghan. “Additionally, 60% of consumers who say they are not interested in buying life insurance feel that work provides them with adequate protection.”
“This is most likely incorrect, as financial experts recommend covering around 10 times your salary, as opposed to the typical multiple of one or two offered by benefit programs,” he added.
The biggest insurance mistakes that insurance pros avoid
In fact, the more you know about consumer insurance, the more money you’ll save and the better your policy management will be.
To help, TheStreet reached out to several insurance professionals and asked them what they’re doing to improve their policy experience — and what average Americans aren’t doing.
Here are the items that top the “mistake prevention” list.
For Medicare insurance. One of the biggest mistakes people make is thinking that they should only pick their Medicare plan (or any other health insurance plan) once and renew the same plan every year.
“While this plan is the best fit for you and your family at this time, it may not reflect your ever-changing health and financial situation,” said Ari Parker, Chapter’s senior Medicare advisor. “I always recommend my clients to shop and compare covers every year.”
For example, a year from now you may need to see the doctor more often and need a low deductible plan. In other years, you may have to pay less and choose a plan with a higher deductible.
The repair: “I recommend going to an independent Medicare counselor rather than an insurance carrier,” Parker said. “Insurance carriers only show you their plans, so you miss out on a lot of the options that are available to you in the market.”
For life insurance. Not adding fatality drivers to a life insurance policy and life insurance riders is a common — and critical — problem with insurance customers.
The repair: “These are big mistakes,” said Timothy Connon, founder of Paramount Quote Insurance. “Buyers should ask about additional passengers when purchasing insurance to make the coverage even better than it already is.”
An accident driver can double the face value of the policy if death occurs from an accident, and a living expenses driver allows the insured to use funds from the life insurance policy if he becomes terminally ill to pay for things while he is alive.
“However, most consumers never ask for these types of drivers,” Connon said.
About Homeowners Policies. Another mistake consumers make that insurance professionals don’t make is adding their property trust to their homeowner’s policy.
The repair. If you own your home in a trust or LLC, that unit should be listed on your homeowner’s policy if there is either a liability or a large-scale claim.
“Insurers have no legal obligation to defend entities that do not list as named insureds or can be defined as insureds in policy documentation,” said Scott W. Johnson, founder of Marindependent Insurances Services.
On not looking for good politics. Another big but common consumer mistake is to go to someone they know or trust instead of shopping at the market.
“Just because you have a State Farm agent down the street doesn’t mean they’re the right product for you,” said Kelly Maxwell, founder of Seniors Mutual. “That includes all types of insurance, not just life and health, which is what we focus on.”
The repair. Today there are many insurance agencies for all types of insurance that will shop the market for you and find not only the best price but also the most coverage.
“The history of the insurance industry hasn’t been kind to transparency, but the latest technology over the last 5-10 years has made it possible,” Maxwell said. “You can go online and compare 15+ companies for each type of insurance to save hundreds or even thousands a year.”
“Personally, I did this to my house and car just recently this year,” Maxwell added.
to your insurance conditions. Too many insurance customers fail to broaden their horizons when choosing an insurance company.
The repair: Work with an insurance broker, not a captive agent or an agent who only represents one company, Connon advised.
“Make sure you work with a life insurance broker who has multiple contracts with the best companies to give you the best rate,” he said. “Also, be sure to ask what additional life insurance tabs are available.”