Are you investing in the bare minimum insurance? You may think that saving on monthly premiums is helping your bottom line, but being underinsured can be much more financially devastating than having no insurance at all.
Let’s talk about what happens if you’re underinsured, how to tell if you need more insurance coverage, and more.
Picture This Scenario
Imagine you are underinsured on your home. Your home is your largest asset, likely the most expensive purchase you’ll ever make. In addition to the largest bill each month, you’ve been paying down a mortgage for most of your adult life. And, not to mention, your home is the heart of your family. Your children took their first steps here. Their heights are pencilled into the doorframe. You have a world of memories within its walls.
Now imagine a tragic fire that burns everything you own to a pile of ashes. Not only are you emotionally devastated, but this fire has now left you without a home, without a bed, without nearly anything but the clothes on your back.
Without the proper homeowners’ insurance, your policy won’t cover the cost of a rebuild. In fact, if you are too underinsured, you may not be able to afford a replacement home!
Now what? You and your family have nowhere to lay your head, and you are starting over from square one. That’s the reality of underinsurance.
“Minimum Required Coverage” ≠ Adequate Protection
In addition to protecting your home, you need insurance for your vehicles (including recreational items like boats and motorcycles). And in most cases, we recommend going beyond what is minimally required by law. The legally required minimum likely will not cover the repair or replacement of your purchase if you’re in an accident.
Just like the house fire scenario above, having your car totaled in an accident would result in much of the same problem. If your underinsured policy doesn’t cover the replacement or repair of the car, what would you do?
Insurance Needs Change Over Time
With all of life’s changes, it doesn’t take long for a previously adequate policy to become insufficient over time. Perhaps your home was adequately covered, but after that home addition, new garage, and in-law suite, chances are your coverage hasn’t kept up with your changes.
Likewise, adding new members to the family, upgrading your vehicle, or purchasing new “toys” like an ATV or jet ski will mean an upgrade to your policies. Be sure to check in with your agent anytime you have life changes or upgrades to your major assets to ensure you have the best coverage.
A general best practice is to touch base with your insurance agency at least once per year.
Unexpected Costs When You Are Underinsured
In addition to the obvious costs of replacement or repair, there are plenty of other financial issues underinsurance can cause.
Consider that same car accident. Your vehicle is totaled, and you can’t drive to work, take your kids to school, or visit your ailing mother. On top of that, what if you were also injured because of that accident?
Out-of-pocket expenses, delays in repairs, or delays in your own recovery can really take a chunk out of your finances. Potential gaps in your coverage might feel like month-to-month savings that lower your overall premiums, but the destruction these gaps can cause is far worse than a few dollars saved in your monthly budget. Losses due to underinsurance can financially ruin families in a single accident.
How to Know if You Are Underinsured
Underinsurance can be as costly as having none at all. But there are really just two rules you need to follow, to make sure you have enough insurance!
- Review your policies with a trusted agency once a year
- Call the agency with life changes or new asset purchases ASAP
That’s it! By keeping a tight watch on your policies, and working with a local agency you can trust, you can be diligent about having the proper amount of coverage.
