Is My Insurance Too Cheap?

Insurance agents are constantly asked: Is that the best price?

I am reminded of a recent conversation with a friend and peer in the insurance business. We were comparing 'war stories' about the unintended consequences of getting the 'best price' for insurance.

A friend was insured with a large national carrier through a local agent. He and his family moved into a new home, and soon after, had water back-up from the pipes under their home which caused a lot of damage to their floor and sub-floor. The damage was worse since they were not home to mitigate the loss. My friend called their insurance company, and long story short, this claim was not covered. Sewer and drain back-up is excluded on the typical homeowner policy, but can be added by endorsement. Several thousand dollars later, this friend wished he had paid the small cost for this coverage. To add insult to injury, I had quoted this friend's insurance in the past, but our quote was "too expensive". The "too expensive" insurance (which was only about $150 more per year) would have saved him several thousand dollars.

One of my customers had a similar claim. He did complain on several occasions he thought the $900 or so he was paying annually for his homeowner insurance was too much, as he would never need it. This customer also had significant damage to their hardwood floors and to some of their walls. The repair bill was around $14,000. On top of that, they had to be out of their house for 5 days, as the entire floor had to be refinished to match the new boards that were put down. All this was covered by the insurance company.

In many, many cases, efforts to reduce the cost of coverage in reality also reduce the coverage itself. Don't be penny wise and pound foolish — make sure you fully protect your major assets.

This is not just a problem with your car and home coverage. I often review a potential client's business policies when providing a quote, and it is amazing what I see. Quotes with no personal and advertising injury, no sewer/drain back-up, and no non-owned auto liability to name a few. These are typically options that need to be added to your policies, and more often than not, they are not added. Depending on the size of your firm, these options may cost $50 per year or maybe a few hundred dollars. Many people think "I just want to cover my property and want the minimum coverage" and "I don't need all these bells and whistles." What if your employee makes a run to court or the post office during work hours in their personal automobile? This employee has an auto accident, for which they were the negligent party. The passenger of the other vehicle are severely hurt, or maybe even killed. If your firm is sued, you will want to be protected.

The moral to this story is this: insurance is not a commodity like groceries or clothing. It serves an important purpose in your life and business. If you call around each year hoping to find the best price, you will almost always be successful in finding a cheaper policy. Some carriers even advertise how they can save you hundreds of dollars per year for the same coverage. But is it really the same coverage?

Adam Pierce, AAI, is the Director of P&C Operations at Lawyers Insurance Agency. For more information. You can reach Adam at 800.662.8843 or adam@lawyersmutualnc.com.