June, 2007
An Annual Insurance Checkup Can Save You Money Without Hurting Your Coverage
As we go through life, our insurance needs change. It makes sense to plan each year to review whether your home, auto, umbrella liability, life, health, business and disability coverage not only fit your current needs at the right cost but protect you and your family in case of a disaster.
It really hasn’t been that long since Hurricane Katrina underscored the need for individuals and families to think about how insurance fits into an overall financial plan. Weather-related disasters, however, should be only one part of your assessment – it’s wise to consider whether you’re adequately insured in case a spouse dies suddenly or becomes disabled.
Here are some ways to examine the coverage and cost issues unique to your situation:
Homeowners’ insurance: It’s always good to see if you can afford to take a higher deductible to get a lower premium, but first review whether you have the maximum home replacement coverage on your house and its contents. Go to several agents to see what you would get for maximum replacement coverage in your community. This particular coverage is particularly important since so many homeowners carry big mortgages and probably won’t have enough in savings to cover what insurance won’t pay in the event of a major loss. Also, understand that “replacement cost†means the amount that it will cost to replace your home on the land where it stands – that usually means an amount considerably less than the market value of your home.
Also, make an effort to inventory your collectibles, home office equipment or additional furniture or assets you’ve acquired since you last took an inventory of your home. Make a list of those changes to review with your agent. Then take photos of all significant items and keep them in a safe place—possibly outside the home.
Auto insurance: If you’re driving an older car that if totaled wouldn’t result in a financial burden to you, you might want to drop collision coverage and/or boost the size of your deductible. Take the money you save and put it in an account for your next new car in case your car is totaled. Also, if you consolidate your home and auto insurance at the same company, you’ll generally get a discount.
Health insurance: Do you fully understand all your deductibles and co-pays? If you have kids, remember that emergency room visits happen. Does your current plan provide for out-of-network care? Check your prescription coverage—see what options your health coverage provides you for prescription discounts and prescription-by-mail availability so you can have uninterrupted access to important medications wherever you are. Also, if you travel frequently for work or vacation, check to see what your employer or individual health plan provides in the way of coverage across state lines or outside the country. One uncovered travel-related medical bill can leave you thousands of dollars in debt.
Disability insurance: Many people get disability coverage through work, but some advisors think you should have separate coverage because group policies can be more restrictive and therefore inadequate if you’re out of work for a considerable period of time.
Life insurance: Talk to a trusted adviser about the right coverage to provide your spouse and children with enough money to help them continue their lifestyle and their educational goals if you die. That includes money for ongoing expenses, mortgage payment and tuition. Your spouse should also consider similar coverage, particularly if he or she is working.
Finally, keep in mind how external forces affect your ability to buy insurance. For instance, if you buy in a high-crime area or an area hard-hit by weather disasters, you’ll find home and auto insurance tougher to afford. You should also keep a very close eye on your credit report. Your ability to handle credit affects your attractiveness as an insurance buyer, and hence, the rates you pay are affected. If you really want to save money on insurance, keep your credit record clean.
June 2007 This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.
The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.