Top 5 insurance myths debunked

Paying for insurance you don’t need can be a costly mistake. Yet many Americans are misled by common myths about what insurance covers and how it works. A recent survey found that over 50% of homeowners held at least one misconception about their insurance policies.

Misinformation about insurance can lead to inadequate coverage when needed most, resulting in denied claims and wasted money on unnecessary policies. 

This blog post aims to debunk five of the most widespread insurance myths that could be costing you money or leaving you improperly protected. 

Common misconceptions surrounding health insurance, life insurance, auto insurance, homeowners insurance, and insurance claim denials will be explored. 

By becoming an educated insurance consumer, you can avoid falling victim to these myths and make intelligent decisions about protecting your family and assets.

Myth #1: Health Insurance Covers Cosmetic Surgery

A common myth is that health insurance will pay for any cosmetic surgery, like facelifts, breast augmentations, liposuction, and other procedures to improve appearance. 

However, this is generally not true. Most standard health insurance plans exclude coverage for elective cosmetic surgeries that are not medically necessary.

Health insurers define medically necessary procedures as treating injuries, illnesses, or congenital disabilities. Cosmetic procedures that improve one’s looks are considered elective and not covered. 

For example, data shows that over 90% of breast augmentations are classified as cosmetic and not covered by health plans.

The exception is reconstructive surgeries, which do get covered if they are done to restore normal function or appearance after an accident, medical condition, or previous disfiguring surgery. 

This could include breast reconstruction after a mastectomy, scar revision after burns or injuries, or cleft lip/palate repair.  

But standard cosmetic procedures like facelifts, liposuction, tummy tucks, Botox injections, and laser resurfacing must be paid entirely out-of-pocket since they are performed solely for appearance and not due to medical necessity. 

Failing to understand this myth could result in surprise bills of thousands or tens of thousands of dollars.

Myth #2: My Young, Healthy Lifestyle Means I Don’t Need Life Insurance

Many young adults subscribe to the myth that they don’t need life insurance because they are healthy and the chances of dying prematurely are meager. 

However, this line of thinking fails to account for the possibility of an untimely death and the hardship it could cause loved ones.

The purpose of life insurance is not just for the policyholder but also to provide financial protection for dependents and beneficiaries in case of an unexpected passing. 

Even for a young, healthy individual, an accident, illness, or other tragedy could cut their life short, leaving family members to struggle with burial costs, mortgage payments, childcare expenses, and more.

The odds may be small, but they are not zero – according to CDC data, over 130,000 Americans between ages 25-44 died in 2020 from unintentional injuries, medical conditions, and other causes. 

For young parents or breadwinners, having a life insurance policy could mean leaving dependents in a difficult financial situation or ensuring they are provided.

Moreover, locking in a life insurance policy at a young age allows you to secure much lower premium rates than purchasing later in life when the risk increases. By debunking this myth, young adults can get coverage while premiums are most affordable.

Myth #3: Colors Like Red Automatically Raise Auto Insurance Rates

There is a pervasive myth that drivers of red vehicles pay higher auto insurance premiums due to the color alone. 

The logic is that red cars are seen as more aggressive or sporty, prompting assumptions about the driver’s behavior. However, this is only accurate for some insurance companies.

Reputable studies have found that vehicle color is not an approved rating factor for most auto insurers when calculating rates. 

Factors like driving record, vehicle type, annual mileage, coverages selected, and the driver’s age and experience carry far more weight in determining premium costs.

Insurance companies care more about statistical data correlating to accident risk and paid claims than anecdotal assumptions about color. 

For example, data shows that urbanites file more claims than rural drivers due to higher traffic density and dangers. As such, geographic location is a more significant premium factor than whether the car is red, blue, or any other color.

Unless driving an extremely rare or exotic vehicle color, consumers should feel confident that getting a red car will not automatically trigger higher rates than a grayscale tone. Other rating factors that impact risk take precedence in calculating appropriate premium levels.

Myth #4: Homeowners Insurance Covers All Natural Disasters  

A typical homeowner misconception is that their standard insurance policy will cover any natural disaster that strikes. 

While homeowners insurance does provide coverage for some types of natural disasters like fires, lightning strikes, windstorms, and hail, it does not automatically account for other significant events.

Standard policies typically exclude damage from floods, earthquakes, and, in some cases, hurricanes. These perils require separate insurance policies that homeowners in high-risk areas must purchase for proper protection. 

For example, over 20% of homes in the U.S. are in flood zone areas designated by FEMA, yet most do not have flood insurance. 

Similarly, homes in areas prone to earthquakes, like California, must buy supplemental earthquake insurance, as this is excluded under standard homeowners coverage. With roughly 1 in 4 homes at risk from an earthquake, lack of this coverage could prove financially devastating.

By understanding this myth, homeowners can assess their specific geographic risks and invest in the appropriate insurance protections against disasters their property faces.

Myth #5: Insurance Companies Deny Most Claims to Avoid Paying

There is a persistent myth that insurance providers are vested in denying as many claims as possible to increase profits and avoid paying out. However, factual data and market realities do not support this belief.

According to data from the Insurance Information Institute, the average percentage of claims that get denied is only around 10-15% across all major lines of insurance. 

For the remaining 85-90% of claims, insurers properly pay out to their policyholders as contractually obligated.

Complaints are commonly denied due to filing errors, lack of coverage for the claimed event, or failure to pay premiums—not an intentional lousy faith denial. Insurance companies are heavily regulated and face penalties for improperly denying legitimate claims.

Suppose policyholders feel their claim was unfairly denied. In that case, they have the right to an appeals process to have the decision reviewed or pursued through legal action.

By better understanding the circumstances of denials, consumers can be adequately prepared rather than subscribing to the myth that insurers indiscriminately refuse valid claims to avoid paying out.

Conclusion

In this post, we debunked five widespread myths surrounding health, life, auto, homeowners, and general insurance claims practices. 

The misconceptions included beliefs that health insurance covers cosmetic surgery, young, healthy individuals don’t need life insurance, red car colors raise rates, homeowners policies cover all-natural disasters, and insurers routinely deny valid claims to avoid paying.

As we’ve seen, making decisions based on this misinformation can lead to significant financial risks and legal headaches. 

From paying hefty out-of-pocket costs to needing more critical coverage to improperly filing claims – myths can prove incredibly costly if not corrected.

The key takeaway is that insurance consumers must take the time to thoroughly understand what their specific policies cover and exclude. 

They should review the details, ask questions, and base decisions on facts rather than assumptions or hearsay. 

Being an educated insurance consumer is the best way to protect your assets, income correctly, and loved ones’ security. 

Don’t let myths and misconceptions leave you dangerously underinsured or paying for unnecessary coverages. Get informed to make the most intelligent decisions.