All too often people buy an insurance policy, barely read the full document and then never review it again. This can be a very costly mistake but there are opportunities to be found when you make reviewing all your insurance policies an annual process. This review should be a standard part of your wealth management activity just like analyzing your investing, spending, and saving.
Most everyone knows it’s a very bad idea to not open your brokerage statements, for a multitude of reasons including finding mistakes, fraud, and seeing firsthand how investments are performing. It is a best practice to adopt the same rigor with insurance policies, all of them, but on an annual basis and ideally in conjunction with your financial planner or financial advisor.
In short, things change. There are two sets of variables in life that make it sensible to review policies annually. First and the most obvious, is that insurance costs often go up year over year. Knowing what your cost is compared to coverage levels, deductibles, and other factors in a policy can make a big difference. For example, if you could save $400 or more and get greater coverage and a lower deductible for your homeowners policy, wouldn’t that be worth the effort of reading your policy and getting competing quotes? If you own a business, that coverage is often the most expensive coverage you pay for and the savings can be quite significant, in the thousands of dollars per year.
The second set of variables is you, the insured. Did you buy a second home last year? Did you improve your property? Do you now work from home permanently? Did you have a child? Did you lose significant weight or quite smoking? All of these personal events can be insurance action items and opportunities to either reduce risk or reduce your cost of insurance.
When you welcome a new child or grandchild, you may want to consider updating your life insurance policy. For one, with an additional child your surviving families total need is now larger, so more coverage is likely needed. In addition, adding beneficiaries to the policy makes sense so all heirs you want to be protected are named.
Economics and Your Carrier
Insurance carriers are businesses and they too need to mitigate their risk over time as the world changes. For example, if you are about to put on a large addition to your home, the total value of your improved home may be outside the limits of your current carrier if they have too many homes underwritten in that geography. In another example, this year you may receive a renewal declarations letter and due to inflation, the dwelling protection coverage could be much higher, resulting in a higher premium. Just paying the invoice when it arrives may not be ideal, as another carrier may not have such high estimates for rebuilding.
Insurance is a highly detailed oriented, confusing and often mundane topic for most people. But if you commit to putting in your calendar an annual review, much like scheduling new batteries for your smoke alarms, you will reduce risk and create an opportunity for savings you would otherwise not have.