An effective insurance strategy can help you rebuild and recover from substantial loss or damage, including the severe losses that can come from natural disasters like hurricanes, floods and fires. Since your risks change over time – for example, your home may have increased in value – it pays to periodically review your situation to make sure your policies have kept up.
Standard insurance policies typically exclude losses for some of the most severe events, like floods or earthquakes, and it may be worth considering specialized coverage if available.
Insurance can also protect your family’s financial future from lost earnings resulting from disability or even loss of life arising from disaster, accident or illness. If you’re prepared with a current view of what you need to protect, a qualified insurance agent can help you make sure you have the right coverage.
Start by Looking Over Your Current Insurance Policies
- Homeowners insurance
If you own your home, homeowner’s insurance (also known as home insurance) can reimburse you for a variety of damages, from theft to fire to a natural disaster. You can usually find the coverage amounts on a “declaration page” among the first few pages of the policy – have they kept up with your current risks? If your home has increased in value or you’ve made improvements including flooring, furniture, or other items, you may be insured for what you had at-risk years ago rather than what you need to protect today.
Most policies limit coverage for valuable items like jewelry and watches unless they’re specifically covered for a stated value, often based on an appraisal. Scan the fine print for exclusions – it’s likely that you’re not covered for disasters such as floods or earthquakes and you may want to consider specialized coverage, especially if you’re in an area prone to these risks.
Pay special attention to liability coverage – your policy may protect you for much less than what you can face in a lawsuit if someone is injured on your property.
- Renter’s Insurance
If you’re a renter, you face many of the same risks as a homeowner for property loss or damage and liability. Renter’s insurance can reimburse you for loss or damage to personal property and pay for visitor’s injuries arising from the use of the rental premises. Your landlord probably won’t cover your losses, and if you don’t have renter’s insurance, you’re not protected.
- Auto insurance
Most states require basic liability insurance for your car, but coverage that just meets state requirements may not be adequate to protect you from the losses you face. If you’re in an accident, you can face a lawsuit for substantial amounts far in excess of the basic limits, leaving your personal assets at risk. You can also face substantial loss from damage to your car from an accident, vandalism or theft – check to see whether your insurance includes coverage for these losses, which is sold separately.
Auto insurance policies usually have deductibles – amounts that you must pay to cover damages before your insurance kicks in. You can often choose how large a deductible you want – higher deductibles mean lower premiums, the amounts the insurance company charges you for the policy. To help manage your insurance budget, consider a strategy to absorb small claims on your own, using the savings to expand your coverage for catastrophic losses that you can’t afford.
You may want to consider personal umbrella liability insurance, which extends your coverage for lawsuits over and above the limits in your home and auto insurance, to as much as $1 million or more. This type of coverage is especially valuable in providing peace of mind for people who have accumulated significant assets over the years, for example as retirement draws closer.
- Disability insurance
While most people focus on the need for insurance to cover property losses, it’s also worth considering whether you have adequate insurance to protect your family from the financial consequences of loss of earnings from illness, injury or death. Disability insurance, often available through your workplace, can replace your income for a selected term, or even for the remainder of your working years, while you’re unable to work.
- Life Insurance
If there’s loss of life due to accident, illness or a natural disaster, adequate life insurance can mean the difference between the family’s financial survival and dire conditions adding to the emotional stress. A qualified CPA, financial adviser, or insurance agent can help you understand how to select coverage that best fits your situation.
Take Inventory of What You Have
You’ll want to be sure your insurance will help you rebuild or replace the items that are important to you in the event of destruction, damage or theft. In addition to the structure of your home, this includes the improvements you’ve made, contents such as carpeting and furniture, appliances, and personal items such as clothing, electronics, jewelry and hobbies or collectibles. All of these should be considered in working with your agent to come up with a current value to be covered.
A walkthrough of your home will help you start a list of improvements you’ve made, such as replacement kitchen cabinets or new flooring. The invoices for the work you’ve had done, which you should be keeping for tax purposes, will provide guidance on the value-added. Don't forget about outdoor improvements, like a deck, shed, or fencing. Be sure to let your agent know if one of your improvements is an alarm system – you may be eligible for a premium discount.
For items like appliances, computers, and electronics, you may want to take pictures with your phone, both as a tool in creating your inventory and to assist you in making a claim in the event of loss or damage. The clothing in your closets also may have substantial value – think about what it would cost to replace everything you’ve accumulated over the years, from winter coats to professional attire to beach sandals.
Valuables and collectibles, like furs, fine jewelry, and watches, are in a special class – your insurance agent can advise you whether you need specific coverage for these items and what you need to support the covered value.
If you have a second home, remember that it may also have some of your inventory that should be updated to keep your insurance coverage current. A vacation home in a hurricane or flood-prone area may merit a high place on your list for consideration as seasonal perils approach.
Review Your Beneficiaries
Along with your assets such as savings accounts and IRA’s, and your will, your life insurance should name one or more beneficiaries who will collect the proceeds in the event of death. Often, these beneficiaries are named when the policy is taken out, and updating the designations may not be top of mind as circumstances change over the years.
Among the family changes that may call for an update of a beneficiary are the birth of children, marriage or remarriage, divorce, or death of a relative who had been named. Stale beneficiary designations may lead to unintended financial consequences and complications in providing funds to the intended recipients – for example, proceeds may unintentionally be directed to the estate of a deceased relative rather than children born years after the policy was taken out. A CPA or qualified financial adviser can help you understand various types of beneficiary designations and the tax implications that may apply.