If you’re like most people, you buy insurance—home, auto—and then rarely look at it again. But as time goes on, things change, your needs evolve, and it’s important to make sure you have not only enough coverage, but the right coverage.
Why is it important to check your coverage?
You might be underinsured
About 60% of homes are insured for an average of 20% less than their full home value, according to analytics firm CoreLogic. The issue is compounded by the fact that your home value—and the cost to replace your home—can go up over time. That means if your home was a total loss—from a fire or another natural disaster—you wouldn’t get enough money from your insurance company to rebuild it in full.
You might be paying too much
Inertia is a powerful force. When policies come up for renewal, only 44% of homeowners comparison shop, according to the Insurance Information Institute (III). And only 17% compare prices online. A NerdWallet survey found that 38% of Americans with car insurance haven’t checked the price or compared costs in at least three years. If you’re a good driver, you could be missing out on more than $400 per year in savings by not researching your car insurance before renewing, the survey found. And that’s only one of your insurance policies.
You might not have the right coverage
You might have both home and auto insurance policies, but do you have an umbrella policy? Flood coverage? Some 43% of homeowners believe the damage from heavy rain flooding is covered under their standard insurance policy, according to the III. (It isn’t. And neither is earthquake damage.) If you’re a renter, do you have renter’s insurance? (Only 41% do.)
Complete a personal insurance checkup to make sure you’re covered appropriately—and in all the right ways. Here’s what to ask:
- What coverage do you have? Does your policy provide for Actual Cash Value (ACV) replacement in the event of damage or Replacement Cost? What are your liability limits? What does your policy provide for medical payments in the event that someone is injured on your property?
- Do you have enough coverage? Given current property values and construction costs, are you still insured for enough to rebuild your home in the event of a total loss? Are you insured for enough to cover the contents of your home? Have you done a home inventory? Do you have coverage for any particularly expensive things in your home, such as jewelry, artwork or collectibles?
- Do your deductibles still work for you? If you increase your deductible, you can sometimes save on total cost of the policy. Are there any discounts you could be receiving?
- Are there any discounts you could be receiving? Sometimes tweaks to your home—such as installing a security system—can result in insurance savings.
- Are there any events that could affect your home that aren’t covered by your policy? If you live in an area that experiences severe weather or similar events, such as earthquakes or high water, ask whether you need supplemental coverage.
- Could you get the same coverage for less? Call at least three insurers or a broker who can do a comparison for you to make sure you're still getting the best rate.
- Could you raise your deductible to save money? If you can afford a higher deductible on auto incidents, your premiums may go down.
- Are there any discounts you could be receiving? Are you using your car for a short commute only, or are you eligible for a good driver discount?
- Do you have too much coverage? On an older car, it may be more cost-effective to drop some insurance—such as collision coverage—since in the event of an accident, you may opt to simply buy a new car. Consider how much the car is worth (what the insurance company would pay in the event of an accident) and whether that payout would be worth what you’re paying for collision coverage.
- Could you get the same coverage for less? As with homeowners, call around to compare policies, or do both at the same time; you can frequently get a discount for buying both home and auto policies from the same company.
- Do you need an umbrella policy? Experts generally recommend that if you’re earning money, you have an umbrella policy of at least $1 million (that's where most policies start) to cover you in the rare event that someone sues you. These are policies that kick in after you’ve used all liability insurance in your home or auto policies, and they’re generally inexpensive. (About $150 to $300 for $1 million in coverage.) A note: Many insurance companies will require that you purchase both home and auto from them before they'll sell you an umbrella policy since the umbrella kicks in where home and auto coverage end.
- Do you have life insurance? If you're married, have a child, have a mortgage or generally have debt that would fall to someone else if something happened to you, you should have life coverage. Experts recommend you aim for 10 to 12 times your income in coverage, but your needs may vary. Try our calculator to determine the right amount for you. For most people, a term life insurance policy will be the cheapest way to cover your needs.
- Do you have enough life insurance? If you've had another kid since you first purchased or experienced other big life changes, you may need additional coverage. (After all, each kid resets the college clock again.) You can buy an additional amount of insurance or trade in your old coverage for a larger policy.
Unsure of what choices to make? A financial planner can also help you complete a personal insurance checkup to determine if you're fully covered for everything.