Most people dedicate time at the beginning of the year to thinking about their personal finances and resolving to save more and spend less, create a new retirement account and budget for the children's college expenses, among other goals. However, it's also important to revisit your financial plan throughout the year to make sure you are staying accountable to your goals, including assessing whether or not you are adequately protecting your physical assets.
Staying With the Same Insurance Carrier
Most of us have had auto and homeowner’s insurance for years, so we have a pretty good idea of how to take the initial step to protect our physical assets. Unfortunately, most people put their property and casualty policies on autopilot. They effectively set it and forget it, staying with the same insurance company for 10, 15 or 20 years. That’s not a good idea for many reasons.
First, it’s going to cost you money. You might think insurance companies would do their best to take care of their longtime, loyal customers. But you would be wrong. In fact, they do just the opposite. When it’s time for premium increases (which seems like every year), they pass along the biggest increases to the clients who have been with them the longest. That’s because they know you are not shopping around and will just renew without question. Their best rates are often saved for newer policyholders. This is often referred to as the loyalty penalty. (For related reading, see: Insurance Checkup: The Importance of Shopping Around.)
Make Sure Your Policy Reflects Life Changes
If you’ve been with the same carrier for a few years, shop around when you get your next renewal notice. You may be surprised by how much you can save. You should also review your policies on a regular basis because of changes in your life. For example, when you are young and don’t own many financial assets, you might carry lower liability limits than when you are older and have more substantial assets to protect. Not many young couples have a need for the extra liability protection that an umbrella policy offers, but once you have some assets, you don’t want to leave them open to a lawsuit, especially in the litigious world in which we live.
When reviewing your homeowner’s policy, it’s also important to make sure your coverages are keeping up with the value of your property. As construction costs and the value of your property increase over the years, you want to make sure your coverage limits are keeping up. A lot of policies have built-in inflation increases, where the coverage amount will increase each year. Make the policy increases have not outpaced the increases in your home's value. While it’s important not to be underinsured, you don’t want to be over-insured either.
Other Things to Review
Here are some other points you should consider when reviewing your property and casualty risks:
- Make sure your homeowner’s policy includes replacement cost for your personal property. If not, you will have actual cash value coverage. That means if you suffer a loss, the insurance company will pay you what the item is worth at the time of loss, not what it would take to replace it.
- Check your homeowner’s deductible. You don’t want to make small claims against your homeowner’s policy, so bump up your deductible. It will save you money on the premiums you pay.
- Check your auto policy deductible. Keeping your collision deductible higher allows you to benefit from lower premiums.
- Have you acquired any personal items of considerable value? Items like jewelry, art, and collectibles typically have limits within your policy. You can purchase separate riders to make sure those items are covered.
Protect Yourself and Your Finances
Review all of your insurance policies—auto, homeowner’s or renter’s, boat, condo, motorcycle, RV, etc.—on a regular basis to protect your personal assets. It won’t take a lot of your time, and it could reap substantial savings. It could also help prevent big losses when a claim hits.
(For more from this author, see: A Health Savings Account Can Make a Big Difference.)