Three Steps to Better Insurance Decisions

One of my many tasks as a financial advisor was to review insurance policies.  Sometimes clients would be paying too much and it was always a thrill for them to discover ways to save money. Just as often, they had the wrong type of coverage altogether and needed to retool their insurance strategy.

I’d have to explain to clients that evaluating insurance is more difficult and comprehensive than just comparing costs.  To effectively prop the hood open on an insurance policy, you’ll need to explore the features and benefits of each policy, and have your goals in mind when performing the evaluation.

1)      Base your insurance decisions on your goals. Whether it’s auto, home, life, health or disability, insurances are only important if you have a need for them. Don’t allow a professional to talk you into reviewing an insurance that doesn’t meet your end goal. For example, people with enough money to meet retirement goals but not enough if one spouse enters a long term care facility should explore long term care insurance options.

2)      Understand your coverage levels.  It always surprised clients when I’d walk through what they were paying for. We’d laugh together that it wasn’t as revolutionary as it first seemed. Shouldn’t you know what you’re paying for? Auto insurance policies have broad coverage ranges. Some may cover only accidents in which the driver of the vehicle is at fault while others cover everything including cracks in the windshield.  By knowing all the provisions in the policy you’ll be able to determine if it’s necessary to keep.  You’ll also be better equipped to compare two policies on an “apples to apples” basis to determine which represents the better value.

3)      For homeowners insurance, make sure your policy features replacement value coverage.  If your policy only covers the current value of your items, just imagine what your four year old computer or television may be worth today and you’ll realize that the payoff won’t come close to helping you buy a new one.   Replacement value coverage gives you the peace of mind you’ll be able to replace the computer or television with an up to date model.

Remember three points when evaluating insurance:  your goals, coverage levels, and then pricing, you’re on your way to making a good insurance decision.