6 More Examples of Scary Insurance Advice

Purchase the state minimum coverage for auto insurance.

Many drivers buy the minimum coverage their state law requires for auto insurance.

"In California that minimum was set in 1967," says Moraga. "A lot has changed since then. So when you look at your auto policy, understand that if you're only getting what's mandated by law, you may be woefully unable to pay any kind of a claim."

The limit on liability for property damage in California is $5,000. That can be exhausted quickly, even with just a fender bender.

For medical expenses, the limit per accident is $30,000. "If your policy has a $30,000 limit and the medical expenses of the person you hit is $100,000, you're on the hook for that $70,000," says Moraga.

Ignore uninsured motorists coverage.

Protection against underinsured and uninsured motorists is an important add-on policy for anyone who spends a lot of time on congested roads.

"If you drive frequently in a city where there's a lot of traffic, your odds of having an accident with someone who isn't covered rise," observes Moraga. The added protection can be invaluable.

List your vacation home as your primary address on your auto insurance.

The ZIP code of your vacation home might qualify you for better car insurance rates than your primary address. But don't lie about the principal place where your car is garaged.

"If you have a loss and your insurer finds out, they may delay your claim settlement or take other adverse action," says Bach. "Most people don't grasp the concept that insurers want to know about the risks they're undertaking, and if you mislead them there can be serious consequences."

Drain your retirement accounts to fund a life insurance policy.

You should never stop contributing to your 401K because an agent tells you to put that money into a life insurance policy.

"Funding a tax savings retirement account should come before you buy anything except term life insurance, which is quite competitive [in pricing]," says James H. Hunt of evaluatelifeinsurance.org. "Buy enough life insurance to protect your family, but fund all retirement accounts that save on taxes first."

It's no problem to take cash out of a permanent life insurance policy.

"Agents often mislead people about cash value policies, saying you can borrow on it later to fund a college tuition or retirement," says Modell, "But if you take the cash out, you won't have the insurance."

Withdrawals from cash value reduce the coverage amount.

Also, unless you're young and you're putting a lot of money in an insurance policy, it's not going to develop enough cash for you to take money out and still have adequate coverage.

"You have to be 100 percent sure you're happy with the policy indefinitely," Hunt warns.

Term life insurance policies are always the best choice.

"Most people die without insurance," notes Modell. "If you're in your 50s or 60s and you want a burial policy, don't buy term insurance. That's not the purpose of term insurance." If, on the other hand, you have young kids and a mortgage on your house, buying term insurance makes sense.