Note: This guest post is by David Thompson, CPCU, AAI, API, CRIS, an instructor at the Florida Association of Insurance Agents for over 23 years. Prior to that he worked in a family-owned insurance agency for over ten years. He was a commissioned officer in the United States Army and the United States Coast Guard for eight years prior to beginning his insurance career. In his spare time, he smokes the world’s best BBQ.

I drive a red four-door car that has a sticker price of about $21,000. A good friend of mine also drives a red four-door car, but his car was over $26,000. Why did he pay more than I did? After all aren’t all red four door cars the same?

The answer to that question is obvious because different cars have different features. The same concept can be used with insurance policies. Not every policy is the same, and price alone should never be a reason to purchase an insurance policy. The homeowners policy on my Tallahassee home is $1,281 per year. I doubt any of my neighbors pay that much and I’m nearly 100 percent certain that no one within miles of my house has a policy with as many coverage enhancements as my policy does. I have (for fun) gone to some websites where you can put in your street address, answer four or five simple questions and pronto, you get a quote. I did that just today and the quote provided in under a minute listed 23 companies; 22 were lower than my current premium with the lowest being $572. By the way, only three questions were asked: zip code, year built, and coverage limit. But, what did that policy include? Was coverage as broad as what I currently have? I assure you that it was not, but too many consumers would look at $1,281 vs. $572 and go with the cheaper quote. A long time “insurance nerd” friend of mine who had over fifty years in the insurance industry when he passed away a few years ago often said, “The bitterness of no coverage is remembered long after the sweetness of low price is forgotten.”

In my thirty-three years in the insurance industry, I have seen hundreds of claims denied because coverage was insufficient. Probably the worst case involved close friends of mine who left my agency to “save money” on their insurance. They declined uninsured motorist coverage with the new agent. (The policy I provided had $900,000 of coverage.) Within a year, a family member was tragically killed by an at-fault driver who had only $10,000 of liability insurance. They “saved” about $300 a year but suffered severe financial loss after the claim. Then we have consumers who don’t buy flood insurance because it’s not required by the lender or decide to forego coverage for damage by wind; those number in the scores (if not hundreds) during my career. I could cite many more examples just like this. Sadly, all too often the claim denial was correct, and for just a few dollars more the claim would have been covered.

The best advice I can offer to the typical consumer is to find a good local independent insurance agent who represents multiple companies. Go into the office and speak with the agent; don’t make the purchase via email correspondence only. Take the approach with the agent of, “I am a lot more interested in good coverage than price.” Certainly, price is a factor in anything we purchase, even insurance, but putting better coverage ahead of lower price should be the number one factor in purchasing insurance. Show the agent your current policy and then say, “This is what I have now; please quote me the same but then add all the bells and whistles and show me the best policy I can buy.” Some of the terms used below may not be well understood by some consumers; that’s where a good agent comes in. They can explain these coverages, what’s provided by the policy, and give examples of why they are valuable.

For a homeowners policy, you want the building coverage limit to at least equal 100 percent of the estimated replacement cost. Some insurers offer “extended replacement cost” that provides additional coverage above the building limit. Ask for replacement cost coverage on the building and contents, maximum “ordinance or law” coverage, water/sewer backup, and “all risk” coverage on contents. Ask if the insurer offers a flat $500 deductible as opposed to a percentage hurricane/wind deductible; some do and the cost is minimal. Add “personal injury liability” (about $20) to the policy and request the maximum liability limits offered; some insurers go to $1 million and the cost for that compared to the typical $300,000 is around $25.

On personal auto insurance, ask for quotes at multiple levels of liability insurance. Data from the Florida Office of Insurance Regulation (OIR) shows that, state-wide, fifty percent of autos that have any insurance at all carry bodily injury liability limits of $25,000 or less. The cost to double that to $50,000 is minimal. The cost to increase it to $250,000 can be surprisingly inexpensive. Ask for the maximum limits of auto medical payments, even if you have health insurance; I pay about $40 per six months for $100,000 of coverage on two cars. Always buy the maximum limits of uninsured motorist coverage available, and, where state statutes allow it, ask the agent for “stacked coverage” even if you only insure one car. (Good agents can explain this concept.)

Ask for a quote for a personal umbrella. These policies typically provide $1 million to $5 million of liability coverage that goes above your auto and home policies. They are surprisingly inexpensive.

Commercial insurance can be more complex, but the same principles apply. Good agents will use coverage checklist and offer numerous coverages such as cyber liability, employment practices liability insurance, directors and officers coverage, ordinance or law coverage, commercial umbrella, and many more. Various limits of coverage should be quoted.

Put the increased cost of the better policy you might buy into perspective. A friend of mine who is one of the best agents I know uses a “cup of coffee” analogy. Many people will stop into their favorite coffee shop almost daily and pay $3.00 to $6.00 for their special drink. Some pay $100 a month for a manicure and pedicure. I pay $41 a month for a Peloton bike subscription. In a class I did last week one lady told me that she and her husband eat out three to four nights a week with a typical check of around $50. All of these “luxuries” can quickly add up to well over $1,000 a year, yet some consumers skimp on insurance to save $50. (The dining out example is $5,200 a year.) If you visit a new agent and they only provide an “apples to apples” quote and don’t offer better coverage options, you don’t need that agent.

“Expensive” before the loss can seem very “cheap” after the loss. Remember, never buy on price alone and, “The bitterness of no coverage is remembered long after the sweetness of low price is forgotten.”

  • Bruce Holmes

    “Oh what a tangled web we weave when we first practice to deceive”.
    It appears to me that it is certainly to the benefit of the insurer to minimize coverage by having less “bell and whistles” in the policy so they can continue to collect premiums while lessening coverage. On another front, I have a little old lady friend that was concerned her premium was going higher, so the agent suggested she increase the hurricane deductible to lower the cost. Wow! that seems like a really good idea…..not!

  • bitdough

    So true. Homeowners buy the payment not the insurance coverage. Where does liability on the part of a captive agent begin. I have had home owners both husband and wife, claim they asked for a particular coverage only to find it non existent in their policy. And to their defense the “plain language” used in their policy is not so plain.

  • Brent Winans

    Well said, David! Your advice is as good as your BBQ.

    For policyholders I would add, “Picture yourself the day after the claim occurs. Will you wish you had paid the few extra dollars for this insurance?” For agents I would add, “Clients who have coverage for their claims rarely sue their agents for errors and omissions. Protect both them and yourself by selling them the coverage they will be glad they have when the claim hits.” For policyholder attorneys I would add, “Insureds come to you when their claims aren’t covered. Take that opportunity to encourage them to get better coverage for the future. Too many insureds make the same mistake again.”

  • Stephen Sarasohn

    The insurance nerd paraphrased Ben Franklin: “The bitterness of poor quality remains long after the sweetness of low price is forgotten”
    .