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. First Dollar Coverage

    An insurance policy feature that provides full coverage for the ...
  2. Coordination Of Coverage

    A review or modification of an individual's or business’ insurance ...
  3. Backdated Liability Insurance

    Liability insurance that provides coverage for a claim that occurred ...
  4. Corridor Deductible

    Expenses that are paid by the insured in excess of an insurance ...
  5. Assigned Risk

    A risk that an insurance company is required to provide coverage ...
  6. Coincidental Excess Coverage

    Insurance coverage that provides excess coverage for a specified ...
Related Articles
  1. Insurance

    How Much Homeowners Insurance Should You Carry?

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

    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. Insurance

    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. Insurance

    Beginner's Guide To Auto Insurance

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

    The Beginner's Guide To Homeowners' Insurance

    Discover everything new homeowners need to know before they sign on the dotted line.
  6. Insurance

    Do You Need Casualty Insurance?

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

    4 Reasons Why Waiting To Buy Life Insurance Is a Bad Idea

    Understand the benefits of applying for and securing life insurance coverage while you are young and healthy, and learn the cost of waiting to get coverage.
  8. Insurance

    Top Tips For Cheaper, Better Car Insurance

    Accident, theft, vandalism - make sure your coverage will protect you when you need it most.
  9. Financial Advisor

    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.
  10. Insurance

    7 Mistakes to Avoid When Buying Health Insurance

    Understand the need for health insurance and why some undervalue the need for coverage. Learn about the top seven mistakes to avoid when purchasing insurance.
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 are some examples of industries that practice price discrimination?

    Understand the various types of insurance coverage offered in the insurance marketplace, and learn why each policy should ... Read Answer >>
  5. 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 >>
  6. Why is my insurance premium so high/low?

    Insurance premiums can be affected by many factors including: type and amount of risk size of deductible amount of coverage ... Read Answer >>
Hot Definitions
  1. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  2. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  3. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  4. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  5. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  6. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
Trading Center