Americans have an insurance problem. More specifically, they have a "lack of awareness on their own insurance policies" problem.
Consider these numbers.
According to Lend EDU, 54% of US adults have a life insurance policy, but 33% say they’re not sure how the policy works.
Another study by Bend Financial shows that “half of Americans are hopelessly confused by health insurance — so much so that the average American has a D-grade level of knowledge on their policies.”
Granted, consumer insurance isn’t exactly the spiciest topic at the hair salon or local pub, but when there’s big money on the table – and that’s the case with most household insurance – it pays to pay attention.
Technology and the insurance industry itself can help bridge that knowledge gap.
"The life insurance coverage gap can largely be attributed to evolving consumer digital expectations as well as lingering misconceptions,” said Ladder chief actuary Liam Monaghan.
Getting life insurance the traditional way can still take weeks and even involve fax machines — a major deterrent in the age of instant everything, digital everything. “In recent years digital-first companies have been stepping in to meet that need - in fact, 74% of Ladder applications are submitted on mobile devices,” Monaghan said.
Beyond digital transformation, the life insurance industry needs to continue to invest in empowering consumers with information, too.
“The most common consumer misconceptions are around price, coverage needs, and age. 80% of millennials, for example, overestimate the cost of life insurance and therefore might consider it a luxury they can’t afford,” Monaghan noted. “Additionally, 60% of consumers who say they are not interested in buying life insurance believe they are adequately covered through work."
"This is most likely untrue, as financial experts recommend getting roughly 10-times your salary in coverage as opposed to the typical one or two times multiple offered through employer benefits programs," he added.
The Biggest Insurance Mistakes Insurance Professionals Avoid
The fact is, the more you know about consumer insurance, the more money you save and the better your policy management experience.
To help out, TheStreet contacted several insurance professionals and asked them what they do to improve their policy experience – and what average Americans don’t do.
Here are the items on top of their “mistake avoidance” list.
On Medicare insurance. One of the biggest mistakes that people make is thinking they should only select their Medicare plan (or any other health insurance plan) once and renew that same plan every year.
“While that plan may be the best fit for you and your family at the time, it may not reflect your ever-changing health and financial situation,” said Chapter’s lead Medicare advisor, Ari Parker. “I always recommend to my clients to shop and compare coverage every year.”
For instance, one year you may need to visit the doctor more and require a low-deductible plan. In other years you may need to go less and can go with a higher-deductible plan.
The fix: “I recommend is going to an independent Medicare advisor, rather than an insurance carrier,” Parker said. “Insurance carriers only show you their plans, so you're missing out on a lot of options available to you in the marketplace.”
On life insurance. Not adding accidental death riders to a life insurance policy and living benefits riders is a common – and critical – problem with insurance consumers.
The fix: “These are big errors,” said Paramount Quote Insurance founder Timothy Connon. “Buyers should ask about additional riders when shopping for insurance to make the coverage even better than it already is.”
An accidental rider can double the policy face amount if death occurs due to an accident and a living benefits rider will allow the insured to use funds from the life insurance policy if they become terminally ill to help pay for things while they are alive.
“Yet most consumers never ask about these types of riders,” Connon said.
On homeowners policies. Another mistake consumers make that insurance professionals don't make is adding their property trust to their homeowner's policy.
The fix. If you own your home in a trust or an LLC, that entity should be listed on their homeowner's policy if there is either a liability or a large-scale claim.
“Insurers are under no legal obligation to defend entities not either listed as a named insured or can be defined as an insured by the policy documentation,” said Marindependent Insurances Services founder Scott W. Johnson.
On not shopping around for a good policy. Another big, yet common consumer mistake is to go with someone they know or trust instead of shopping the market.
“Just because you have a State Farm agent down the street does not mean they are the right product for you,” said Seniors Mutual founder Kelly Maxwell. “This includes all types of insurance, not just life and health, which is what we focus on.”
The fix. There are many insurance agencies out there nowadays for all types of insurance that will shop the market for you and find not only the best price but the most amount of benefits.
“The insurance industry's history is not kind to transparency, but recent technology in the last 5-10 years has made this possible,” Maxwell said. “You can go online and compare 15-plus companies for any type of insurance to save hundreds or even thousands a year.”
“I personally did this with my home and auto just recently this year,” Maxwell added.
On your insurance company relationships. Too many insurance consumers fail to broaden their horizons when choosing an insurance company.
The fix: Work with an insurance broker, not a captive agent or any agents that only represent one company, Connon advised.
“Make sure you work with a life insurance broker that has multiple contracts with the best companies to get you the best rate,” he said. “Also make sure you ask what additional riders are available for the life insurance policies.”