Is It Time to Rethink Your Insurance Policies?
Make sure your insurance keeps pace with your life by using our policy review checklist.
Insurance is probably something we’d just rather forget about. After all, it is downside protection against the worst-case scenario and who wants to think about that! So most people tend to throw their policies in a drawer or file them away until it’s time to make a claim.
But insurance experts say you should review all your insurance policies regularly, ideally on an annual basis, but at least every few years. Review the policies, talk to your agent, ask questions.
“As your life goes on, you find new and different needs,” says Chuck Muenzen, vice president at California Casualty, which offers auto and home insurance in partnership with NEA Member Benefits.
Here is a quick checklist of what to look for when you review your policies. And be sure to check out the policies available through your NEA membership. NEA Member Benefits is ready to help you get the coverage you need.
If you add a driver, especially someone under 25, you will need to change your policy and perhaps increase your coverage. But also if you change your driving habits—a new job, for instance, cuts your commute from 20 miles to three—you want to let your insurer know so that you can get the lower premiums that come with less driving. Or, if you are planning a long road trip, you should check about additional coverage. If the value of your car goes below $3,500 or so, you may want to drop that collision coverage, but talk to your agent to make sure this is the right choice for you.
It is also a good idea to check on uninsured motorists coverage, says Matt Becker, a financial planner in Pensacola, Fla. “It makes sure you don’t have to take a financial hit based on the negligence of another driver,” he says.
Homeowners Insurance. Major improvements in your home may make changes in coverage desirable. An addition or major renovation will increase the living space or value of your home and require additional coverage. A new roof, on the other hand, may qualify you for discounts or lower premiums.
A finished basement can increase the cost to rebuild your home, and may require additional coverage for water damage from a malfunctioning sump pump or a backed-up drain. Putting in a sprinkler system, a storage shed or a new pool or hot tub should prompt a review. An outdoor kitchen or new landscaping might require an upgrade.
Converting part of your home to an “in-law” apartment may make increased coverage desirable.
Installing smoke or burglar alarms may reduce premiums.
Acquisitions may also prompt you to increase coverage. New jewelry or electronic equipment or furniture may raise the value of your household goods beyond your current coverage. The same holds for art work, collectibles or valuables you may inherit. Got a new puppy? Check whether you need a rider to cover liability for pets.
Muenzen recommends getting a “personal property replacement cost endorsement”—an extra rider that brings a higher premium—to avoid just getting cash value on your lost belongings, which after depreciation may be only worth 10 or 15 cents on the dollar.
Two other considerations are combining auto and home coverage with a single company to benefit from package rates, and considering a personal liability umbrella coverage that boosts your liability coverage on both.
Muenzen says the umbrella policy, which can raise your liability coverage to $1 million or more from the $250,000 to $500,000 in a basic policy, is important if you have assets that a lawyer for a liability claim might consider going after.
“A good rule of thumb is that you should have liability coverage equal to your gross assets,” says Muenzen, including the full value of your home even if you have a mortgage. The additional coverage can be cost effective, he says, because you can lower your liability coverage in your basic policies.
Always ask if you qualify for further discounts. Also, even though insurers are obliged to notify you of any changes in your policy, you might have missed it, so be sure to ask about that, too.
Life Insurance. Major life changes can prompt changes in your life insurance policies. While most people don’t even think about life insurance until they are married or have children, a divorce and remarriage would definitely be a time to consider increasing coverage. A new arrival in the family—this could be a new baby, an adoption or even an elderly parent moving in with you—might be the occasion for increasing coverage. Be sure to consider the expense of college education for your children in your inventory of financial obligations.
A big promotion with a major increase in salary—and maybe stress—might also prompt greater coverage to prevent any major changes in lifestyle for dependents. Kicking a bad habit like smoking might reduce your premiums on life insurance. Likewise, if your original policy included coverage for rock climbing, skiing, surfing or other “risky activities” that you no longer engage in, you might get your premium reduced. Even something like losing weight and reducing excessive cholesterol and high blood pressure can prompt changes.
Insurance experts recommend making this a one-way street—there are reasons to increase coverage, but you should probably not reduce it. However, the National Association of Insurance Commissioners suggests in a consumer alert that after reaching milestones like retirement, paying off a mortgage, or children completing college—that is, when there’s no longer so much riding on your salary—you might want to check whether your provider allows you to convert a term insurance to whole life (with a cash benefit) or expand death benefits so that they can be used while you are still living.
Last but not least, review the beneficiaries and make sure they are appropriate after any life changes (divorce, remarriage, etc.).
Other. Other types of insurance you might have, or should have, depending on your situation would be disability insurance if this is something that is not included in your employer insurance package, and, as you enter middle age, long-term care insurance that provides inflation-protected coverage for the time when you may need assistance.