Friday, May 30, 2008

Is It Time To Review Your Insurance Coverage?

Our recent fire got me to thinking that everyone could probably do with an insurance needs checklist. It is better to review your personal, professional, and family circumstances and your insurance coverage in peace and quite prior to some catastrophe making you wish you had more appropriate coverage after the fact! Here are some basic things to consider when deciding upon what type of coverage you need in your insurance policies. It should be noted here that this not exhaustive and might not encompass everyone’s needs or situation but can be a good starting point.

  • Do you need life insurance? Do you have a spouse or someone that you would want to be the beneficiary in the event of your death? Some people use a life insurance policy as a savings plan, as they build up equity over the years. Since any interest is paid is rather small, this is generally not the best savings plan. Also if you’re younger you might elect to go for term policies, where you don’t build up equity, these can often be cheaper than the traditional life insurance policy. As you get older, you might want to go for the more traditional plan where you build up equity because your premiums become more and more expensive as you get older, especially when starting a new policy, because the insurance companies view you as a greater risk. Give some thought to why the benefits might be needed when determining the amount of the policy. If you’re a couple with young kids, you might want a policy that would pay out enough so that the surviving spouse would be able to cover funeral arrangements and live for a year or so without working and that your house is paid off. These kinds of things can financially trouble a family after one of the parents dies.
  • What should your medical or health insurance look like? This is a tricky one because so many people are unable to afford medical or health insurance. There is also a wide variety of plans available to choose from. If either your or your spouse is not covered under a policy through work (maybe a stay at home parent), you’ll want to make sure that your spouse is covered as well as any kids still living at home or attending college. Some policies wouldn’t cover kids that aren’t full-time students, or after they reach a certain age, so you’ll need to check this.
  • What type of auto insurance do you need? You’ll want to find out what the legal requirements are for your coverage. If you have a newer vehicle that you’re making payments on, you might be required to have a more elaborate full coverage policy with some type of replacement value, in the event that your vehicle is declared “totaled”. You’ll need to keep in mind that the replacement value assigned is often an appraised value of your vehicle at the time of the accident and not your purchase price, so what the insurance company is likely to pay out is not necessarily what you would have to pay in order to buy your vehicle brand new again, it is more likely to be a lot less then true replacement value, this can come as a big surprise in the event that you need to use it! As your vehicle becomes older, full coverage becomes less and less attractive because the value assigned to your vehicle becomes less and less, and keep in mind that your payout will be minus your deductible. Don’t forget to cover all the drivers within your household; you don’t want one of your kids to have an accident with your vehicle and then find out that you’re not covered. You’ll also want to look at the accidental damage coverage to make sure that you have the right coverage. The more things that your policy covers with smaller or no deductibles, the more expensive the policy will be. Are you penalized if you actually make a claim? Is your insurance company likely to drop you or raise your premiums? How good is your insurance company at paying claims? Do they pay quickly or do they drag their feet?
  • Do you need renter’s insurance? If you’re living in an apartment and have a lot of things that you’re worried about having to replace in the event of a theft or some disaster, this type of policy would pay a certain amount to cover your items should such an event occur. The higher the monetary value of your stuff, the more expensive the policy is likely to be. You’ll want to make sure that you understand how you’re covered, it could be that certain natural disasters, conditions, or acts of God, would result in the insurance company not honoring your claim. If you don’t have a lot of expensive items or you feel that the likelihood that you would ever use such a policy is low, you might opt to take the risk of not having a policy.
  • What type of home insurance do you need? There are a lot of different types of policies available and you might be contractually bound to have a certain type of coverage as long as you’re still paying for your house. Some things that plague homeowners include water damage, fire, natural disasters, and theft. Water damage is a lot more common than you might think and I have heard that often this is something that is coming out of the homeowner’s pocket, which can be very expensive! Will your policy pay if arson is determined to be the cause of a fire or if someone in your family does something to cause the damage? Are you covered in the event that someone is injured at your home? A visitor could slip on a wet floor, fall down the stairs, get bit by your dog, or any number of things. What kind of coverage do you have for natural disasters and acts of God? Many insurance companies have provisions where they refer to “Acts of God” which often allows them to reduce or not pay a claim. There are a lot of victims from Hurricane Kathrina whose insurance companies refused to pay any benefits. I have heard that earth quake insurance is so expensive that most people can’t afford the premiums.
  • Do you need any disability coverage? With this type of insurance you would get a policy that will pay benefits in the event that some injury would result in your inability to continue in your current line of work. The benefits and provisions can vary greatly. Many famous people have had large and notorious policies but if you’re a surgeon making your living with your hands, there is a very real threat that something could happen to reduce usage of your hands or that you lose total usage of one or both hands, resulting in the end of your career as a surgeon. You’ll want to carefully decide if you really need such a policy and to what extent. If you want to have milling dollar coverage, this can be expensive, while statistically the odds of such a disability occurring might have been extremely low.
  • Do you need any special accidental insurance? In Germany, there is a special policy offered to cover accidents that you might have. I have jokingly referred to it as “klutz” insurance. Depending upon where you live, you might need such a policy or it might be covered under other policies that you have.
  • Do you need pet insurance? In order to enroll our puppy in puppy classes, we had to show proof that we had proper pet coverage. This might not be a requirement where you live, but you never know!
  • Do you need any other special insurance policies? While I have mentioned many of the common policies above, your circumstances might require you to look at other types of coverage. Do you need any special coverage as a result of your profession (i.e. medical malpractice insurance)? Do you need any special coverage as a result of the business you own or run (i.e. stores where you have customers visit you, might need to have additional accidental insurance for injuries sustained by people in your store)? If you have a boat or a motorcycle, you might need some type of policy to at least cover accidents and injuries. You’ll want to make sure that your current coverage doesn’t already handle these circumstances or if you do truly need any other policies. It might even make sense to expand some of your other coverage rather than getting new policies.

With most types of insurance you’ll need to determine if you truly need a policy and what type of coverage to get. The more likely it is that you’re likely to need such insurance generally results in higher premiums. In general, the more you’re covered, the higher your premiums generally are. You’ll want to consider your own personal risk tolerance before spending the extra money, because it very well might turn out that you paid for coverage where the statistical probability of you needing the coverage was so low, that you could well be spending money on coverage you’ll probably never need.

Do you want to have all of your insurance coverage through one company? The biggest advantage to this would be that you might be eligible for some type of customer loyalty discount and your administration of the policies might be less complicated. On the negative side, you might be putting yourself in a riskier situation this way. Because not all policies from all companies are the same nor do all companies pay (or not pay) claims in the same way, you might find that you have better conditions by spreading out your policies. We have an agent that has the ability to search through several companies and policies to present us with several options and help us decide what policies are best for us. Maybe all of your insurance needs can be handled by an agent working for one insurance company, but it is worth considering.

When ever there is a significant life change you should review your coverage. If you’re a young person leaving home for the first time, you might want to decide if you need some kind of renter’s insurance coverage. If you get married or have kids, your needs will change. If you buy a house, your needs will change. A change in your career might mean that you should review your coverage. If you go into business for yourself, you’ll want to review the coverage that you need. The death of a loved one might also mean that you need to review your coverage. You’ll want to review your coverage periodically to make sure that your policies are providing proper coverage and still relevant (maybe you sold the motorcycle and don’t need any policies for it any longer)

While most insurance should be bought with the hope that you don’t ever need to make a claim, as life becomes more and more complicated, the chances become greater that you’ll truly “need” one of your policies becomes greater. I hope that you’re all able to avoid those great life tragedies, but if (and when) they do happen is not the time to review your insurance coverage! Do you have any tips about insurance coverage? If you have any other comments, I would love to hear them. If you liked this article, please consider subscribing to the blog via RSS or email, share it on or on Digg and pass it on to anyone that you think might appreciate it. Thank you. :)

On Deck…

I’ll be publishing posts about…

  • The next in my series of weight loss strategies
  • My next Spotlight on the web.
  • More on productivity, web 2.0, social networking, family, parenting, health, and other things that you can use.

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