Don't Make These Costly Insurance Mistakes!

Published Date: 11/29/2024

Avoiding Common Insurance Mistakes: Lessons Every California Consumer Should Know

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 some of the most common and costly mistakes people make when it comes to insurance. From misunderstanding earthquake coverage to neglecting proper liability protection, Susman’s message is clear: being informed is the best insurance of all.

1. The Earthquake Coverage Misconception

Living in California means accepting one fact — the ground will shake again. Yet, many homeowners mistakenly assume that their standard homeowners policy automatically includes earthquake protection. It doesn’t.

As Susman explains, earthquake insurance is a separate policy entirely, and one that’s worth serious consideration. Deductibles typically range from 2.5% to 25% of your insured value, not the total damage or market value of your home. For instance, if your home is insured for $500,000 and you have a 10% deductible, you’d be responsible for the first $50,000 in earthquake repairs.

While that may sound steep, the alternative — being left with nothing after a major quake — can be financially devastating. Companies like GeoVera, a California-based earthquake insurer, now offer customizable plans that make coverage more accessible and affordable.

The takeaway? Check your policy. If earthquake coverage isn’t listed, you don’t have it. And when the next big one hits, that oversight could be catastrophic.

2. The Truth About Umbrella Policies

Umbrella insurance sounds fancy — and it is, in the best way possible. This type of policy provides extra liability coverage beyond your auto, home, or renter’s insurance.

Many people think umbrella insurance is only for the wealthy, but that’s a dangerous misconception. As Susman notes, “Anyone who drives a car, owns a pet, or entertains guests has liability exposure.”

Here’s the key distinction: umbrella policies don’t protect your things — they protect you and your assets if you’re sued for bodily injury or property damage. For example, if your auto policy covers up to $300,000 in liability and you’re sued for $1 million, an umbrella policy could cover the remaining $700,000.

Umbrella coverage also extends to legal defense costs, which can quickly deplete your limits. Be sure to check whether your policy includes defense costs outside the liability limit — otherwise, your million-dollar policy might shrink to half that once attorney fees are deducted.

Susman’s rule of thumb: Umbrella equals liability. It won’t replace jewelry, fix your roof, or pay for stolen electronics — but it will safeguard your financial future when life’s curveballs lead to lawsuits.

3. The Flood Zone Fallacy

“I don’t live in a flood zone, so I don’t need flood insurance.”
It’s one of the most common — and riskiest — assumptions homeowners make.

Flood insurance is often only required for homes in designated FEMA flood zones, but water damage doesn’t obey zoning maps. As Susman points out, one in five flood claims comes from low- or moderate-risk areas.

Here’s the good news: premiums in low-risk zones are generally much lower, often just a few hundred dollars a year. You can buy flood insurance through the National Flood Insurance Program (NFIP) or from private insurers that often offer more flexible coverage limits and faster claims processing.

If you’re even mildly concerned about extreme weather — and in California’s shifting climate, you should be — it’s worth getting a quote. It might be the cheapest peace of mind you ever buy.

4. Auto Coverage Confusion: Collision vs. Comprehensive

Car insurance terminology can be confusing. Many drivers don’t know the difference between collision and comprehensive coverage — and it can lead to underinsurance when disaster strikes.

Susman breaks it down simply:

• Collision covers damage when your car is moving — such as hitting another vehicle, a lamppost, or a fence.
• Comprehensive covers damage when your car is not moving — fire, theft, vandalism, or even a falling tree branch.

He also warns that as cars age, many people choose to drop physical damage coverage altogether. While that can save money, make sure it’s a conscious, informed decision. If your car is still valuable or financed, you may regret not having coverage after an unexpected loss.

5. The Teen Driver Dilemma

Adding a teenage driver to your policy can feel like a financial gut punch — but trying to avoid it by leaving them off your policy can lead to far worse consequences.

Susman’s advice is firm: “The best way to add your teen driver is to actually add them.” Omitting a licensed household member is considered material misrepresentation — and can give insurers a valid reason to deny a claim.

The good news? Most insurers offer good student discounts (for GPAs typically above 3.0 or 3.5) and additional savings for driver’s education or defensive driving courses. Work with your agent to identify all available discounts before your renewal.

6. Business at Home? Your Homeowners Policy Might Not Cover It

The rise of remote work has blurred the line between personal and business use of the home — but your insurance policy hasn’t necessarily kept up.

If you run a small business, freelance, or store equipment at home, don’t assume it’s protected by your homeowner’s coverage. Most standard policies exclude business property and liability.

Instead, look into a home-based business policy — often costing just $500–$1,000 annually. These plans protect your equipment, data, and professional liability without requiring a full commercial policy.

7. Jewelry and Valuables: Know Your Limits

Inherited or gifted jewelry carries not only sentimental but also monetary value — yet most homeowner policies limit jewelry coverage to as little as $1,000.

Susman recommends a Personal Articles Floater (PAF) policy — a separate coverage specifically designed for valuable items like rings, watches, or collectibles. Be prepared to provide appraisals for each item, and only work with reputable appraisers or jewelers who have insurance for your items while they’re in their care.

A PAF offers broader protection, often covering “mysterious disappearance” or accidental loss — events your base policy will not.

8. Life Insurance: Term vs. Whole

When it comes to life insurance, consumers often face paralysis by analysis. Susman simplifies it into two categories:

• Term life = temporary protection for a set period (10–30 years).
• Whole life or universal life = permanent coverage that builds cash value over time.

For young parents, term insurance often provides the best balance of affordability and protection during high-need years. Permanent policies, while costlier, can double as long-term financial tools with tax advantages.

The right choice depends on your goals — whether it’s ensuring your family’s stability or building lifetime wealth transfer options.

9. The Golden Rule: Ask, Don’t Assume

The recurring theme across all of Susman’s advice is simple: never assume your insurance covers something — confirm it. Policies evolve, exclusions change, and what worked a decade ago may no longer fit your needs.

Your insurance agent or broker isn’t just there to sell policies; they’re your partner in risk management. Schedule an annual review of your coverage — especially after major life events like home renovations, marriage, new vehicles, or business ventures.

Final Thoughts

Karl Susman’s Insurance Hour reminds us that insurance doesn’t have to be complicated — but ignorance is expensive. Whether it’s securing earthquake coverage, understanding umbrella liability, or getting the right policy for your jewelry, the key is awareness and proactive planning.

Insurance isn’t just about paying premiums — it’s about protecting your future from the unpredictable. And in today’s world, that’s a policy everyone should understand.