Good insurance coverage identifies and mitigates risk. However, over-insuring can cause many problems, besides paying too much.
Here are just a few of the issues that can occur if you have “too much” insurance and how you can avoid it.
Life insurance should provide your family with a source of income in the event of your death. However, complex riders or ones that sound too good to be true are often a way for the insurance company to make more money.
Additionally, a beefy cash-value life insurance policy can actually be incentive. As morbid as it might seem, many people lose their lives because greedy people can go to great lengths for a big insurance payout.
Deal with a reputable insurance agent. They will identify your unique risks and tailor your insurance to those needs. They’ll also point out any possible issues and offer alternatives.
The replacement cost of your house is not the same as market value. It is the amount you need to rebuild it if damaged or destroyed.
If you’re paying for market value coverage, you’re paying for the value of the land and the higher coverage amount leads to unnecessarily higher premiums.
A good agent will use a cost estimator to calculate the value of your home. You can also hire an appraiser to conduct a replacement cost assessment. While you can try to calculate your home’s value, many variables come into play and you could under or over estimate.
Remember, replacement cost increases as construction costs rise. Also, if you’ve spent more than 5% of your home’s value on a remodeling project, you will need more coverage. Review your insurance coverage with your agent annually to ensure your policy is aligned with current costs.
Your belongings may need more coverage, since most policies only provide actual cash value (replacement less depreciation). Your agent can add an endorsement to your homeowners insurance policy so you have replacement value on these items too.
Personal liability insurance is mandatory on all cars, but you may carry comprehensive and/or collision too. However, it may not be worthwhile if you own a beater.
These forms of auto insurance are often required if you drive a newer model, lease or finance. But the insurer will only reimburse you for the depreciate value and if it’s an older car it may not be worth it.
If you could afford to replace the vehicle immediately after a total loss with little or no impact on your finances, skipping these coverages could lead to substantially lower premiums.
You can also prevent your car from being over-insured by eliminating redundancies in your insurance policy. As an example, you may not need towing and roadside assistance if you have a membership with the American Automobile Association (AAA) or a similar group.
Once again, talk to your agent. An independent insurance agency like ours can provide professional advice and we work for you, not the insurers. We’ll walk you through your policy to ensure you have the right coverage and no unnecessary expense.