Nobody buys insurance hoping to use it.
You buy it, pay the bill, and hope it sits there quietly doing absolutely nothing.
That’s the best-case scenario.
The problem is that insurance mistakes tend to stay hidden while nothing is happening. You can go months—or years—thinking everything is fine.
Then there’s an accident, a storm, a theft, or some other very bad Tuesday, and suddenly the details matter.
A lot.
The good news is you don’t have to become an insurance expert to avoid some of the most expensive mistakes.
You just need to know what to look for.
Here are eight places I’d start.
1. Buying the Cheapest Policy Without Checking Why It’s Cheaper
Everybody likes saving money.
If two companies seem to be offering the same insurance and one costs $40 less a month, of course you’re going to look at the cheaper one.
I would too.
But there’s one word in that sentence that matters:
Seem.
Two insurance quotes can have very different coverage even when they look similar at first glance.
One might have a $500 deductible while the other has a $1,500 deductible.
One may have higher coverage limits.
Another may leave out coverage that’s included in the more expensive quote.
That doesn’t mean the cheaper policy is bad. It might be exactly what you need.
Just make sure you know what you’re giving up—if anything—to get that lower price.
Think about it this way.
Saving $30 a month puts $360 back in your pocket over a year.
That’s great.
But if getting that savings means taking on thousands of dollars of additional financial risk you didn’t realize you were accepting, that’s a different decision.
Compare the coverage first.
Then compare the price.
If you’re comparing quotes, the Insurance Needs Checkup & Quote Comparison Workbook can help you look beyond the price and compare what you’re actually getting for your money.
2. Choosing a Deductible You Couldn’t Actually Pay
Higher deductibles can sometimes mean lower premiums.
And when you’re trying to bring an insurance bill down, raising the deductible can look pretty attractive.
But there’s another side to that decision.
You may actually have to pay it.
Suppose increasing your deductible from $500 to $2,000 saves you money every month.
Fine.
Now imagine something happens next Thursday.
Could you come up with that $2,000?
Not eventually.
Not after three paychecks.
When you need it.
If the answer is no, that cheaper premium may have created a different financial problem.
This doesn’t mean everyone should choose the lowest possible deductible. That can make your premium more expensive, and you may be perfectly comfortable taking on a larger deductible.
The number needs to work with your finances.
That’s the part that sometimes gets forgotten when we’re clicking through quote screens trying to make the monthly payment smaller.
Before raising a deductible, look at your emergency savings and ask yourself whether you could actually handle it.
If you couldn’t, at least you know the tradeoff you’re making.
3. Assuming Something Is Covered Because You Have Insurance
This may be one of the easiest insurance mistakes to make.
You have homeowners insurance, so everything involving your house is covered.
You have auto insurance, so everything involving your car is covered.
You have health insurance, so every medical expense is covered.
Except insurance generally doesn’t work that way.
Policies have limits, conditions and exclusions. Different types of coverage handle different risks.
And sometimes the thing you assumed was covered isn’t.
You don’t want to discover that while standing in your kitchen looking at water where water definitely isn’t supposed to be.
Before you need the policy, get a basic understanding of what it covers—and what it doesn’t.
You don’t have to read every page tonight.
Start with the big stuff.
What events are covered?
What aren’t?
What are your limits?
What’s your deductible?
Are there situations where you would need separate or additional coverage?
And if you’re reading those questions thinking, “I don’t even know where I’d find that,” don’t worry. Insurance policies aren’t exactly famous for being relaxing reading.
Our Insurance Is Confusing: A Beginner’s Guide to the Basics is a good place to start if you need help with the language before digging into your actual policy.
4. Carrying Too Little Coverage Because the Number Sounds Big
Insurance numbers can be deceptive.
$50,000 sounds like a lot of money.
So does $100,000.
Until you’re dealing with something that costs more.
Imagine causing a serious accident involving several people.
Or significant damage to your home.
Suddenly the number doesn’t seem quite as enormous.
The question isn’t whether your coverage limit sounds like a lot when you say it out loud.
It’s whether that limit makes sense for the financial risk you’re trying to protect against.
And here’s where I’d be careful.
There isn’t one magic coverage number that’s right for everybody.
Your property, income, savings, debts, dependents and ability to handle a financial loss can all affect the conversation.
Instead of asking:
“Is $100,000 a lot?”
Try:
“What am I trying to protect, and what happens if the loss is bigger than my insurance?”
That’s a much more useful question.
If you haven’t thought through what you’re actually protecting, our Insurance Needs Calculator can help you organize the pieces.
It’s not there to spit out some magical number and tell you what to buy.
It’s there to help you see your situation more clearly.
5. Forgetting to Update Your Insurance When Life Changes
Insurance is remarkably good at sitting quietly in the background.
Your life isn’t.
You move.
Get married.
Get divorced.
Have a baby.
Buy something expensive.
Start working from home.
Add a teenage driver.
Make improvements to the house.
Start a side business that turns into an actual business.
Meanwhile, the insurance policy you bought three years ago is still sitting there based on information from three years ago.
That’s worth thinking about.
Not every change requires different insurance.
But some changes can affect what you’re protecting, who’s covered, how property is used, or how much financial risk you’re carrying.
So when something significant changes, add one more question to the list:
“Do I need to tell my insurance company about this?”
It might take a five-minute phone call to find out.
Five minutes now beats discovering later that something important was never updated.
Not sure whether your coverage still fits your life? Do You Have Enough Insurance? 7 Signs Your Coverage May Need a Second Look walks you through some of the signs that it may be time for a review.
6. Having No Record of What You Own
Quick experiment.
Without walking around your home, make a list of everything you own.
Not just the expensive things.
Everything.
How’d you do?
Exactly.
Most of us couldn’t come close.
Now imagine trying to do it after a fire, major theft or other disaster.
You’re already dealing with the event itself, and now you’re trying to remember which television you owned, when you bought the laptop, what was in the closet and whether you still have the receipt for a couch you bought four years ago.
That’s not the moment I’d want to start building the list.
A basic home inventory can make that job much easier.
And this doesn’t have to become a six-week cataloging project.
Walk through your home with your phone and take photos or video.
Pay particular attention to higher-value items.
Keep receipts or purchase records for major purchases when you have them.
And store the information somewhere you could still access if something happened to your home.
It doesn’t have to be perfect.
Something is a whole lot better than trying to recreate everything from memory on one of the worst days of your year.
7. Letting Your Coverage Lapse
This one sounds obvious.
Don’t let your insurance lapse.
Done.
Except lapses don’t always happen because someone deliberately decides, “You know what? I don’t need insurance anymore.”
A payment gets missed.
A credit card expires.
Automatic payment doesn’t go through.
A renewal notice goes to an old email address.
Money gets tight and you tell yourself you’ll catch up next paycheck.
Life happens.
The danger is assuming you’re covered when you’re not.
Depending on the type of insurance and where you live, a lapse can create more problems than simply being uninsured during that period. There may be legal or contractual requirements involved, and getting coverage again may not look exactly like picking up where you left off.
If you’re struggling to afford a premium, don’t just ignore the bill and hope for the best.
Call the insurer.
Ask about your options.
Review the policy.
Shop around if you need to.
See whether changing a deductible or adjusting optional coverage makes sense for your situation.
Just make those decisions deliberately.
Because finding out your policy isn’t active after something happens is about as bad as insurance surprises get.
8. Waiting Until You Have a Claim to Figure Out How Claims Work
Picture this.
Something just happened.
Maybe someone hit your car.
Maybe a storm damaged your house.
Maybe you came home and discovered something was stolen.
You’re upset. You’re trying to figure out what happened. You’ve got phone calls to make and probably a dozen other things competing for your attention.
And now seems like the perfect time to learn how an insurance claim works?
Not really.
Yet that’s when a lot of us first think about it.
You don’t need to memorize your insurance company’s entire claims process in advance.
You should, however, have a rough idea of what you’d need to do.
Know how to contact your insurer.
Know where your policy information is.
Understand that documentation can matter.
Depending on what happened and whether it’s safe to do so, that might mean photos, video, receipts, estimates, police or incident reports, or simply keeping notes about what happened and when.
And keep copies of things.
Emails.
Documents.
Receipts.
Claim numbers.
Names of people you speak with.
If you’ve ever tried to remember the details of a phone conversation three months later, you already know why.
There’s another reason I want you to understand the basics before there’s a claim.
You may discover something about your coverage that you didn’t realize.
And I’d much rather you discover that while sitting comfortably at your kitchen table than while dealing with whatever caused the claim.
We’ll talk much more about claims—including why claims can be denied and what you can do when there’s a problem—in another article.
For now, the goal is simpler.
Know where your policy is.
Know who you’d call.
And if something happens, document what you can.
That’s enough to put you several steps ahead of figuring everything out from scratch on a very bad day.
If insurance terms are part of what’s making this difficult, the Insurance Terms Cheat Sheet gives you a simple reference for some of the words you’re most likely to run into.
The Expensive Part Usually Isn’t the Mistake
It’s what happens afterward.
Choosing a deductible that’s too high isn’t necessarily hurting you today.
It becomes a problem when you need $2,000 next week and don’t have it.
Not knowing your coverage limit isn’t costing you anything while everything is going well.
It matters when a loss goes beyond that limit.
Skipping the home inventory saves you twenty minutes today.
It doesn’t feel quite as convenient when you’re trying to remember everything you owned after it’s gone.
And not knowing how claims work isn’t particularly important while you don’t have one.
Until you do.
That’s what makes insurance tricky.
A lot of the decisions don’t feel important when you make them because nothing bad is happening at the time.
So don’t wait for something bad to make you look.
Pick one policy.
Not every policy you own.
One.
Look at the deductible.
Find the coverage limits.
Make sure you understand, at least generally, what’s covered and what isn’t.
Check that the information on the policy still matches your life.
And figure out where you’d start if you ever had to make a claim.
Then you’re done for today.
Seriously.
Go do something more interesting.
You Don’t Need to Become an Insurance Expert
You just need to understand what you’re buying well enough to spot the decisions that could come back and bite you later.
And yes, there’s more to it than we’ve covered here.
A lot more.
That’s why we wrote Let’s Talk About Insurance.
The book goes deeper into how insurance actually works—deductibles, limits, exclusions, different types of coverage, figuring out what you may need, comparing options and the other pieces that are difficult to squeeze into a single blog post without making you regret clicking on it.
The goal isn’t to turn you into someone who talks about insurance at dinner parties.
Please don’t do that to your friends.
The goal is much simpler.
Understand enough to ask good questions.
Know what you’re paying for.
And try to find the expensive surprises before they become expensive.
That’s a pretty good place to start.
— Emma
This article is for general educational purposes and isn’t individualized insurance, financial, legal, or tax advice. Insurance products, requirements, coverage and policy terms vary by policy, insurer and location. Review your policy documents and consider speaking with a licensed insurance professional about your individual situation.