How To Do Your Own Insurance Review and Audit

When was the last time you looked at your insurance policies? Probably awhile ago, right?

That’s pretty typical. We take out a new auto policy, life insurance policy, or health insurance and then we never look at it again. The insurance companies send us updated policy information and changes a few times each year and those booklets just get filed away to never see the light of day again.

Well that’s a big mistake. You should be conducting your own insurance review at least once a year. It’s important to know that insurance policies should be updated from time-to-time as our lives change, our kids get older and out financial situation changes.

The easiest way to get started is to pull the declaration pages for each of your insurance policies – usually these are what the insurance company sends you when you take out a new policy or what they send as they update throughout the year. The declarations page is a summary of what your policy covers. What I like to do is open up Microsoft Word and create my own summary page of the most important details for each policy. I like to include:

Type of Policy (health, life, home, auto, and so on)
Insurance Carrier
Policy Number
Date Issued
Coverage Amounts (medical, liability, personal, etc.)
Annual Premium Amounts
Insured (who is covered by the benefit)
Beneficiary (life insurance)

Go through and create a Word document or Excel spreadsheet answering all of the points above for each policy you and your spouse own. Now it’s time to get into the insurance audit portion. Once you have your information you need to make sure it’s up-to-date. Here are a few key questions you need to answer:

Have I recently gotten married or divorced?
Did I have another child?
Do I still own all of these autos?

These will help you determine if any coverage or beneficiaries need to be changed right away. Next you need to look deeper into each policy.

Auto Policy

Make sure you have a clear idea of what your coverage is by checking the following: liability coverage, bodily injury liability, and property damage liability. You should know the liability coverage will help cover any expenses when you’re at fault of the accident. The money will go to property you damage, but will not cover the people in your car.

On the other side, the bodily injury liability will cover the medical expenses of people injured in the crash. Typically these appear as 20/50 or some combination similar to that. These numbers mean the maximum dollar amount your insurance policy will pay for a single person’s injuries. For example a 20/50 policy will pay a maximum up to $20,000 for a single person’s injuries and up to $50,000 for the total medical cost of all the injuries.

Property damage is exactly that – it covers any damages to property when you’re at fault.

Other factors you need to consider on your auto policy is areas like uninsured/underinsured motorist coverage, personal injury protection, collision, comprehensive. Just ask your insurance agent if you are covered and what the cost is for adding them to your policy.

Here’s a breakdown of what they mean:

Uninsured/underinsured – if you are hit by someone without insurance or doesn’t have enough insurance to cover your medical or property damage costs then this part of your policy will kick in.

Collision – This covers repairs to your car.

Comprehensive – If you’re car is stolen or damaged outside of an accident, then it’s covered.

You also need to make sure you have enough coverage that is required by your state. Now each state is different, which is why I recommend working with an agent in your state of residency. That doesn’t mean you should have the the bare minimum – no, actually you should have more. Especially if you have family and are worried about prolonged medical costs if you’re involved in an accident. If you do not have enough coverage then you’re on the hook for the rest of the costs.

You also need to make sure the coverage you have is enough to meet your umbrella policy (read more about umbrella policies below)

Life Insurance

Do you have a term life insurance policy, universal life, whole life or a hybrid? It’s recommended that if you don’t have any life insurance to start with a term policy. They are more cost effective than whole life policies and can provide the coverage you need while you have small children or have considerable debt. Make sure to add a reminder to your Google calendar or planner before the policy expires so you can look at renewing it, changin it or dropping it.

You need to keep up with your total death benefit. Make sure you understand how much your beneficiary is going to receive if something should happen to you. You need to verify the beneficiary. If you’ve recently been married or divorced then that information might need to be updated. If you have a Trust or an Estate Plan then you might want to consider naming your Trust as the beneficiary after your spouse.

If you realize you do not have enough coverage to cover your family’s debt, replace your income, and provide for your family’s future then you might need to speak to your insurance agent about increasing your coverage. As your family gets older and your children are no longer minors then you might be able to lower your death benefit to reduce costs.

Long Term Care

Do you have a long term care policy. It’s recommended that you start researching and talking with your insurance agent about long term care policies in your 50’s and 60’s. So put a reminder in your calendar. Long term care policies are vital to helping you maintain financial independence and not put any strain on your family if you or your spouse she go into a nursing home or need long term care.

For long term care insurance policies make sure you understand the amount the policy will pay ‘per day’ and how long the benefit lasts. There are hundreds and hundreds of different policies on the market and each one is a little different. So make sure you understand how your’s works.

Home Owners or Renters

Do you have enough property and casualty insurance coverage? What happens if someone comes to your house and gets injured, are you covered? You need to sit down with you insurance agent to make sure your liability coverage, medical and so on limits are high enough.

You also want to make sure you’re covered if you’re in a earthquake zone, a flood plain, or any other area that’s prone to natural disaster. A lot of policies cover water damage from broken pipes, but not if your home is flooded from a local river.

Umbrella

An umbrella policy is a smart tool to have. If you get sued, get hurt or someone else gets hurt on your property, your car, your boat, whatever then an umbrella policy helps. The most important detail about an umbrella policy is to have enough minimum coverage so there is no gap.

For example, you have an home owner’s policy with liability coverage of $200,000. Your umbrella policy kicks in at $300,000. Someone comes to your home and gets injured. They sue you for $900,000. Your home owner’s policy will pay $200,000, leaving you $700,000 due. Your umbrella policy won’t kick in until the $300,000 mark, which means you are responsible for $100,000 worth of damages personally. Then you’re umbrella policy will pay the remaining $600,000.

But you, personally are responsible for $100,000 to this person who got injured. Do you have $100,000 sitting in an account? Probably not.

If you’re unsure if your coverage has any gaps, sit down with your insurance agent and ask them.

Health Insurance

Do you know how much your deductible is per year for yourself and for your family? You need to also understand the maximum out-of-pocket costs you could be liable for. For example, a policy has a $1,500 deductible for the individual and a $2,500 deductible for the family. The policy also havs a $5,000 maximum out-of-pocket cost. That means if you get sick you could be liable up to $1,500 before your insurance kicks in and if anyone else in your family gets sick that amount goes to $2,500. On top of that, you could have to pay an additional $5,000 (plus the $1,500 or $2,500 deductible) before your insurance will pay 100% of your medical costs.

If you have a high deductible or out-of-pocket cost then you might want to increase your emergency fund – in the above example you would need $7,500 to cover all of your expected contributions before insurance covers 100%.

You could also have a Health Savings Account (HSA) if you have a high deductible plan. Some employers provide them and are great tools to have.

Disability Insurance

You need to know the monthly benefit amount, how long it will pay and when the payment will start. It’s also important to understand how the insurance company defines a disability. There are two major types of coverage – own occupation and any occupation.

Own occupation kicks in if you cannot do the activities for the job you have – your own job. Professionals want a policy that will provide coverage for their specific career, which would be own occupation.

Any occupation kicks in if you cannot do the activities for any job – which is a broader term and harder to qualify for.