Avoiding Common Insurance Mistakes — Advice from an Actuary

For the average consumer, insurance can be a complicated concept. You know you need it — but how much do you need? You have health, homeowner’s and car insurance policies — but what about other types of coverage, such as life, disability, or umbrella? You don’t want to spend too much, but does a lower price mean lower quality coverage?

This confusion, combined with the perceived expensive cost of insurance, can leave consumers feeling ill-informed and frustrated.

“I worked in insurance for a long time and it always bothered me that people have such a negative view of the industry,” says Todd Erkis, FSA, CERA, MAAA, visiting professor of finance at Saint Joseph’s University in Philadelphia, Pennsylvania, who spent more than 25 years as an actuary, developing insurance products and help setting prices for insurance. “Insurance serves and important social purpose, protecting people against potential risks."

In the classroom, and in his recent book What Insurance Companies Don’t Want You to Know: An Insider Shows You How to Win at Insurance, Erkis has made it his goal to demystify the concept of insurance for people, including helping them avoid making the wrong decisions.

According to Erkis, there are four common mistakes people make when it comes to insurance:

1. Not shopping around for the best price — Whether for your car, home, or life policies, independent insurance agency can help you compare prices, says Erkis, or you can reach out to companies on your own. Be sure to compare apples to apples, looking at policies with the same coverage when comparing. Insurance prices can vary greatly from company to company, so by doing your homework, you could save a significant amount of money.
2. Waiting too long to purchase life and disability insurance — Not everyone needs life and disability insurance, but those who have dependents should consider it sooner rather than later, says Erkis. If you buy guaranteed life insurance when you’re young and healthy, you are now in the driver’s seat when it comes to disclosing information about your health down the line — and if you stay healthy, you may even be eligible for decreased rates in the future.
3. Buying life insurance for a child — Though heavily marketed, juvenile life insurance is largely unadvised. Loaded with fees and expenses, it’s hardly the best way to save for college (as it’s often advertised) and, except in rare circumstances, it’s simply not a good deal.
4. Buying unnecessary insurance products — Many insurance companies offer “riders” or “add-ons” that may seem inexpensive but are often unnecessary additions to your coverage. One way to determine if a policy is more than you need? See how many questions the company requires you to answer. Insurance companies need information about you to assess your needs and risks. If they don’t ask many questions, the policy is probably expensive and may contain unnecessary add-ons.

Todd Erkis, FSA, CERA, MAAA is a full-time visiting professor of finance at Saint Joseph’s University, teaching graduate and undergraduate courses. A fellow of the Society of Actuaries Erkis previously served as the managing director and global life software leader for Towers Watson, and the chief actuary and corporate risk officer for Lincoln Financial Group. His book, What Insurance Companies Don’t Want You to Know: An Insider Shows You How to Win at Insurance offers commentary on virtually every aspect of personal insurance — with chapters like “Minimum Car and Homeowner’s Insurance Policies Are a Bad Deal;” “Commonsense Ways to Save on Your Health Insurance;” and “The Secret Way to Never Outlive Your Money in Retirement.” It is available for purchase on Amazon.

Erkis also recently wrote an op-ed for the Philadelphia Inquirer on preparing for changes to health insurance, published on March 23, 2017.