When it comes to protecting what matters most — your home, car, family, and livelihood — insurance is both a shield and a mystery. Policies can be dense, deductibles confusing, and fine print intimidating. In a recent episode of Insurance Hour, host and insurance expert Karl Susman unpacked the most common and costly insurance mistakes consumers make. From earthquake misunderstandings to missed liability protection, his message was clear: being informed is the best insurance of all.
The Earthquake Coverage Misconception
Living in California means accepting one reality — earthquakes will happen. Yet many homeowners mistakenly believe their standard homeowners policy includes earthquake protection. It does not.
Earthquake insurance is a separate policy with deductibles that typically range from 2.5% to 25% of the insured dwelling value. For example, if your home is insured for $500,000 and your deductible is 10%, you must pay the first $50,000 in repairs before coverage applies.
While that deductible may seem high, the alternative — having no protection at all after a major quake — can be financially devastating. Specialized carriers such as GeoVera now offer customizable earthquake policies that improve affordability.
The bottom line: if earthquake coverage is not listed on your policy, you do not have it.
Umbrella Policies and the False “Wealth-Only” Assumption
Umbrella insurance provides extra liability protection that sits on top of your auto, home, and renters policies. Many people assume only the wealthy need it. That assumption is dangerous.
Anyone who drives a car, owns a pet, hosts guests, or has savings and assets faces liability exposure. If your auto policy provides $300,000 in liability coverage and you are sued for $1 million, an umbrella policy can cover the remaining $700,000.
Umbrella policies also cover legal defense costs, which can quickly drain primary liability limits. Some policies include defense costs outside the limit, while others do not — a detail that must be confirmed.
Umbrella insurance does not protect property. It protects your financial future when lawsuits arise.
The Flood Zone Myth
Many homeowners wrongly assume flood insurance is unnecessary because they do not live in a designated flood zone. In reality, nearly one in five flood claims comes from moderate- and low-risk areas.
Flood insurance is not included in standard homeowners policies. It must be purchased separately through the National Flood Insurance Program (NFIP) or private insurers. Premiums in low-risk zones are often very affordable, sometimes only a few hundred dollars per year.
Flooding does not respect zoning maps. If you are even mildly concerned about severe weather, getting a flood insurance quote is a smart move.
Collision vs. Comprehensive Auto Coverage Confusion
Auto insurance terminology regularly leads to costly mistakes, especially the confusion between collision and comprehensive coverage.
Collision covers damage when your vehicle strikes something while moving — another car, a fence, a pole, or a guardrail. Comprehensive applies when the damage is not caused by a collision, such as theft, fire, vandalism, hail, or falling objects.
Many drivers drop physical damage coverage as vehicles age to save money. While that may be reasonable for low-value cars, it should always be a deliberate, informed decision — especially if the vehicle is still financed or difficult to replace.
The Teen Driver Coverage Mistake
Adding a teenage driver to your auto policy can dramatically raise premiums. Some families try to avoid that cost by leaving their teen off the policy — a risky and costly mistake.
Failing to list a licensed household driver is considered material misrepresentation and can result in claim denial after an accident.
The good news is that many insurers offer strong discounts for teens with high GPAs, driver education, and defensive driving courses. Working with an agent to identify every available discount is essential.
Home-Based Businesses and Coverage Gaps
Remote work and home-based businesses are now common, but most homeowners policies exclude business property and business liability.
If you freelance, run a small business, or store commercial equipment at home, your standard homeowners policy likely will not cover related losses.
A home-based business policy can usually be added for a modest annual cost and provides protection for equipment, data, and liability.
This is one of the most overlooked exposures in modern households.
Jewelry, Valuables, and Dangerous Sub-Limits
Most homeowners policies severely limit coverage for jewelry, watches, and collectibles — often to around $1,000 to $5,000 total.
Valuable items should be insured through a Personal Articles Floater (PAF) or scheduled personal property endorsement. These policies require individual appraisals and provide broader coverage, including accidental loss and mysterious disappearance.
It is critical to use reputable, insured jewelers and appraisers when valuing high-end items.
Term vs. Whole Life Insurance Decisions
Life insurance confusion often leads people to delay coverage entirely. At its core, life insurance falls into two categories.
Term life provides temporary coverage for 10, 20, or 30 years and is ideal for income replacement during high-need stages of life. Whole life and universal life provide permanent coverage with cash value accumulation and long-term financial planning benefits.
The right choice depends on age, income, dependents, and long-term financial goals.
The Most Important Rule: Ask, Don’t Assume
The consistent warning from Susman is simple: never assume something is covered.
Policies change. Exclusions evolve. What worked ten years ago may no longer fit your current life. Annual policy reviews are essential — especially after renovations, new vehicles, marriage, inheritance, or business activity.
Your agent or broker should function as a year-round risk advisor, not just a policy salesperson.
Final Thoughts on Avoiding Costly Insurance Mistakes
Insurance does not have to be confusing — but misunderstanding it is expensive. Earthquake gaps, missing umbrella coverage, uninsured valuables, and unprotected home businesses are among the most financially destructive mistakes consumers make.
The solution is not buying more insurance blindly. The solution is informed, proactive coverage planning.
Insurance is not just about paying premiums. It is about protecting your future from uncertainty — and that protection only works when you truly understand what you own.
