Why It's Wise to Review Your Insurance Needs Once a Year

Bad things can happen in an instant. Last year, while everyone else was celebrating and enjoying the 4th of July, an errant firework burned down an elderly man's house. Like other depression-era folks who long ago lost faith in financial systems, he liked to hide his money in cash around the house and in the yard instead of keeping it in the bank. Likewise, he had no homeowner's insurance. Since he'd already used most of his savings to pay his late wife's medical bills, he had no money to rebuild his house. Though a homeowner's policy certainly would have cost him thousands over the years, rebuilding his home was even more expensive, and was only possible through the hard work and kindness of his family and community, who held fundraisers and donated their money, time, and materials.

Stories like this don't always have happy endings, though. Most of us don't want to, or know we can't, rely on others in times of financial crisis. I hope that you're not foregoing any key insurance policies in an attempt to save money, because chances are, you'll get burned, too.

To protect yourself financially, and to protect loved ones who would feel compelled to make sacrifices of their own hard-earned money to help you out in a crisis, it's a good idea to carry proper insurance. These tips on why you should review your insurance needs at least once a year apply to any kind of insurance, whether it's health, auto, homeowner's, renter's, or any other type of policy.

1. To add coverage. You may have purchased a policy at a time when money was tight. You might find that once you can afford more coverage, you'd like to purchase it. For example, it's generally considered a good idea to carry more than the legally mandated minimum amount of car insurance.

2. To make sure you actually have the coverage you think you do. You might think that you signed up for that umbrella policy two years ago, and then discover that what you really have is $1,000,000 of personal liability on your renter's policy, which is not the same thing at all. If your policy doesn't cover what you think it does, you'll be very unpleasantly surprised if something bad happens and you're stuck paying for it out of pocket.

3. To make sure you're getting the best deal. Auto insurance regulations changed last year, resulting in cheaper rates for many policyholders. If you originally went with the company that gave you the best rate, they may no longer be the cheapest.

4. To get a discount for combining policies. If you have your auto insurance with one company and your homeowner's insurance with another company, you may be able to save money by letting the same company provide both policies. This isn't always the case, though, so don't believe a company when they tell you it's cheaper that way without actually doing the research and the math for yourself. You may actually get a better deal by un-combining your insurance. Having policies with multiple companies is only a minor inconvenience when it saves you hundreds of dollars.

5. To avoid overinsuring. Even if you've chosen the company that offers the lowest rates, you may still be overinsured. Reducing excessive coverage can save you hundreds. You probably don't need that $1,000,000 of personal liability coverage on your renter's insurance policy, for example.

6. To think about purchasing additional policies you may need. Last year you may not have needed renter's insurance because you didn't own anything of value, but maybe you had a good year and you now own a laptop, digital camera, bicycle, and other items that are expensive and easily stolen. Or you may have had a child recently and are ready to start thinking about purchasing a life insurance policy that will take care of your spouse and your kid if something happens to you.

No one likes paying for insurance when it feels like you're throwing money into a black hole year after year, but chances are you'll need to make use of at least one of your policies at least once in your lifetime. To make sure you'll have the coverage you need when you need it and that you don't pay more than you need to, it's wise to review your policies at least once a year.

For some basic but detailed information on reducing your car insurance payments by lowering your deductible, check out Jeffrey's previous article.

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