A significant number of American consumers are worried about the impact that inflation and rising costs could have on their owners and their car insurance coverage, according to a recent survey.
According to a survey of VIU by HUB, a digital insurance brokerage platform. Being underinsured means owning a policy that only covers a portion of a claim’s losses, often due to exclusions or coverage limitations.
Among survey respondents who made a claim on their insurance policy in the past five years, 40% said they had had an event where their policy did not cover their claim as they expected.
“Consumers are right to be concerned about the possibility of coverage gaps, as the economy is changing rapidly and many people are unknowingly underinsured,” said Bryan Davis, executive vice president and director of VIU, in the company’s report. “Education and insight can help alleviate these concerns while expert advice can provide ideal coverage and protection.”
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Consumers could be exposed to large out-of-pocket expenses
Inflation is at a an almost record level and had an impact on prices across the US economy. For insurance, this means increased replacement and repair costs, according to the survey. According to the survey, policy owners could face higher payouts if their coverage has not increased to reflect higher replacement values.
Most consumers (91%) said they would be worried if they found out they didn’t have enough homeowners and/or car insurance to cover an event. Additionally, 29% said they feared going into debt to replace or repair their car or home if there wasn’t enough insurance to cover a claim.
And those costs can be significant, according to Angel Conlin, director of insurance at Kin Insurance.
“You could insure your house for $300,000, only to find that rebuilding it after a total loss costs $400,000,” Conlin said. “Homeowners who are underinsured may end up paying tens of thousands – maybe even hundreds of thousands of dollars – out of their own pockets.”
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Here’s how policyholders can avoid underinsurance, according to an expert
Survey respondents mentioned a lack of understanding of how to choose the right insurance as one of the reasons they feared having inadequate coverage.
More than 4 in 5 policy owners (81%) said they wanted to know more or better understand the features of their home or auto insurance policies, according to the survey.
Policy owners need to understand the nature of the peril they are insuring against to assess the risks of a coverage gap, said Evan Walker, a lawyer who handles personal injury and property claims.
“For example, if peril is liability…then your personal property is at risk if you are sued and a judgment is rendered against you,” Walker said. “If, however, the peril is water, wind or fire, you may not have enough money to repair the damage to your property.”
The best course of action against the risk of underinsurance is to overinsure, Walker advised.
“I would also consider an umbrella policy,” Walker continued. “To me, having too much insurance is better than not enough. From what I’ve seen, any money saved by getting lower limits is a foolish, nonsensical approach. If anyone is interested in saving money money when it comes to insurance, a better approach may be to set higher deductible limits.”
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