Insurance is the kind of financial good that people usually have either too much, or too little of.
Often, emergencies happen — a fire breaks out in the apartment, a car accident leaves you out of work, a hurricane floods the basement– and people don’t find out they aren’t covered until the bill arrives. Other times, consumers have the opposite problem. Insurance purchased for emotional reasons, like costly life insurance, never gets used. Either scenario has the same end result: money gets spend unnecessarily.
No one likes to read the fine print on an insurance policy, but it’s important to check in sometimes to see if you’re insurance set-up is right for you. It can be the thing that keeps you afloat in case there’s a devastating event in your life. Below are some common mistakes made by people at every age. when it comes to insuring their things.
20s: Forgetting to protect your belongings.
Young people stumble when it comes to insurance, both by not protecting what they have but also by forgetting to protect themselves against the times they might hurt others. For instance, rental insurance might not seem necessary when the furniture is mostly cheap and there are no major family heirlooms to protect. But even low-key furniture and belongings might be expensive to replace if everything gets lost in a fire, says Jeanne M. Salvatore, senior vice president and spokeswoman for the Insurance Information Institute.
“We’re not talking about anything fancy schmancy here but it can add up to a lot of money,” she says. Rental insurance protects against losses caused by theft, fire, lightning and certain kinds of water damage, though most do not cover flooding. It would also kick in if someone got hurt at a house or apartment and decided to sue, Salvatore says. And it doesn’t cost much. A policy that costs a few hundred dollars a year can replace thousands of dollars worth of belongings and cover the costs of temporary housing when someone is displaced, Salvatore says.
Car insurance is another area where people tend to have too much, or not enough, insurance, Salvatore adds. Some young people driving older cars might be better off cutting back on the comprehensive and collision insurance they have on their car and increasing their liability protection, which would kick in if they hurt someone else or damaged a car during an accident, she says. Another way to save when driving an inexpensive car is to go with a plan that has a higher deductible but lower premium costs, she says.
30s: Not considering life insurance or comparing health policies.
Many employers offer life insurance coverage to their workers, but some people may find they need more robust policies to help relatives or spouses who are relying on their income. “You have to think about replacing your income if something were to happen to you,” says Jim Meehan, managing partner of 1847Financial, a financial services firm in Philadelphia. It’s a conversation that couples often hold after having children, but some people may need life insurance even if they aren’t parents. For instance, some married couples may want to buy life insurance if only one spouse is working or if a spouse would not be able afford major living expenses or debts, such as a mortgage, on one salary alone. Even people who are supporting their older parents financially may benefit from a life insurance policy, Salvatore says. Before deciding on a policy, families should make sure they do the math to buy a plan that won’t run out before those needs are met. Workers may be able to buy supplemental coverage through their employers, but it can also help to shop around with a broker.
Another area where people may overlook coverage is health insurance. With the Affordable Care Act, many people who cannot get affordable coverage through work are now able to shop for plans on new public insurance exchanges. But people should re-evaluate their coverage after a major life change, like a marriage, to be sure they’re using the best plan. Some people may find that the coverage offered through a spouses’s employer is more comprehensive or more affordable. (However, some companies are introducing surcharges or increasing the costs of covering a spouse.)
40s: Ignoring disability insurance.
One in four of today’s 20-year-olds will become disabled by the time they’re 67, according to the Social Security Administration. When such accidents or other unforeseen injuries happen, workers may find themselves out of commission for a few months — if not longer — while they recover. “If your paycheck for your job stopped tomorrow, your bills don’t go away,” Meehan says. Many employers offer short-term disability insurance to their employees, but the policies may not be enough to cover all living expenses, he says. Social Security disability insurance only kicks in for long-term disability and involves a complicated application process plagued by appeals and backlogs.
Disability insurance becomes particularly important when people are in their 40s, when they are more established in their careers and are often reaching their peak earnings, Meehan says. People with high-earning jobs, particularly those in specialty fields such as surgery where it might be difficult to re-enter after a physical disability, may want to supplement that coverage with another plan that will replace a higher percentage of their income.
50s: Neglecting to buy long-term care insurance while it’s affordable.
Many people are surprised to learn in retirement that Medicare doesn’t cover long-term care expenses. That mistake often leaves people struggling to cover the costs of assisted living or home-health care in their 70s and 80s, when long-term care insurance comes in handy. But many people put off purchasing the coverage until it is too late, and too expensive, says Antwone Harris, a financial planner with Charles Schwab. “If you do not have it, it costs several hundred dollars a day to provide at home care” or to live in a nursing home, Harris says.
Long-term care coverage can also help people protect their assets, says Scott Halliwell, a financial planner with USAA. Otherwise, some people without long-term care insurance may find themselves forced to spend down savings and sell other assets before they can qualify for further financial assistance to cover such costs.
60s and beyond: Not changing up insurance coverage.
As we recently reported in a recently launched feature that pairs readers with financial advisers, some people in their 60s continue paying up for life insurance they may no longer need. Life insurance, which gets more expensive with age, is best used by those with relatives or others who depend on them for income, financial advisers say. But it may not be as necessary once the kids are grown and living on their own. The same applies for couples nearing retirement who might be better off saving the money instead of spending it on insurance, especially if the mortgage is already paid off and the income coming in from pensions, savings and Social Security is enough to cover living expenses.
When it comes to Medicare, many seniors are likely to fall into a set-it-and-forget-it mode. But that can be a costly mistake. Beneficiaries should use the annual open enrollment period, which ends Dec. 7, to re-evaluate prescription coverage and their Medicare Advantage plans, which are sold by private insurance companies. Those consumers who do change plans often end up saving money. Nearly half of people who changed prescription plans between 2006 and 2010 saved more than 5 percent in out-of-pocket drug costs, which include deductibles and co-payments for prescriptions and doctors’ visits, according to a report by the Kaiser Family Foundation.