Buying insurance is about sharing or shifting risk. Problems arise when you think you’re covered for specific losses that aren’t actually included in your policy. Use this guide to help you identify (and fix) any potential gaps in your coverage.
Life Insurance
In general, you want your life insurance benefits to cover several years of living expenses for your family in the case of your unexpected death. The exact amount will depend on your family circumstances—(ex: if your spouse works or if you’re planning to pay for your kids’ college)—as well as your overall lifestyle.
It’s not just about the amount of coverage, either. Think about how long your insurance lasts. For instance, if you’re insured through your employer, your family may not be covered if you switch jobs. Be sure to review your coverage against a variety of circumstances to ensure your family really will be protected in the way you hope. Make note of whether your coverage is a term life or permanent life insurance policy.
Homeowners Insurance
Not every accident or issue is covered under homeowners insurance. For instance, many home insurance policies will cover a medical issue if a pet injures a guest on your property. However, many “aggressive” dog breeds are exempt from this coverage. (Similarly, most insurance policies don’t cover “owner” damage, which often includes pets…meaning if your cat accidentally chews through a power cord, you might be on the hook for the repairs.)
Beyond pets, certain weather-related events, such as flooding and earthquakes, may not be covered without specific riders or provisions designed to address those things.
Finally, many people think homeowners insurance covers the full cost of your home. However, if building codes have changed, your insurer may not cover the extra cost of rebuilding attributable to more stringent building codes, or your policy may limit how much and how long it will pay for temporary housing while repairs are made.
Consider reviewing your policy with your provider to ensure you understand what, specifically, is covered and what may not be. Don’t rely on your own interpretations of policy language.
P&C Insurance
One level up from homeowners insurance: property and casualty (P&C) insurance. Typically, home and auto policies have a $1M limit on them, and ideally, insurance should protect your entire net worth. P&C policies can serve as an umbrella liability policy to ensure the whole of your financial life is protected, not just certain assets.
Auto Insurance
The most frequent misconception with auto insurance involves which drivers, and which vehicles, are covered in group policies. Your policy may provide coverage for only those listed. Other policies may cover anyone who drives the car. Sometimes, it depends on whether the person resides in your household or not.
Like homeowners insurance, it is a good idea to review these policies with the provider and ask specific questions. For example: If your child is headed to college and plans to live in the dorms, ask if they’re still covered under your plan. What about any friends that might borrow their car? Then, pass these coverage notes on to your child.
It’s also a good idea to ask about insurance for rental cars since most providers offer supplemental coverage that you may or may not need. For instance, your own collision coverage may apply to the rental car you’re driving, but it may not pay for all the damage alleged by a rental company, such as loss of use charges.
Generally speaking: When in doubt, ask. Policy terms aren’t always understood easily, and many require explanation from someone who understands the legalese. It’s better to know these details in advance, and not when it’s time to file a claim. If you need help reviewing your insurance policies, or assessing how your insurance coverage fits within your overall financial plan, speak with a Bogart Wealth Financial Advisor.