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. Coordination Of Coverage

    A review or modification of an individual's or business’ insurance ...
  2. Corridor Deductible

    Expenses that are paid by the insured in excess of an insurance ...
  3. Prior Acts Coverage

    A feature of an insurance policy that extends the coverage of ...
  4. Insurance Coverage Area

    The geographic region in which an insurance policy’s benefits ...
  5. Business Insurance

    Insurance coverage that protects businesses from losses due to ...
  6. Group Term Life Insurance

    A type of insurance coverage offered to a group of people. This ...
Related Articles
  1. Insurance

    The Beginner's Guide To Homeowners' Insurance

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

    How to Find the Right Car Insurance

    Finding the right car insurance can be difficult. However with these strategies, you can get the most for your money, protect your assets and your health.
  3. Insurance

    Do You Need Casualty Insurance?

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

    Top Tips for Cheaper, Better Car Insurance

    Accident, theft, vandalism - make sure your coverage will protect you when you need it most.
  5. 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.
  6. 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.
  7. Insurance

    What Is and Isn't Covered by Homeowners Insurance

    Understanding what your insurance covers can be confusing. Learn what almost all insurance policies have in common so you're prepared if disaster strikes.
  8. Financial Advisor

    How Not to Let Risk Ruin a Great Financial Plan

    No good financial plan is complete without risk management or insurance planning. Here's how to manage your risk.
  9. Insurance

    Term Life Insurance: Everything You Need to Know

    Term life insurance is an affordable way to financially protect your loved ones after your death. Here's what you need to know before purchasing a policy.
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. Can my insurance company refuse me coverage?

    Insurance isn't always as straightforward as other products. Insurers can deny coverage in many different instances:Non-Renewal ... Read Answer >>
Hot Definitions
  1. Life Insurance

    A protection against the loss of income that would result if the insured passed away. The named beneficiary receives the ...
  2. Price Elasticity Of Demand

    A measure of the relationship between a change in the quantity demanded of a particular good and a change in its price. Price ...
  3. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  4. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Down Round

    A round of financing where investors purchase stock from a company at a lower valuation than the valuation placed upon the ...
Trading Center