Insurance coverage myths

12/21/2015 (Permalink)

This article originally appeared on Insure.com.

Something about insurance are known to be true. Customers pay a premium, sometimes have to pay a set deductible, and the insurer pays out in certain situations.  But there are plenty of myths out there surrounding the insurance business.When shopping for a policy, however, those misunderstandings can be costly for clients.

In an effort to better understand the misconceptions that surround the insurance industry, Insure.com recently surveyed 2,000 U.S. adults and asked them whether a series of 10 insurance statements were true or false. They also calculated whether men or women believed each myth more often.

Read on to see what they found...

Myth 1: "I should buy insurance coverage for my house based on its real estate market value"

·         52% think it’s true (among those who said it's true, 45% were women, 55% were men).

·         Tip: Buy coverage based on the costs to reconstruct the home. Imagine your home being leveled by fire or a tornado – this is a worst-case scenario that you want to insure for. In many areas of the country, rebuilding costs are quite different from real estate market value. In areas with a weak housing market, it might cost more to rebuild your house than what you could sell it for. And don’t include the value of the land in your coverage amount. An insurance agent can help calculate rebuilding costs.

Myth 2: "Red cars cost more to insure"

·         46% think its true (52% women, 48% men).

·         Tip: Car color doesn’t affect insurance rates and insurance companies don’t use it in their calculation of rates.

Myth 3: "If I cause a crash with extensive damage to others, my auto insurance company can cancel me immediately"

·         44% think its true (50% women, 50% men).

·         Tip: Most states have laws that prohibit insurers from canceling you mid-term due to a claim. If the insurer doesn’t want your business, they generally have to wait until your policy period is up and then they can send you a notice of nonrenewal. However, you can be canceled at any time for not paying your premiums.

Myth 4: "Small cars are the cheapest to insure"

·         40% think its true (42% women, 58% men

·         Tip: Small and mid-size SUVs and minivans are the cheapest to insure. In the 2014 model year, the Jeep Wrangler Sport is the least expensive vehicle to insure, according to Insure.com’s study of rates. Small cars do not have the cheapest rates because they are often chosen by younger, inexperienced drivers who submit more claims. Also, injury claims are higher from small cars, which lack the weight and protection offered by larger vehicles.

Myth 5: "The Affordable Care Act (also called Obamacare) allows health insurance companies to base rates on medical conditions such as high blood pressure, heart disease and cancer"

·         36% think its true (42% women, 58% men).

·         Tip: The Affordable Care Act prohibits health insurance companies from basing rates on pre-existing conditions. Nor can health insurers charge different amounts for men and women.

Myth 6: "Comprehensive auto insurance covers everything and anything"

•32% think its true (41% women, 59% men).

•Tip: If we could go back in time, we should never name it “comprehensive coverage.” Even “non-accident specific-problem coverage” would be less confusing to car insurance buyers. Comprehensive coverage pays for certain problems such as car theft, storm damage, animal collisions and vandalism.

Myth 7: "Thieves prefer to steal new cars"

•29% think its true (42% women, 58% men).

•Tip: Older cars are more valued among thieves because the market for their parts is bigger. If you want to cover car theft, buy comprehensive coverage.

Myth 8: "If my friend borrows my car and crashes it, their insurance will pay for damage"

•25% think its true (48% women, 52% men).

•Tip: Handing your car keys to a friend or relative is like handing them your insurance future. If they cause damage, the claim goes on your auto insurance policy and can affect your rates for years to come. And they probably won’t offer to chip in.

Myth 9: "The Affordable Care Act requires me to take the health insurance plan offered by my employer"

•19% think its true (41% women, 59% men).

•Tip: The Affordable Care Act requires almost all Americans to buy a health plan but doesn’t say where you must get it. If you don’t have access to health insurance through work or a spouse’s employer, mark your calendar for the open enrollment period for 2015 individual health insurance, which starts on Nov. 15, 2014.

Myth 10: "Out-of-state speeding tickets can't follow you home"

•13% think its true (34% women, 66% men).

•Tip: Those tickets can follow you, and can affect your car insurance rates.  This myth had the biggest disparity between men and women among the survey questions, with far more men believing they could get away with speeding in another state.