Get Smart About Insurance: Filling the Gap and Trimming the Fat

By on March 1, 2018

We’ve all seen those cheeky Farmers Insurance commercials – “You thought you were covered for this [huge pool], when you were really only covered for this [teenie pond] or how you figured you’re covered for this [family car], but you’re actually paying for this [luxury sports car]…”, but they’re right, do you know what is hiding in your insurance policies?

Oftentimes, we think we’re covered for losses by insurance when, in fact, we’re not. Part of thorough financial education is learning to read and understand your insurance policies.

Work with your agent(s) to review and customize your policies so they fit you just right. Having ‘healthy’ insurance policies means you are not overpaying for unnecessary coverage but you do have the right amount of coverage so you aren’t left in the financial lurch.

What You Don’t Know About Your Insurance Could Be Costing You Money

Get you insurance policies in shape by filling the costly gaps which could cost you money in the future and trimming the excess ‘fat’ to save money today. Here are some common Home, Auto, Life and Health insurance policy issues to review with your trusted agent(s) and financial advisors:

Reviewing Homeowner (Condo, Rent) Insurance Policies

Are you covered for…?

  • Natural Disasters
  • Home Replacement
  • Valuables
  • A Home Office
  • Umbrella (extra liability coverage)

When you bought your first home you probably didn’t comb through all the fine print on your homeowners insurance policy, but what you don’t know can hurt you when it comes to insurance. Many standard policies may not come with the particular riders (add-ons) that you need to protect special valuables, damage cause by natural disasters or the necessary liability coverage for your lifestyle.

Replacement Cost: You might think your insurer will pay the full cost to replace your home if it were destroyed by a covered event, but many policies only pay for repairs or they place a cap on replacement cost up to the cost of the policy. Unfortunately, the cost to completely replace according to current codes and at the existing value of your home could be much greater – leaving you with a shortfall.

Before speaking with your agent, you will want to check with a building contractor to get an idea of the replacement cost for your home, then compare it to your policy to be sure you have enough coverage. If you don’t then it’s time to go see your agent to consider your options.

Natural Disasters: Even if your policy states that “all perils” are covered, some policies carve out exclusions for damage caused by floods, earthquakes, and hurricanes. In many cases (varies by state), you can purchase additional coverage or in some cases, separate insurance for each disaster altogether.

If you do have disaster coverage, you may also want to review any existing policy limits on how much and for how long the insurer will pay for temporary housing while repairs are underway.

Valuables and Home Offices: Many homeowners are not aware that special valuables, such as fine art, collectibles or jewelry, and home offices are not 100% covered by their standard policy. Those working from home may get some help from their home/rent policy, but probably require an additional rider or commercial insurance policy to fully protect business equipment and structures.

And the payout from standard policies are not likely to cover the cost of high priced specialty items which are damaged or stolen. You will need to review the value of these items with your insurer to increase your policy limits or seek additional coverage. On the other hand, if you have recently sold an expensive item, you could be overpaying for coverage you no longer need; review your policy to bring your coverage and premiums down.

Condominiums: Many condo homeowners associations (HOAs) have their own property insurance which may not always cover individual condo owners. For example, some association insurance will not cover personal items (furniture, wall coverings, televisions, laptops, etc.), interior walls, and any structural improvements made to the interior of the unit. Review your condo documents, particularly the master deed, which may describe those parts of your unit the association insurance covers, and which parts you may need to insure with policies of your own.

Personal Liability: Some homeowners policies have a limited amount of personal liability coverage to protect you from the cost of slip and falls on your property, dog bites, even libel/slander lawsuits. Unfortunately, liability settlements can be ruinous when ‘What You Own’ is less than ‘What You Owe’ to pay a settlement/judgement.

High net worth individuals as well as anyone hosting large events at their home (for example, a wedding or large children’s party), you may want to purchase extra protections with an Umbrella policy.

Reviewing Your Auto Insurance Coverage

Are you covered for…?

  • Carpooling (extra medical, injury and liability)
  • Comprehensive Collision
  • Uninsured Motorist Protection
  • Personal Property
  • Rental Car

We all think we know our car insurance, but do we really? We all have it but the structure of our personal policies, what vehicle(s) we own and how we drive them can make a real difference when it comes to making a claim or paying your premiums.

If you regularly carpool for work, your policy could fall short of medical, personal injury and liability coverage in the event you are in or at fault for an accident. In addition, the range of rental benefits and costs vary widely from policy to policy. Gap insurance can cover any difference between what your insurer pays and the balance of a leased or rented vehicle.

You may want to consider dropping unnecessary coverage for older cars. As a general rule, if a vehicle is worth less than $1,000 you don’t have to invest in collision and comprehensive coverage since you don’t have much to protect. But nearly every driver may want to consider adding uninsured motorist coverage to fill the gaps when someone else is bucking the system.

And finally, a simple life event could have you paying twice for the same coverage. Consolidate your insurance policies after a marriage to eliminate the overlapping coverage – why pay for separate policies with the same protections for more?

Will Your Life Insurance Meet Your Family’s Income Needs?

Will your existing policies…?

  • Cover Debts, Home Loans, College, Child Care, etc.
  • Distribute Funds in Case of Injury/Illness
  • Upgrade from Term to Permanent
  • Return Your Premiums to You

When it comes to Life insurance, some coverage is always better than no coverage, but what if a medical condition forces you to leave your job, or you become ill between jobs? Changing circumstances may require more insurance. You will need to consult your trusted financial professional to help you and your broker determine if you have enough coverage to meet your family’s future income needs.

If you have children, dependents, or a family relying on a single income, then a term limited, non-transferable group life insurance may not provide the coverage you want. Consider a personal life insurance policy to help fill the gaps in your coverage, and protect your family when they need it most.

If you already have a personal life insurance policy it is to review you original plan. Life insurance riders are add-ons that you can tack on to your existing policy for more personalized coverage. When added to your insurance plan, these provisions can offer additional benefits that your original plans simply didn’t have.

And individuals looking to provide for their families while managing their wealth, it might be time to consider an upgrade to a permanent insurance policy which allows you to fund a death benefit in addition to a cash-value investment you can use for retirement, a child’s college tuition and more. Here are a few custom riders you may want to review with your agent:

Accelerated Death Benefits: The ‘death benefits’ are monies your beneficiaries would receive to support their financial affairs if you, the policyholder, were to die; but what if you couldn’t provide for your family due to a serious injury or illness. Sure, there is disability insurance, but that may not cover all of your bills and the loss of income.

The accelerated death benefit rider lets policyholders collect a portion of their death benefit (percentage varies by insurer) if they become so ill or injured that they can no longer able to work. This money can go toward your medical expenses or can simply help pay the bills when you’re no longer able to rely on a regular paycheck.

Waiver-of-Premium: If you could no longer work due to illness or injury, and could no longer afford to pay your premiums, this rider will prevent your coverage from being cancelled. Usually, a policyholder must be incapacitated for a certain period of time (typically six months) before this rider can be activated.

Policy Purchase Options: Married young professionals might have a limited coverage at the moment, but they also might expect to need additional coverage in the future once they have more dependents and/or more assets to protect. Asking about these riders with let you buy more coverage without resorting to new policies, thus trigger health reviews and more.

Term Conversion Options: Young policyholders typically cannot afford the premiums and upfront costs of a permanent policy, but a term conversion rider lets them convert their policies into permanent policies without having to get a physical. Don’t let all those premium payments go to waste when you outlive your term, convert it so you can maintain protection and grow wealth for the long-term.

Return of Premiums: Who doesn’t want their money back?! If you have this rider added to your term policy and end up outliving it, you will be reimbursed all or at least a portion of the premiums you paid over the years. That can be quite a substantial sum of money over 10 to 30 years.

Review Your Long-Term Care Plan to Cover Your Golden Years

Financial advisors know that long-term care costs can be one of the biggest threats to a retirement plan. What will happen when you outlive your retirement fund and you need special assistance for medical issues that arise when you are in your 90’s?

Currently, Medicare pays for only short stays in nursing homes or in-home care under limited conditions. For the most part, seniors who need care have to burn through their savings to pay for it. Only after they are impoverished will Medicaid—the government health program for poor people—pay for a basic level of care.

To cover the gap between your retirement and government assistance, you and your trusted life insurance broker or trusted financial advisor will want to determine how much you can comfortably pay out of your savings to buy long-term care insurance. These policies can be purchased on their own or as a new “hybrid” policy linked to your life insurance coverage.

Long Term Care Insurance (LTCI) or Linked-Benefit Life Insurance

Whether a standard LTCI or linked-benefit policy is most suitable for you depends on a number of factors. In today’s market, knowledge is power — so you will want an advisor with the ability to navigate the differences between the myriad of options that are available against your financial situation and the protection you need.

The linked-benefit coverage, essentially allow the policyholder to get double-duty from their retirement dollars, using them to build cash value tax-deferred and, if needed, fund their long-term care benefits. If the long-term care benefits are never tapped, the death benefit portion of the policy is given to heirs just like a traditional life insurance policy.

Cost for either product will vary, however, even upfront cost involved with a permanent insurance product could outweigh both the high cost of a standalone LTCI policy, and the premiums you stand to lose if you never need the care.

Informed Policyholders Can Have the Right Protection at the Right Price

As with any important decision, it’s important to be as informed as possible when choosing insurance protections. Take time to assess your personal needs and read your insurer’s fine print to save you money and hassles down the road.

While finding and filling these gaps could end up costing you money, it’s little compared to the financial burden of an accident or claim. Review your coverage to ensure that the coverage you have is the coverage you need, and at a price you can afford.

Remember, that changes in your life can mean big changes in your insurance needs. A change in marital status, the birth of a child or a purchase of a home can all trigger a gap or overlap in your coverage, that’s why it is important to review your policies at least once a year. Speak with your trusted agents and financial advisors about filling the gaps and trimming the fat from your insurance coverage.

Take the next step - Let's talk!

Remember to speak with your financial, legal or tax professional for more information about the topics which interest you. Here are a few ways for you to share your ideas, learn more and interact with FinancialSafetyNet members, authors and expert advisors.
Have a question, but don't want to share it with everyone? Contact a financial advisor.
Want to contribute to the conversation publicly? Submit a comment.

Submit A Comment

About Harold Goldman

I am the founder of FinancialSafetyNet.org, and a Retirement Planning and Long-Term Care specialist. I am also the President of Emes Insurance Services, Inc., a Murrieta based insurance agency designed to help people with Retirement Planning and funding for College. I believe in educating my clients to become financially competent in an effort to develop plans for guaranteed income, protection against loss and tax-advantaged growth. To contact me Call (844)-376-2265

You must be logged in to post a comment Login