Top 5 Mistakes People Make When Buying Insurance

Introduction

Insurance is meant to be your financial safety net — protecting you from unpredictable expenses related to health, accidents, property loss, or death. But while buying insurance might seem straightforward, many people fall into costly traps that only become visible when it’s too late. In this article, we’ll highlight the top 5 mistakes people commonly make when buying insurance and show you how to avoid them.

1. Choosing the Cheapest Policy Instead of the Right One

The Mistake: Many people buy insurance policies based solely on price. While saving money is important, going for the cheapest plan can lead to inadequate coverage and surprise expenses when you need protection the most.

Real Example: Ahmed from Karachi bought the cheapest car insurance plan available. When he had an accident, he found out the policy didn’t include collision damage or third-party liability. He ended up paying Rs. 300,000 from his own pocket.

How to Avoid It:

• Compare coverage details, not just premiums
• Read the exclusions and limitations
• Ask about deductibles, limits, and co-pays

2. Not Understanding What Is and Isn’t Covered

The Mistake: People often assume that insurance covers everything — until their claim gets denied. Not reading the fine print can leave you unprotected against specific risks.

Common Misconceptions:

• Life insurance covers accidental death only — false.
• Home insurance always includes flood damage — false.
• Health insurance covers all surgeries — not always.

How to Avoid It:

• Ask for a complete policy document before signing
• Inquire specifically about exclusions
• Have your agent explain anything that’s unclear

3. Underinsuring to Save on Premiums

The Mistake: To reduce premiums, some buyers opt for lower coverage limits than they actually need. This is especially dangerous for life, property, and health insurance.

Scenario: If your home is worth $300,000 and you insure it for $150,000 to save money, you could be responsible for the remaining balance after a disaster. Worse, some insurers apply a “co-insurance penalty” for underinsuring.

How to Avoid It:

• Get a professional valuation of your assets
• Use online tools to calculate required life/health coverage
• Ask your insurer to explain the implications of partial coverage

4. Not Reviewing Policies Annually

The Mistake: People often forget to update their policies after major life events or changes in income, family size, or assets. An outdated policy may no longer meet your needs.

Examples of When to Review:

• Marriage or divorce
• Birth of a child
• Buying a home or car
• Starting a business

How to Avoid It:

• Set an annual calendar reminder to review your policies
• Meet with your insurance advisor once a year
• Update your beneficiaries, address, and coverage amounts regularly

5. Ignoring the Reputation of the Insurance Company

The Mistake: People often go with lesser-known or poorly rated insurers because of lower premiums, without checking claim settlement ratios, customer service reviews, or financial strength ratings.

The Risk: If the company delays or denies your claim, you could spend months in disputes or even go to court — all while suffering financially.

How to Avoid It:

• Check independent review sites like AM Best, J.D. Power, or local regulatory authorities
• Ask friends or financial advisors for recommendations
• Review the insurer’s complaint history and claim settlement record

Bonus Tip: Not Asking Questions

The Mistake: Insurance terms can be confusing, and many buyers are too shy or embarrassed to ask questions. As a result, they sign contracts they don’t understand.

Solution: You’re not expected to be an expert. Make sure you ask everything — even if it sounds basic. A good agent will explain it without hesitation.

Conclusion

Buying insurance is one of the most important financial decisions you’ll make. Avoiding these common mistakes can save you from expensive surprises and offer real peace of mind when life takes an unexpected turn. Always remember: insurance is not just about getting the cheapest deal — it’s about getting the right protection at the right time.

Final Word: Do your research, ask the tough questions, review regularly, and choose an insurer who values service as much as savings.