Eleven Biggest Insurance Myths Debunked

With so many myths circulating around insurance, it's no wonder that many folks are confused about their existing coverage, or which kind they need to get in the first place. Understanding what's fact vs. myth can help you make an informed decision about the protection you need in many different areas, including for your home, car, business, etc.

While an independent insurance agent can also help demystify popular insurance myths and help you find the right coverage, we'll start by examining a list of some of the most common offenders. Review the list below of the top 11 insurance myths. We're hoping to help dispel them all for you.

Myth 1: I Don’t Have That Much Stuff, so I Don’t Need Renters Insurance

Before you buy into this myth, take the time to walk through your home and write down the estimated value of all of your belongings. How much would it cost if you had to replace them all out of pocket after a huge disaster like a fire? You might be surprised by the total that adds up. Further, you're probably required to get a renters insurance policy by your landlord, regardless.

Even if your belongings aren't particularly valuable or expensive, having the right renters insurance policy can help you get your life back on track more quickly after a disaster. A renters policy can help reimburse you for losses to your personal property as well as your liability exposures. An independent insurance agent can further explain the many benefits provided by renters insurance, regardless of how much property you own.

Myth 2: The Life Insurance Provided through Work Is Enough

Many employers offer full-time employees life insurance benefits, typically by becoming part of their group life insurance policy. The downside to this is that if you quit your job, get terminated, or the company goes out of business, you'd lose all of your life insurance. Group life insurance policies provided by the workplace can also often leave you underinsured.

It's reported that half of Americans with life insurance coverage don't have nearly enough to pay for their final expenses including remaining mortgage, outstanding debts, and funeral costs. Insurance experts recommend getting enough life insurance to reimburse for ten times the amount of income you earn per year. If you make $50,000 per year, aim for a life insurance policy with a limit of $500,000. If your employer's life insurance doesn't provide this much coverage, you can supplement it with a personal policy.

Myth 3: Only Rich People Need Umbrella Insurance

Some folks mistakenly believe that only rich people ever face lawsuits, or that only rich people ever deal with lawsuits that exhaust their existing liability coverage. This simply isn't true, considering that there have been lawsuits documented with such large settlements as $525,000 for a single slip-and-fall injury on an icy sidewalk at a condo complex.

Umbrella insurance works to increase your existing liability coverage to a limit of $1 million or greater and can be added to your home insurance as well as other policies. If your home has particularly risky elements like a pool, trampoline, or an aggressive dog, it could well be in your best interests to add umbrella insurance in case you get slapped with a hefty lawsuit. An independent insurance agent can also advise if umbrella insurance is right for you.

Myth 4: I'm a Homemaker, so Life Insurance Won't Benefit My Family

Life insurance allows your surviving family to continue with their familiar standard of living after you pass. Though it can be used to supplement income for those that are employed, coverage payouts can also be used to pay off your final expenses, such as funeral costs, or to fund a dependent or spouse's future. Many folks use life insurance to create a college fund for their children.

Myth 5: I Don't Need Flood Insurance if I Don't Live Near the Water

Even if flood insurance isn't required where you live, it might still be useful to protect your home from various disasters that your home insurance won't cover. Home insurance doesn't provide coverage for flooding caused by heavy rainfall, tsunamis, hurricanes, etc. Since flooding can happen anywhere, regardless of the presence of a large body of water nearby, it's best to ask your independent insurance agent about adding flood insurance to protect your home upfront.

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Myth 6: Red Cars Cost More to Insure

This is a longstanding myth with no real weight to it. Though the color red may be shown to affect mood, it doesn't have the same power over your car insurance premiums. Real factors that influence the cost of auto insurance include your driving record, credit score, the type and value of your vehicle, your location, etc.

Myth 7: I Don't Need Life Insurance because I'm Young and Healthy

It might seem to make sense that younger folks without existing health issues don't feel the need to get a life insurance policy. However, getting a life insurance policy when you're young can actually be the best time to do it. Since younger people don't tend to have nearly as much set aside in savings from a lifetime of working, having a life insurance policy in case of a disaster can be critical.

Consider if you were to die unexpectedly and you still had 20 or more years left on your home's mortgage. Without life insurance, this financial burden could be left entirely up to your spouse, alongside life's other expenses. Further, purchasing a life insurance policy while you're young and healthy can sometimes help you to lock in a much lower premium rate than if you first buy coverage when you're older and/or in worse health.

Myth 8: If Someone Else Drives My Car, Their Insurance Would Pay for the Damage

Actually, in most states, it's the vehicle owner's car insurance that would be responsible for covering the damage after an accident. Since the vehicle's owner is considered the primary insurance policy, it would be the one to cover the damage after an accident, regardless of whether it was you, a family member, or someone else driving the car. However, policies and laws vary by state, so be sure to review these rules together with your independent insurance agent before allowing anyone else not listed on your policy to drive your car.

Myth 9: All of My Belongings Are Automatically Covered by My Home Insurance

Don't fall into the common trap of assuming that your home insurance automatically covers all your personal property stored in and outside of your home. If you own particularly valuable property, such as electronics, jewelry, furs, artwork, precious gems, etc., you might need to specifically list or "schedule" these items on a floater or endorsement. Often you'll need to get these items appraised before your insurance company agrees to cover them.

If you own a lot of valuables, keep a personal inventory, including photos and appraised values. This can help expedite the claims process including receiving reimbursement if a disaster like theft occurs. Regardless, ask your independent insurance agent if you might need to increase your home insurance's contents coverage, or if you need special endorsements or floaters to cover any of your belongings. 

Myth 10: My Business Is Too Small to Need Insurance

Your business's exposure to risk should be the key factor you consider when determining whether you need coverage for it. If your business uses pricey equipment, stores electronic data, is vulnerable to environmental threats, or is at a high risk of lawsuits, you should really consider getting business insurance. Any business, no matter how big or small, can be sued by customers and other third parties for claims of injury or property damage, and you'd need the liability coverage provided by business insurance to reimburse you as the owner.

Myth 11: My Home Insurance Will Cover My Home-Based Business Fully

Not always. Home insurance policies typically cap your business equipment's coverage at $2,500 within your home and at only $250 if it's taken out of the home and off-premises. Further, most often home insurance will exclude liability related to your business, no matter where it's located. 

You can, however, add endorsements to your home insurance to cover your home-based business. You can also purchase a separate home-based business insurance policy, or even a businessowners policy. An independent insurance agent can advise on the best type of coverage to protect your unique home-based business.

Why Choose an Independent Insurance Agent?

Independent insurance agents simplify the process by shopping and comparing insurance quotes for you. Not only that, but they’ll cut through the jargon and clarify the fine print so you'll know exactly what you’re getting.

Independent insurance agents also have access to multiple insurance companies, ultimately finding you the best insurance coverage, accessibility, and competitive pricing while working for you.