Why Your Insurance Policy Might Not Have You Covered
Life + Money

Why Your Insurance Policy Might Not Have You Covered


Insurance is supposed to be peace of mind paid on an installment plan, but failing to review that plan once in a while could have dire financial consequences. As your life changes, so do your coverage needs, and insurers sometimes change terms when you renew a policy. Periodically reviewing your coverage will ensure that you don’t find yourself stuck when it comes time to file a claim. In addition to reviewing your policy, it’s worth it to shop around every few years to make sure you’re still getting the best price along with the best coverage. When you’re doing the review, here’s what to look for:

First, make sure you have the right amount of coverage. Experts say a good starting place for term insurance is 10 times your annual income, but you may need more if you have young children and a large mortgage, less if you’ve amassed a large nest egg that could cover the needs of your spouse or heirs. If you’re single and don’t have children, you may not need life insurance at all.

Use the calculator at LifeHappens.org to get a sense of how much insurance you need. Many consumers get a life policy through work, but remember that if you leave your job that insurance usually doesn’t come with you. It’s important to re-evaluate your policy after life events such as the birth of a child, marriage or divorce to make sure your coverage is still appropriate, and to update beneficiaries.

Consumers often have insufficient homeowners’ coverage, which should be enough to repair or rebuild the house and replace all of the personal property within it. You may also want coverage to include costs associated with temporary housing or living expense should you be displaced.


"Maybe they took out a policy years ago,” says Bob Freitag, a North Carolina public adjuster with the firm AmeriClaims. “The insurance company sets a value on the house. At renewal, the homeowners simply signed and didn't review coverage, keeping in mind whether they had remodeled or upgraded either the house or their belongings”.

Consumers should, at the very minimum, read their policies before renewal, says David Chami, a partner in the insurance division of Price Law Group. His advice:  focus on two particular areas: Declarations at the beginning highlight the amounts and types of coverage. At the end of the contract will be the exclusions, which can undo important parts of the coverage that the declarations lead you to think you have.

If you’re in a disaster-prone area (check by putting your zip code into www.disastersafety.org), see if your insurer has made major changes to your policy. In some areas, insurance companies have eliminated certain types of coverage, like wind damage in coastal areas prone to hurricanes. If you need flood insurance, that must be purchased separately, via the National Flood Insurance Program at www.FloodSmart.org.


If you have questions after reading a policy, check with a qualified lawyer and also get answers in writing from the insurance company. That puts them officially on record, making it harder for them to reject a claim should an event occur.

One way to reduce your homeowner’s premiums is to increase your deductible. Most policies come with a standard $500 deductible. Raising that to $1,000 could save you up 25 percent on your premiums, according to the Insurance Information Institute. Also make sure your insurers knows about any security system or storm-proofing you’ve done, because it may qualify you for additional discounts.

Nearly a third of consumers surveyed by Insurance.com in March failed a test on the basics of car insurance coverage and available discounts.

"Problems can develop with auto insurance if you add or remove cars or drivers from your policy without considering your insurance needs," says Florida attorney Shane Fischer. If Grandma takes the car out for a spin and gets into an accident, you're not covered if she's not on the policy.

Even as many drivers get more uninsured coverage than they need, they may not have underinsured coverage, which is important if the other party in an accident has some insurance but not enough to cover your loss.

Also, keep in mind the value of your car when it comes to collision coverage. If your car is worth less than you annually pay in premiums, you’re better off dropping collision coverage and putting those premiums into a savings account to self-insure.

Many states and insurance companies let you stack coverage for accidents caused by an uninsured motorist if you have more than one car. The coverage for each car adds up in an accident, so you don't need so much per car. Like homeowners’ policies, auto insurance policies often offer discounts to consumers who ask about them, for things such as anti-theft devices or keeping your car in a locked garage. Bundling home and auto policies with one insurer can yield savings of up to 20 percent.