For busy working couples, navigating the unknowns of life can be easier when you know you’re on track financially. Now is a great time for reviewing insurance policies that protect what matters most in your life. Explore ways you can approach reviewing your automobile, home, and umbrella insurance policies.
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Prioritize Reviewing Insurance Policies Annually
With the next several months filled with fall adventures, children’s activities, family gatherings and holiday celebrations, it’s worth taking a pause in the action. There has never been a better time for reviewing insurance policies with your spouse.
It’s one thing to automate paying for your existing insurance policies. To operate this part of your financial life on autopilot. It’s another to take some extra time this fall and think critically about whether you have the right insurance coverages in place for you and your family.
Explore these common insurance policies and ways to evaluate whether you should adjust policy coverages, add a new policy, or bundle your insurance through a single insurance company.
Reviewing insurance policies can help you build a strong foundation for your personal finances. Think about how you can make progress in your financial life, so that you can continue to focus on the people and experience that matter.
Read on to understand some of the levers available to you to adjust coverages, to align premiums and deductibles with your current savings, assets, and specific risks you could encounter in the upcoming year.
Start Here: Reviewing Insurance Coverages
Auto Insurance
You might have encountered different pitches for different auto insurance rates or been tempted to adjust a single auto policy based on a headline you read. Or perhaps you’ve chatted with friends or family about what their insurance policy premiums cost them. It might even make you feel like you’re missing out or are overinsured.
However, it’s difficult to get a true apples-to-apples comparison of coverages and costs in any of these scenarios. Every driver is going to have different factors contributing to their specific coverages and rates.
So, what’s another approach to consider?
When reviewing insurance, like your auto policy, it can be helpful to consider how you’re protected against a “worst-case” scenario.
For example, if you were to be found at fault in an accident with a new luxury SUV and both vehicles involved were totaled, how much coverage would you need? New, large, and well-appointed luxury SUVs can easily cost more than $100,000.
Even factoring in wear and tear depreciation, this worst-case scenario could exceed a $50,000 property damage limit.
Another scenario to consider; a catastrophic event, like a house fire that totals all your vehicles.
You can evaluate what level of coverage is appropriate for these scenarios in your specific situation. Like so many aspects of your financial life, there is a case for understanding both the math as well as your own personal “sleep at night” factor.
Concurrently, you can evaluate whether to adjust your auto policies’ deductibles. For example, how much in premiums are you saving annually if you increase your auto deductibles from $500 to $2,000?
How likely are you to file a $1,000 claim with a $500 deductible? You can calculate a breakeven for a couple of scenarios; one if your vehicle is totaled and another if all your vehicles are totaled (i.e. house or garage fire).
One way to analyze your auto policy change options is to calculate the breakeven time of each policy that you would find acceptable to your specific situation.
Which policy features and coverages allow you to not have to worry?
Homeowners Insurance
As you’re evaluating your home insurance coverage, consider any easily overlooked scenario. You’re on vacation with the family and the power goes out at your house due to damaging winds and heavy rain. Your sump pump, the one without the emergency battery backup, fails due to the lack of power. What is the anticipated cost of the damage to your finished basement?
If paying for a fully damaged basement due to a sump pump failure doesn’t let you sleep well at night, you could consider installing a battery-powered sump pump and/or adding a backup sewer endorsement to your homeowner’s policy. Depending on your insurance policy, this endorsement could provide protection in the event of a water backup in the basement through the storm drain or sump pump. Under some policies, this endorsement covers the costs of restoration, construction repairs and replacement.
Another common endorsement for Missouri homeowners is earthquake insurance. According to the Missouri Department of Insurance, “Missouri is the third largest market for earthquake insurance…exceeded only by California and Washington.” [i]
When you start reviewing insurance policies, one key consideration for evaluating your earthquake endorsement options is the deductible. Depending on your policy, you could need to plan on a deductible ranging between 10% – 20% of the coverage limit. Meaning if your dwelling coverage limit is $600,000 and you have a 20% deductible, your deductible amount would be $120,000. That’s in addition to the deductible you could owe on outside structures and personal property/contexts.
The details truly matter; not all earthquake endorsements cover brick veneer or solid masonry construction. Understanding how your own home is constructed can guide you to the right insurance solutions.
If you’re curious which insurance companies offer policies in your home state, one place to start is to review your state’s insurance commission website. For example, the Missouri Department of Insurance offers a variety of consumer-oriented resources you can use to better understand your insurance options for automobiles, home, life and other types of coverages you have or might wish to obtain.
Umbrella Insurance
Another worthwhile insurance policy to review concurrent to your home and auto policies is your umbrella policy. The primary benefit of an umbrella policy is increased liability coverage. An umbrella policy can provide additional liability coverage beyond what your regular insurance policies, such as your auto or homeowners insurance, already provide. When sit down and start reviewing insurance, make sure you explore whether an umbrella policy aligns with your specific risks.
Factors and Activities That Deserve Extra Consideration
If you identify with any of the following factors, or participate in these types of activities, it’s worth reviewing your umbrella insurance coverage:
- Own significant property or assets.
- Have a pool, trampoline, guns and/or dogs.
- Participate in sports where you could cause injury to other people.
- Coach your children’s sports team(s).
- Have young, inexperienced driver(s).
- Regularly travel internationally.
As you save and invest, and your family grows, is your umbrella policy coverage amount aligned with protecting your assets?
This can be especially valuable in case of a catastrophic event, such as a severe car accident or a lawsuit, where the damages and legal fees may exceed the limits of your regular insurance policies.
When reviewing insurance, a benefit of an umbrella policy is protection from certain types of claims and lawsuits that may not be covered by your regular insurance policies. For example, an umbrella policy may provide coverage for defamation of character, false arrest, or invasion of privacy.
A specific example of how an umbrella policy can be beneficial is if you are involved in a car accident and the other party sues for damages that exceeds the limits of your auto insurance policy. As an umbrella policy holder, you could use the additional liability coverage provided by their umbrella policy to help cover your legal fees and any additional damages that are awarded to the other party.
Umbrella insurance policies are relatively affordable and can provide you and your family with significant peace of mind knowing that you have an added layer of protection for the unexpected. They do represent an additional expense, and so you’ll need to plan for this annual expense should you add an umbrella insurance policy to your household.
Another downside to adding or increasing your umbrella insurance coverage is that it could require you to increase your auto and home policy coverage limits. The knock-on effect with that is your auto and home policy costs could also increase. Again, the tradeoff with this approach is that you should have higher amount of insurance protection that allows you to pursue all the fun and enjoyable experiences and activities that make your life fulfilling and memorable.
Explore whether your insurance company has discounts available for:
- Bundling multiple vehicles
- Bundling multiple lines of insurance (e.g. home, auto, and umbrella).
- Operating vehicles with safety features like air bags, anti-lock brakes, and lane departure systems.
- Accident-free driving
So far, we’ve touched on insurance coverages for the things you own. Things that, for the most part, can be replaced.
What would happen to your family if you were no longer around or became disabled?
Term life insurance can provide your family with financial support should you unexpectedly pass away.
A disability insurance policy can provide financial protection for you and your family if you were to become ill, experience an injury that prevented you from working or working in your specialized field. Evaluating your disability insurance coverage is an essential step for many working professionals.
The Next Step
It can be a challenge to make time to evaluate your insurance policies.
Right now, you might be balancing preparing for your kids’ Halloween events, academics, and fall sports. That’s in addition to a demanding career and squeezing in a workout or two during the week.
Reviewing your insurance coverage, knowing whether you’re on track for retirement, or figuring out ways to fund your child’s high school and/or college education takes time.
If you’d rather not give up part of a beautiful fall evening or some morning workouts for reviewing insurance, you could instead partner with a financial planner.
As your financial planner in Saint Louis, we can help you get organized, review your insurance coverages so that you have a plan for the future and can enjoy the present moment. Start feeling more confident that you are making progress toward your savings priorities.
Working with your financial planner in Saint Louis can provide you with the right mix of accountability, collaboration, and long-term thinking.
When you know who and what are truly important, we can help you create incredible clarity about your spending and saving. Clarity to confidently spend on what matters.
If you’re unsure about your next step, let’s talk.
Disclosure
This commentary is provided for educational and informational purposes only and should not be construed as investment, tax, or legal advice. The information contained herein has been obtained from sources deemed reliable but is not guaranteed and may become outdated or otherwise superseded without notice. Investors are advised to consult with their investment professional about their specific financial needs and goals before making any investment decision.
[i] “Earthquake Insurance | Missouri Department of Insurance, Financial Institutions and Professional Registration.” n.d. Insurance.mo.gov. https://insurance.mo.gov/earthquake/ Accessed October 24, 2024.