If you’re like many of my clients, you may worry at different points in your life that you don’t have the right insurance, or enough insurance. Everyone has different insurance needs at different times. To determine if you might be missing something in your insurance portfolio, ask yourself the following five questions:
1. Do I have an accurate dwelling value?
We’re still entrenched in a tough real estate market. (Take a look at my fellow blogger Ilyce Glink’s take on the real estate market.) Values have fluctuated drastically as sellers continue to struggle to sell and other owners can’t refinance.
If it’s been a while since you’ve reviewed your homeowner’s insurance or your appraisal value, you will want to make sure your dwelling value is on par with what the carrier considers an accurate value relative to your replacement cost.
Make sure your house is insured to value. If you are underinsured according to the carrier, you are facing a potential financial disaster in the event of damage or partial loss.
2. What is my replacement cost?
I can’t even imagine an insurance policy that doesn’t include this provision. Some policies include a replacement cost up to 125 percent, but you can increase it, usually for a nominal fee, to 150 percent—and it’s worth it.
3. Do I have enough liability coverage?
Liability coverage can apply to several different components of your insurance portfolio. Take some time to consider where you may be at risk and how much liability coverage you need.
- For your auto insurance or homeowner’s insurance, you should consider maximizing the liability limits offered by your underlying policies (those that pay first before your umbrella coverage responds).
- If you own a home and are gainfully employed, you need an umbrella policy. I still see clients without umbrella coverage, and it surprises me every time.
- If you own your own business, business insurance will protect what you’ve created. All it takes is an accusation of negligence and a lawsuit to threaten all you’ve worked to build.
4. Have I had any life changes that aren’t covered by my life insurance?
- Do you have a mortgage?
- Do you have kids?
- Do you earn an income?
- Do you own a business?
- Do you have a business partner?
We’ve talked about life insurance before, but I’ll say it again: unless you can self-insure a projected worst-case scenario, life insurance can provide liquidity to avoid financial hardship.
5. How am I covered in case of disability or loss of income?
When my clients protest they won’t ever need disability insurance, I have them do a little math.
Estimate your annual salary for the next thirty years. Why would you take a chance with that particular asset? People wonder how their loved ones will go on if they die, but how would you and your family live if you couldn’t work because of an illness or injury? Review your income and living expenses to see how disability insurance could provide financial relief.
How does your insurance portfolio stand up to these questions? The “It won’t happen to me” mentality can be costly. Fires, floods, death, and disability happen.
I’m not trying to send you into therapy, but you need to evaluate the worse-case scenario if people depend on you financially and you don’t have the resources to self-insure.
Sometimes, people call me after something has happened, but often by that time it’s too late, and they have dwindling options. I’m going to keep saying it until I stop getting those phone calls: you should get insurance when you don’t need it, because when you do need it, you can’t get it.
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