How to screw up your insurance in 2015: A step-by-step guide

We often hear from people who seem hell-bent on paying higher insurance rates or getting their policies canceled. So in the interest of time we’ve compiled this step-by-step guide to bungling your coverage.

1. Don’t pay your premiums on time.

Let’s start off with possibly the shrewdest way to ruin your insurance prospects for 2015: Don’t pay your insurance bills. This strategy is particularly clever because it involves no action on your part whatsoever, and in fact opens up extra time for viewing “Dancing with the Stars” and updating your Facebook page.

When you don’t pay your premiums you’ll face cancellation or policy lapse, depending on the insurance type. For example, if you car insurance lapses you’ll be facing higher rates when you want to buy another policy.

Losing your life insurance coverage due to nonpayment would be especially inconvenient.

“You’re talking about a product that you must qualify for,” says Marvin Feldman, CEO of Life Happens, an Arlington, Virginia-based nonprofit foundation. “If your health has changed, you neglect to pay the premium on time and the policy lapses, you may not be able to replace the policy, or replace it at the same price.”

2. Don’t tell your life insurance beneficiaries what company has your policy.

Many people regularly employ this strategy, resulting in “lost” life insurance policies. Like nonpayment of premiums, it is sublime in its simplicity: If you don’t tell your beneficiaries who your life insurer is, they’ll have a heck of a time trying to dig through your files and old paperwork to find out. Or better yet, simply don’t tell them you have a policy at all, and leave them wondering what to do after your death.

If this has happened to you, here’s how to find lost life insurance policies.

3. Forget to take your ex-spouse off your life insurance policy.

Here’s a way to not only enrage your current spouse if you pass away but also muck up his or her finances: Don’t change your life insurance beneficiary after you remarry.

Too many people think that if their will names their current spouse as the heir, all assets will pass to their spouse as an “operation of law.”

“What they don’t realize is operation of contract supersedes, or overrides, operation of law,” says Kurt Cambier, senior partner at Centennial Capital Partners in Littleton, Colorado. Since a life insurance policy is a contract, the life insurer is obligated to pay the benefits to whoever is listed as beneficiary – regardless of whether you remarried.

“Beneficiary designations should be part of a consistent review process, and this is true for primary beneficiaries and contingent beneficiaries,” says Cambier.

4. Neglect to make a home inventory.

Many people live blissfully for years, even decades, without any sort of home inventory. But in the bad year when you have extensive house damage, lack of an inventory can cost you dearly.

If you have a large homeowners insurance claim – from a fire or tornado, for example – and have no home inventory, you’ll probably have a hard time reconstructing from memory a list of everything you owned. This ultimately means you won’t be able to receive reimbursement for everything to which you’re entitled. After all, you won’t make a claim for items you forgot you had.

When State Farm Insurance agent Ted Ferry in Salem, Oregon, does customer insurance reviews, policyholders are encouraged to use technology to create a home inventory. “Take smartphone pictures or videos of your home, then email them to yourself and don’t delete the email,” Ferry says. “This is easy to do and will really help in a time of loss.”

5. Don’t bother to review your insurance policies every year.

Here, too, inertia is an easy pathway to insurance debacles. If you are ignorant of your current coverage limits, you may be underinsured.

Or you may be unaware of coverage options that could prove useful. For example, municipal codes are much more rigorous than they were 15 years ago, Cambier says.

“If your home has a fire in its kitchen, and you need to redo the kitchen, your municipality is going to make you bring your entire home up to code, with new insulation, plumbing, electrical and maybe larger windows, or they won’t give you the permit to fix the damage,” he advises. “An ordinance or law rider on a policy would pay for those upgrades, but I’d guess 90 percent [of people] don’t know that. Review annually what you pay in premiums and what you get in coverage, because things change and laws change.”

6. Blow off open enrollment for health insurance.

Here’s a fun way to make your family furious at you: Forget to add or remove “dependents” from your health plan at open enrollment time. Open enrollment is your chance during the year to make changes like this. For example, say your daughter graduated from college and got a job with benefits – you’d want to drop her from your plan. Or maybe your daughter lost her job and needs insurance – you can add her until she’s age 26.

It’s also the time to change deductibles and other coverage options.

Some life events will make you eligible to make changes any time of year; for example, if you get married, you can add your wife to your health plan even if it’s not open enrollment time.

7. Have a baby but don’t add the little one to your health insurance plan within 30 days of birth.

Boy, babies are expensive. Why not add to the expense by paying all their health care out of your pocket? That’s what you’ll be doing if you don’t add your new child to your health plan within 30 days – or the deadline outlined by your plan. If you miss that window you’ll have to wait until your plan’s next open enrollment period to add the child as a “dependent.”

“Nothing is more disruptive to even the most financially organized household than the arrival of a newborn,” says Gregory De Jong, financial advisor with Savant Capital Management in Naperville, Illinois.

“Just as a pilot uses the quiet cruise segment of a flight to prepare for the high workload of the approach and landing, parents would do well to gather the information and paperwork they’ll need a month prior to the baby’s due date, then leave it in an obvious place to finish up shortly after the birth. In addition to junior’s name and date of birth, a Social Security number will often be required,” says De Jong.

8. Get a DUI.

Drinking and driving can fast-track you to an insurance nightmare.

A driver who receives a DUI conviction will likely experience a rate increase at renewal time, says Loretta Worters, spokesperson for the New York City-based Insurance Information Institute. “Your driving record plays a major role in determining what you pay for car insurance,” she explains. “A prior conviction for driving under the influence (DUI) or driving while intoxicated (DWI) suggests a risky driving history.

“If insurers see you as high risk, they will either charge you more money or may drop you as a policyholder.”

9. Buy a new car but don’t tell your insurance company.

While most car insurance companies will extend some form of automatic coverage for new vehicles, the time period is typically limited, says Eric Roethe, product research specialist with American Family Insurance.

“Make sure you don’t wait too long after bringing that shiny new car home before you give your agent a call,” he advises.

If you don’t, you’ll likely be driving without coverage within a few weeks.

10. Drive for Uber.

A personal automobile policy is designed to cover only the traditional uses of private passenger vehicles, Worters says. It is not designed to cover the commercial use of a vehicle – including making money via a ride-sharing service.

This exclusion extends beyond ride-sharing to any business use of a vehicle, such as delivering newspapers or using a pickup to plow snow.

“Before agreeing to be a ride-sharing driver, a motorist should talk to [his or her] insurance representative and get a commercial insurance policy that provides appropriate insurance protection,” Worters says.

11. Loan your car.

Trying to be Mr. Nice Guy by letting a friend borrow your car could wreck your rates. You’re responsible for what happens to and with your car.

“When you loan your car, you’re loaning your insurance, too,” says Roethe.

If your pal hits someone or something and is at-fault for the accident, the liability claim goes on your record and could cause a rate increase at renewal time. And if you don’t have collision coverage, your car damage isn’t covered at all.

12. Make claims for every little scratch and dent.

You pay good money for your insurance, so you might as well use it, right?

But here’s the rub: Actually using your insurance could bungle your rates. Your car insurance policy is not a car-maintenance policy, Ferry says. It’s intended to protect you from unforeseen accidents.

Definitely don’t bother to make a claim for damage that’s less than your deductible. And don’t pile up small claims, which could provoke a rate increase down the line.