Would you buy a monthly commuter train pass if you didn’t take the train regularly? How about a car if you didn’t drive? As silly as it sounds, overbuying needs is a common occurrence in the insurance industry. I witness it first-hand almost daily with various types of clients. They are buying the wrong type of insurance based on their needs and predictable utilization.
Let me walk you through my top three overbuying scenarios to put things in better perspective and to hopefully prevent you from overbuying your needs when it comes to insurance.
Health Insurance
People insist on paying for a health insurance plan with out-of-network benefits even though they predictably never use providers outside their carrier’s network. I see this on a weekly basis. The problem is – plans that allow out-of-network access cost more, period.
My recommendation
If you don’t use non-participating providers significantly, don’t pay for this benefit. Remember, under health insurance, emergencies are always covered as “in-network” regardless of where care is provided. An objection I run into often is that an individual sees a specialist twice a year where insurance is not accepted. I would still recommend not buying a plan with out-of-network benefits. The reality is that most plans that offer the out-of-network coverage have high deductibles before benefits trigger. So, if you see a specialist twice a year who does not accept insurance and they charge you $500 per visit, you still benefit zero buy purchasing the plan with the out-of-network benefits. You won’t meet the deductible anyway!
Homeowners and Auto
Low auto deductibles seem to be a growing trend. When I speak with prospective clients with $250 auto deductibles, I usually ask them when they last filed a claim. Usually the answer is NEVER.
My recommendation
The sweet spot with insurance carriers on homeowners insurance is a $2,500 deductible and on auto insurance it is a $1,000 deductible. For most cars today, if you scratch your bumper it costs $1,000 to fix it! Don’t pay an insurance company for an artificially low deductible. Rather, take the savings and bank them for a rainy day!
Long Term Care
While this is one of the most important coverages I sell today, I often hear from clients that they don’t want to pay thousands of dollars on something they may never use. While I totally agree with that and wish I had a crystal ball myself, the truth is that no one ever knows what the future holds.
My recommendation
If your main objection with traditional long term care is that you might pay into the plan and never receive a benefit, you should consider products that provide this coverage and also have a guarantee payment in a life insurance benefit. They are out there and they are solid options. We might not all need a nursing home, an assisted living facility or professional home care services (which would be GREAT), but all of us eventually will leave this earth so a hybrid product might suit your needs better!
Become a better risk manager for your personal insurance needs. If you’re not sure where to start, a trusted insurance advisor can help you!