When you receive paperwork to renew auto, homeowners, and umbrella insurance policies every year, it can be tempting to check the box to renew without looking at your coverage. But renewing an old policy doesn’t mean that your previous coverage meets your current needs. Things may have changed since you purchased the policy – properties are renovated, driving habits change, the cost of parts go up. Here are four questions to ask your insurance agent to make sure you have enough coverage to protect your home and vehicles.
1. Have you recalculated the replacement cost of my home?
When reviewing your homeowner’s insurance policy, be sure to check the replacement cost coverage. Replacement cost, or “rebuild value”, is the amount it would take to repair and rebuild sections of the home or the entirety of the home. Some policies require the insured to carry homeowner’s insurance of at least 80% of the replacement cost of the home’s value at the time of the loss to be fully covered.
Home values have rapidly increased over the past few years, and the cost of lumber, parts, and labor have gone up even higher. Homeowners that have not increased their replacement cost coverage may find themselves with much less insurance than their house is currently worth and must pay more out of pocket in the event of a claim. To make sure your coverage is up to date, ask your insurance agent to recalculate the replacement cost of your home and update coverage accordingly.
In the event of a major loss, the insurance company will ask you to file a claim for all the personal property lost, often down to each specific item you want replaced. But do you know what’s really in your house off the top of your head? An easy way to take inventory of your personal items is to take a video walking through your home, including the basement and garage. Using your smartphone, record yourself opening every door, drawer, and cabinet on camera. That way if you need to prove what you owned after a major loss, like a fire, you can watch the video and start writing down an inventory list.
2. Do I need an additional policy or rider for my high-value personal items?
Did you know that personal property coverage has limits on certain items? For example, many homeowner’s policies only cover jewelry up to $1,500 per item, and homeowners have to cover the difference out of pocket to replace their high-value jewelry. Check your homeowner’s policy – you will likely find coverage limits on items such as antiques, electronics, firearms, and more. If you own high-value items that would cost more than your coverage limit to replace, talk to your insurance agent. Your insurance carrier can write a separate policy or rider (“scheduled personal property endorsement”) for those items.
3. Would pay-per-mile auto insurance save me money?
If you drive less than 12,000 miles each year, you might save money with pay-per-mile auto insurance. For this type of policy, insureds pay a base premium plus a small fee for each mile they drive (typically 2-10 cents per mile). A device is installed in the vehicle which sends mileage information to the insurance company. While pay-per-mile is generally the cheapest insurance for low-mileage drivers, insureds must be comfortable with their premiums varying each month based on how far they drive.
4. Do I have enough coverage for uninsured and underinsured drivers?
Even if you have a high coverage auto liability policy, many other drivers only carry the state minimum, which is often not enough to cover your damages in a severe accident. For example, if you are hit by a driver that carries minimum Maryland insurance, there is only coverage for $30,000 of bodily injury and $15,000 of property damage; that might not be enough to pay for your vehicle or hospital bills. To avoid paying out of pocket when you are not at fault, talk to your insurance agent about uninsured and underinsured motorist coverage. If you are hit by a driver that carries minimal (or no) insurance, your underinsured (or uninsured) coverage will kick in to pay for your damages. Many insurance professionals recommend purchasing underinsured and uninsured coverage equal to the liability coverage on your auto policy.
Having enough insurance coverage is an integral part of any successful financial plan. If you are interested in having your advisor review your insurance policies, give us a call at 410-715-9200.