When her car was destroyed and her wallet, sunglasses, cell phone and other items were stolen from the vehicle, Nicole Richardson thought her car insurance would cover it. However, after traveling back and forth between her insurance companies, she learns that car insurance won’t be applied to stolen property.
“I was very surprised and shocked,” says Richardson. Richardson’s name has been changed to protect her privacy. “I thought full coverage meant… well full coverage. “
After all, she compensated for the items taken from her car, but that was due to her home insurance.
“For three months, I’ve just torn my hair off and have to pay two deductions for one situation,” says Richardson. “(It was) a huge eye-opener for me.”
Richardson’s story is not unique. In fact, recent research with reliable choices proves this. Around 86% of policyholders claim they have a strong understanding of what insurance covers, but many are wrong when asked to ask a specific coverage question. 44% believe that items stolen from the vehicle are covered by car insurance contracts, which is wrong. Along with renter and condominium policies, the home policy covers items stolen from the vehicle. Insurance is an essential tool to protect your hard-earned money, but you misunderstand that what your insurance covers can cost you. Here are some of the most common misconceptions about which homes and car insurance contracts you have actually cover.
Most common insurance misconceptions
Being familiar with the insurance restrictions of your car or home can help you pay for losses and damages from immersing in your pocket. Below, we have rounded up some of the most common insurance myths and methods for correcting coverage gaps.
No flood insurance automatically
mythology: Home insurance covers floods.
fact: Flood damage is excluded from the standard policy.
repair: Purchase another flood insurance through the National Flood Insurance Program (NFIP) or a private provider.
Floods are the most common type of natural disaster, but flood damage is not covered by your home insurance. The only way to be financially protected from flooding is to carry flood insurance that can be purchased from government-sponsored NFIP or private insurance companies.
The NFIP policy is limited to $250,000 for residential and $100,000 for personal property. On average, policies from NFIP cost around $800 a year. If you want higher coverage restrictions than NFIP offers, you may consider obtaining a policy from a private provider. However, the higher coverage limit, the higher the rate.
Home insurance doesn’t always cover burst pipes
mythology: If the pipe bursts, the homeowner’s policy will cover the damages.
fact: Home insurance covers sudden, accidental floods, not damage caused by negligence. If the adjuster discovers that the pipe is ruptured due to the homeowner’s ignorance or improper maintenance, your claim may be rejected.
repair: Take steps to maintain the pipe. If you suspect something is wrong, have it checked by a plumber and consider insulated pipes that tend to freeze. When leaving the house for longer stints in the winter, keep the heat high enough to prevent the pipe from freezing and bursting.
Floods are like grey areas for home insurance. Floods and sewer backups are not covered, but are included in the policy as seen in sudden and accidental floods – burst pipes. But there is an important warning. Water damage is only covered if the homeowner takes appropriate measures to maintain the home.
For example, if you leave your home for a weekend ski trip and turn off the heat and return to the burst pipe, this could be considered a neglect of the homeowner, and the insurance company could deny your claim.
In addition, insurance does not cover leaky pipes. Remember, home insurance doesn’t accumulate over time and does not cover sudden flood damage.
Auto insurance generally follows cars – regardless of driver
mythology: When you rent someone else’s car, your car insurance covers you.
fact: When you rent another person’s car, you are primarily covered with your car insurance contract, not yours.
repair: Before you get behind the wheel, ask your friend about details about your friend’s car insurance.
Technically speaking, car insurance continues with cars, not drivers. So, if you rent a friend’s car and get involved in an accident, your friend’s policy will kick first and cover the resulting damages. In the event of a serious accident that exhausts the limitations of your friend’s car insurance policy, your car insurance can help you cover the unpaid expenses.
In particular, if your friend’s car insurance policy covers the full cost of an accident, the insurance company may go to yours to collect losses. In any case, your vehicle is no longer safe, so your friend’s premiums may increase upon renewal. However, you were a disabled driver and you could see more sudden insurance contract surcharges and higher insurance costs over the years.
You are covered in a rental car
mythology: When driving a car, you must purchase insurance from the car.
fact: Your personal car insurance covers you with a car rental, but in some scenarios it is recommended to purchase additional coverage.
repair: Check the policy and get familiar with coverage types and restrictions. If you have low liability limitations and no comprehensive and conflict indemnification, consider adding coverage through the rental company.
Rental car is the exception to the rules that insurance contracts follow the car rather than the driver. If you drive a car for an individual rather than a business, it should be subject to the policy. However, if you rent a car for a business trip or rent a car while traveling abroad, your policy will not cover you.
If you have full coverage, meaning you have both comprehensive and collision insurance, you won’t need to buy more coverage from a car rental company. One exception is the collision loss exemption. Adding this coverage type will remove the hook for payments for accident-related repairs on rental vehicles, except for deductibles. In many cases, the collision damage exemption amounts to around $500, but the individual policy deductible can be much higher. Therefore, adding collision loss exemptions can reduce out-of-pocket costs if you have an accident.
Not all car insurance covers theft
mythology: If you have car insurance, the vehicle is covered if it is stolen.
fact:Risk-only car insurance does not cover theft. Comprehensive compensation is required to ensure financial protection in the event of a vehicle being stolen.
repair: Adding comprehensive coverage included in the full coverage policy can be useful in the event that your vehicle is stolen or destroyed.
In any state, law does not require comprehensive coverage. But if it doesn’t, if your car is stolen, you’re out of luck – insurance won’t cover it. If you’re funding your car, remember that you’re probably safe. Lenders and lessors typically require comprehensive coverage as the term of the loan or lease.
Your car insurance excludes business use
mythology: If you use your vehicle for business purposes and get involved in an accident, you will be subject to your personal auto policy.
fact: If you use your vehicle for business reasons – maybe you are a real estate agent driving your clients to a new home, get involved in an accident and are not subject to personal auto policy. You may need to pay damages from your pocket.
repair: If you use your vehicle occasionally for work purposes, check if your insurance company offers something called Business Use Authorization. Alternatively, if you use your car frequently for work, ask your employer about your commercial auto policy.
When you commute to the office, you are covered by your personal car insurance. However, when you run business operations, such as meeting clients and vendors, your personal policies may not cover you. So if you drive someone to the rear end while driving to client lunch, you could be on the hook for accident-related expenses.
For business purposes, real estate agents, contractors and other professionals who frequently use personal vehicles rather than designated commercial or work cars are advised to consider supporting the business and make sure they are covered regardless of the reason they are on the road.
Covered with Uber or Lyft
mythology: When driving for Uber, Lyft, or other ride-sharing companies, I am fully covered by that company’s insurance policy.
fact: If you have the RideShare app on but you don’t have passengers in your car yet, it is not covered by your personal policy or the commercial policy of the ride-sharing company.
repair: Adding rideshare approvals will help close the gap where personal policies will end and commercial policies begin.
Consider ride-sharing driving in multiple stages:
- Phase 1: I’m looking for passengers and turning on the rideshare app to get in my car.
- Phase 2: You will be driving to accept new passengers and pick them up.
- Phase 3: Passengers are in your car and you drive them to their destination.
If a car has passengers (phase 3), it is usually subject to the commercial policy of a ride-sharing company. However, if you are looking for a clock (phase 1) that you are looking for (phase 1) or on the way to pick it up (phase 2), the policy covers less clear. If you have an accident during that time, either policy may not cover it. Adding ride-share approvals can increase your car insurance costs, but it may be worth adding financial protection for some drivers.
Conclusion
To avoid unexpected out-of-pocket expenses, it is important to realize your home and car insurance restrictions. To improve coverage gaps, experts recommend that you carefully review your insurance policy, speak to your insurance provider, and have a full understanding of coverage and make the necessary adjustments.
