Most people start looking for insurance when they get a new asset, like a house or car. Once they have a policy, they often become passive and only think about it when it’s time to pay premiums or file a claim. Many people stick with the same insurance year after year without giving it much thought or review. As a result, they either end up overpaying for insurance or don’t have enough coverage. Often, they don’t realize their insurance plan is inadequate or outdated until something bad happens.
Here are three reasons why it’s important to review your insurance at least once a year, if not every six months, to avoid unexpected costs and surprises.
1. Value Replacement vs. Current Value
It’s crucial to understand the relationship between the value of what you’re insuring and your coverage. The key factors are whether your policy covers Replacement Cost Value (RCV) or Actual Cash Value (ACV). RCV pays to replace lost or damaged property with similar items at current market prices. ACV, on the other hand, takes depreciation into account, considering the property’s age, condition, and market value loss.
For example, if you insured your outdoor kitchen when it was new and it gets damaged five years later in a fire, RCV would cover the cost of a similar replacement. ACV, however, would subtract the depreciation over the years from the compensation. Given the rising costs of materials and labor, the depreciated value might be much lower than the replacement cost. While RCV provides full replacement, it is more expensive than the less comprehensive, but cheaper, ACV.
2. Neglected Items
Many homeowners mistakenly assume all their possessions are covered under their insurance policy. Items like a new laptop, luxury watch, or smartphone might not be included in a standard home insurance policy. Typically, standard policies exclude certain items like fine art, antiques, gold coins, musical instruments, firearms, and specific consumer electronics. Similarly, special assets like vintage sports cars might need separate coverage.
It’s important to talk to your insurance agent about including valuable items to ensure they are covered. Keep in mind that while insurance can cover almost anything, you might have to pay extra for additional coverage.
3. Uncovered Hazards
Homeownership comes with liabilities, and sometimes unexpected hazards aren’t covered. For instance, if a diseased tree falls on your house, you might not be covered. If a rotten branch from your tree falls on your neighbor’s property, you might be liable for the damage. Not maintaining your property could violate your insurance policy terms.
Not knowing the details of your policy can leave you without coverage during unexpected events. Violations like poor home maintenance or owning certain dog breeds can lead to your insurance being canceled. If your home is in a flood-prone area or has outdated electrical wiring, related damages might not be covered.
Make it a habit to review your insurance every year. Talk with your agent or broker to find possible deductions, ways to save money, and improve your coverage with higher deductibles. Don’t assume all your valuable assets are covered unless it’s specifically stated. Make sure to carefully review insurance updates to spot any new exclusions that might leave you underinsured.