published Thursday, January 5th, 2012

Inside Insurance: Protect yourself from being underinsured In 2012

By David Colmans

In hard economic times it makes sense to save money wherever you can, right?

It also makes sense to be careful that saving money in the short term doesn’t cost you more money in the long term if things go wrong. This is about being financially safe rather than sorry when acting on what looks like a good idea.

Let’s look at several opportunities that may appear to save some money up front when it comes to your auto and homeowners insurance.

So why am I spending so much on auto insurance when the state of Georgia says the minimum I’m required to have to drive a vehicle is $25,000 liability coverage for injuring someone in a traffic crash that’s my fault. Also, all I need is $50,000 liability coverage for all persons injured in an accident that’s my fault, and I need just $25,000 for the repair of a vehicle I damage in an accident that’s my fault. That’s it.

You might want to stop watching the Judge of the Week show on TV in small claims court and think about what happens in the real world when you injure someone in a traffic crash. It’s a fact that $25,000 doesn’t go very far at all if the injured person is hospitalized.

Ditto for $50,000 covering all other parties injured in an accident. And when your minimum limits insurance coverage is used up, guess whom the other parties are coming after in court?

And if you total a relatively new car, that $25,000 may not cover the replacement at all.

The bottom line is that you need sensible advice from your insurance agent or company. The insurance industry and consumer groups generally recommend a minimum of $100,000 of bodily injury protection per person and $300,000 per accident. What you might consider dropping to save money is collision and/or comprehensive coverage if your vehicle is older and worth less than $1,000.

Why do I need renters insurance when someone else owns the place? Apartment, condo, townhouse or single-family dwelling, the landlord is responsible for the building but not your belongings in the building. If a fire or tornado or hurricane destroys the rental unit, without renters’ coverage you cannot be compensated for your losses, and you will have additional living expenses if you can’t return to the dwelling. There’s also liability concerns. What if your pet bites someone? What if someone is injured in your rental unit? A renters’ policy provides liability coverage for your protection. Renters insurance is much less expensive than homeowners because you are not insuring the building but only your things, and you have liability protection.

The real estate market has been going south for last few years, so I can save some money on by homeowners insurance by reducing the coverage to the lower market value of my home, right?

Insurance is there to cover the cost of rebuilding, not the sales price of your home. Your insurance coverage must be there to handle demolition of all or some of your home, and to cover the cost of rebuilding at current construction prices to rebuild your home as it was and cover the cost of contents. It also provides for additional living expenses if you can’t remain in your home while rebuilding takes place as well as providing liability coverages as does renters insurance.

If you want to save short-term costs, you might consider increasing your deductible from a fixed amount like $500 or $1,000 to something more substantial like $2,500. That will reduce your annual cost, but you’ll pay more should something happen, so think it through before you act.

Multi-policy discounts can save money if your coverages for home or renters insurance, auto, life and other policies are spread out over several companies. Ask your agent what savings are available by consolidating policies with one carrier. Also, don’t forget to inquire about all available discounts that may help even further.

There is truth to the old saying about not being penny wise and pound foolish, although today it’s penny wise and dollar foolish.

David Colmans is the executive director of the Georgia Insurance Information Service. Contact him at (770) 565-3806 or by email at dcolmans@giis.org.

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