If taking stock of your insurance coverage – be it for your home, car or life –ranks even lower than doing taxes and getting root canals, it’s understandable. Nobody relishes thinking about how they’ll rebuild their home after a disaster or provide for their family if they’re no longer around.
Still, consider the alternative – not having enough money to meet those needs if they arise.
Like most financial matters, your insurance needs aren’t set in stone. They evolve with your family situation, income, location, and the marketplace. The best way to know that you have your bases covered is to periodically do an inventory of these key insurance policies.
Besides, it doesn’t have to be all doom and gloom. If you shop your auto or home policy on a regular basis, you could save enough to make the task well worth your time.
Here’s what you need to know.
When to review: At least once a year, or if you have a major life event, such as getting married, having a child or buying a home.
What to look for: First and foremost, make sure your policy is enough to replace your income until your dependents can fend for themselves or cover major expenses (such as debt and college). If you got your policy when you were young and single, odds are you need more, potentially a lot more, if you have kids and a mortgage.
If you have term insurance – which is in place for a set number of years – make sure the policy will be in place at least long enough to get your youngest child out of the nest. If you have a permanent policy – many of which have a cash component – make sure the expenses aren’t eating into your principal. “A lot of these programs were created when interest rates were a lot higher,” says Joe Heider, a financial advisor in Westlake, Ohio. If your policy now costs more than it’s earning you may want to cash out sooner rather than later.
If you need more: Don’t cancel your current policy until you’ve locked in a new one. “I’ve seen plenty of cases where people go through the medical examination and find out they’re not as healthy as they thought they were,” says Heider. Depending on what you’re paying now, it may be cheaper to add a second policy to supplement what you already have. As a rule, the younger you are when you take out a policy, the less you’ll pay.
Keep in mind: If your employer offers life insurance as a benefit, don’t factor that into the equation. If you change jobs or your employer ditches that benefit you’ll lose that safety net.
When to review: At least annually, or if you’ve made major home improvements, accumulated more valuables or have a greater risk of being sued. Also take a look if building costs have increased in your area.
What to look for: Most policies are based on the replacement cost – what it would cost to rebuild your home. Unless you have what’s called guaranteed replacement cost, however, there will be a limit on how much your insurer will pay. Make sure that amount is still in line with your home’s current features and building costs in your area. (You can calculate the replacement cost at AccuCoverage.com.) A lot of people buy a home, get insurance, and don’t re-evaluate until it’s too late,” says Maggie Kirchhoff, a certified financial planner in Denver, Colo.
If you need more: Now more than ever, it pays to shop around. Insurance companies are increasingly segmenting customers, with different insurers taking on different kinds of risk profiles, says Kirchhoff. If you find a better offer from another company, see if your current carrier will do better. Do you use the same company for home and auto? Bundling your policies could shave some more off your premium.
Keep in mind: Homeowners insurance doesn’t just project your home, it can protect your assets if you injure someone or someone gets hurt on your property. Most policies come with basic liability protection. If that amount isn’t enough, you may want to bump up that amount a bit or get what’s known as a personal liability umbrella.
When to review: Look it over at least once a year and shop around for a new policy every few years. Because insurance companies typically give new customers the best deals and then increase premiums every year, it doesn’t always pay to be loyal. If you’re in your early 20s, your rates are likely to go down with each birthday. Ditto if it’s been a while since your last speeding ticket or other traffic violation.
What to look for: Make sure you’re dealing with a reputable company (Insure.com’s annual customer satisfaction survey is a good start.) Most states have minimum requirements for liability coverage, but do more than the minimum if you can afford it. If your car is relatively new or is a vintage collector’s item, a comprehensive collision policy makes sense. If it’s getting on in age and mileage, you might want to skip collision coverage altogether and save that money for your next down payment. Even though your car is constantly losing value, you won’t save on insurance if you keep the status quo.
Keep in mind: There are all kinds of other ways to save on insurance, including changing your driving habits or simply driving less. Some insurers offer low-mileage policies for drivers who don’t log a lot of miles each year.