Posts tagged ‘tax deduction’

January 9, 2012

Common Insurance Mistakes

It is very easy to make mistakes regarding insurance coverage. Everyday many people lose large amounts of money because they make mistakes concerning insurance coverage. Some of the most common and costly insurance mistakes include:

Not Adding Specific Peril Coverage to Homeowner’s Insurance

There are many losses that specifically excluded from property coverage. These losses include floods, earthquakes and in some cases forest fires. Always read your homeowners’ insurance to see what is covered. If there is a high risk of uncovered risks you may need to purchase additional specific peril coverage. Many people end up facing large losses because they fail to get such coverage.

Not Making Sure Valuables are Covered

Standard homeowners’ and renters’ policies often specifically exclude high-value items from coverage. This can include jewelry, gold, coins, silver, silverware, collectibles, antiques and anything of a high value. If you have high-value items in your home check the policy to see if they are covered. You can purchase additional coverage for them if they are not. You can also ask your insurance agent for a rider to your homeowners’ or renters’ policy to cover such items.

Not Getting Total Replacement Coverage

Read your homeowners’ or renters’ policy to see if it provides for total replacement coverage. Some policies only provide actual cash value coverage. This means that the insurer will only pay you the cash value for what is lost or destroyed.

If Bob had a five year old computer that was stolen and an actual-cash value policy. The insurance company would send him a check for the cost of a used computer of the same model. That would only be $200 or $300. If Bob had total replacement coverage the insurer would send him a check for the price of a brand new computer.

Total replacement coverage covers the cost of replacing destroyed or stolen items at today’s costs. Actual cash value is based on depreciation which is at lot less. Most people will be better off with total replacement coverage.

Not Getting Home Business Insurance

Most homeowners and renters’ insurance policies will not cover losses related to home business. You will need to get additional coverage if you have a home office or workshop.

Mary is a freelance writer who works out of her home. If her computer was stolen or destroyed her homeowners’ policy might not cover its cost. To make matters worse if Mary was sued over an article she wrote the homeowner’s policy would not cover her legal expenses. A business liability policy might cover legal expenses.

Not Taking Advantage of Insurance Tax Deductions

Life, business and health insurance premiums are deductible expenses on your federal income tax. Health insurance and dental insurance are considered healthcare expenses. Life insurance is considered a retirement account so it is tax deferred. Any business insurance is a deductible business expense. These deductions can reduce your tax bill by hundreds or thousands of dollars each year.

Not Having Life Insurance

Many people under 40 or 50 make the mistake of not having a life insurance policy. Parents should definitely have such a policy so their children will benefit if they die. Other people should have a life insurance policy because it will pay off their bills if they die.

Not Having Renter’s Insurance

Many people that rent their homes fail to get renters’ insurance. This is a huge mistake because insuring the contents of a rented home is the renter’s responsibility. The landlord’s policy only covers repairs to or replacement of the structure itself not the tenant’s property.

If George was renting an apartment and had no renter’s insurance. He would have to pay for the replacement of everything in his apartment if the apartment house burned down. That means George would have to use his savings or salary to pay for everything including clothes, appliances, furniture, the TV set, the computer. He would also have to pay for a new place to live.

If he had a renter’s policy, George would get a check to pay for that stuff. The renter’s policy might even cover the cost of renting another apartment.

Steven Hart is a freelance writer and a Financial Advisor from Cary, IL. He writes about Annuity topics like Annuity Calculator, Annuity Interest Rates, and Annuities Good or Bad.

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