Adequacy Of Coverage

DEFINITION of 'Adequacy Of Coverage'

The adequacy of coverage concerns how well your insurance policies protect your assets against unforeseen losses. In order to evaluate the adequacy of your insurance coverage, you should consider many different loss scenarios and judge whether your insurance deductibles and limits are sufficient.


The concept of adequacy of coverage is subjective, and largely depends on one's propensity to take on risk rather than pay higher insurance premiums. One's ability to absorb losses should also be considered, as a person with very few liquid assets will be unable to pay large deductibles or sustain other uninsured losses. Alternatively, those with substantial assets may wish to obtain higher limits to their coverage to avoid losing the wealth built up over many years.

BREAKING DOWN 'Adequacy Of Coverage'

When considering adequacy of coverage a four-squared matrix can be used as a rough model for dealing with the four main types of losses:

1) Frequent expensive losses - avoid these high-risk behaviors because insurance will be very expensive.

2) Frequent inexpensive losses - self-insure for these losses by planning ahead and setting aside funds.

3) Infrequent expensive losses - buy insurance for these losses.

4) Infrequent inexpensive losses - self-insure, these losses are no big deal.

RELATED TERMS
  1. Backdated Liability Insurance

    Liability insurance that provides coverage for a claim that occurred ...
  2. Coincidental Excess Coverage

    Insurance coverage that provides excess coverage for a specified ...
  3. Assessable Policy

    A type of insurance policy that may require the policyholder ...
  4. Aggregate Excess Insurance

    An insurance policy that limits the amount that a policyholder ...
  5. Personal Lines Insurance

    Property and casualty insurance products for individuals that ...
  6. Broad Form Personal Theft Insurance

    Insurance coverage to protect personal assets. Broad form personal ...
Related Articles
  1. Personal Finance

    How Much Homeowners Insurance Should You Carry?

    This breakdown of coverage into its component parts will provide the answer.
  2. Trading

    For Top-Notch Insurance Coverage, Compare Quotes

    Find out how to use and compare policy options to get the best coverage at the best price.
  3. Personal Finance

    How Much Car Insurance Do I Need?

    Find out to determine how much car insurance you actually need with this overview of the different types of coverage available in your policy.
  4. Trading

    Beginner's Guide To Auto Insurance

    Find the perfect policy that suits both your coverage and budgetary needs.
  5. Personal Finance

    Intro To Insurance: Property And Casualty Insurance

    By Cathy ParetoProperty and casualty insurance is insurance that protects against property losses to your business, home or car and/or against legal liability that may result from injury or damage ...
  6. Personal Finance

    Do You Need Casualty Insurance?

    Find out how different types of coverages can protect you and which policy is right for you.
  7. Trading

    Top Tips For Cheaper, Better Car Insurance

    Accident, theft, vandalism - make sure your coverage will protect you when you need it most.
  8. Personal Finance

    Group Term Life Insurance: What You Need to Know

    Is group term life insurance really a good deal? What you need to know about employer-sponsored group term life insurance coverage.
  9. Managing Wealth

    7 Issues to Consider When Determining Life Insurance Coverage

    Seven issues to consider when buying life insurance to ensure the coverage is tailored to meet your personal financial situation.
  10. Personal Finance

    Is Renter’s Insurance Worth It?

    Renter’s insurance is so relatively inexpensive that there’s really no reason not to have it. Still, how much does it cost and what does it cover?
RELATED FAQS
  1. What measures can be used to evaluate the capital adequacy of a bank?

    Examine some of the different financial measurements that are most commonly used to assess capital adequacy within the banking ... Read Answer >>
  2. What does it mean when a company has a high capital adequacy ratio?

    Learn about the capital adequacy ratio, what the ratio measures, how it is calculated and what it means when a bank has a ... Read Answer >>
  3. What is the minimum capital adequacy ratio that must be attained under Basel III?

    Find out more about the capital adequacy ratio, or CAR, and the minimum capital adequacy ratio that banks must attain under ... Read Answer >>
  4. What is the difference between the capital adequacy ratio vs. the solvency ratio?

    Understand the different applications for using the capital adequacy ratio and the solvency ratio, which are both equity ... Read Answer >>
  5. Why should I keep track of my insurance policy?

    The number one thing to remember about insurance is that, just like everything else, it changes over time. The top-of-the-line ... Read Answer >>
  6. Which insurance policies do I really need?

    Your needs for insurance depend on your situation and can't be generalized for everyone, but there are a lot of options available. ... Read Answer >>
Hot Definitions
  1. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  2. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  3. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  4. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  5. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
  6. Security

    A financial instrument that represents an ownership position in a publicly-traded corporation (stock), a creditor relationship ...
Trading Center