The Importance of Insurance Reviews
- Regular insurance reviews can help you check your coverage levels against your actual needs.
- Ask the right questions to know if it’s time for change.
Review your coverage regularly
Insurance, like investments, should be checked on a regular basis to make sure they’re still protecting you. Once a year is ideal.
When you review your insurance, you’re not just verifying what you have. You’re checking what coverage levels you need now. This also is a great opportunity to make sure your rates are still competitive.
Insurance needs often change over time. You don’t want to pay for coverage you no longer need, like a policy on a motorcycle you no longer ride. You also don’t want to skimp on coverage for important things — such as having enough life insurance to provide for your family.
Here are some pointers for reviewing your insurance coverage:
Life events like marriage, a new baby, or divorce can affect your life insurance needs.
Life events like marriage, a new baby, or divorce can affect your life insurance needs. Always check to make sure the beneficiaries on your policies are still who you intend.
The amount of coverage you need depends on a number of factors, including how much your loved ones would need annually for living costs and any expected future education costs after subtracting available savings and any other income sources.
This calculator from Life Happens, a nonprofit organization dedicated to insurance education, can help you gauge your life insurance needs.
As part of your review, consider these questions:
- Do premiums or benefits vary from year to year?
- How much do the benefits build up in the policy?
- What part of the premiums or benefits is not guaranteed?
- What is the effect of interest on money paid and received at different times on the policy?
- In what situations and through what procedures can cash values be accessed?
- Can the policy be converted into another form of insurance or annuity?
Source: National Association of Insurance Commissioners (NAIC). Consumer Alert: Life Insurance: Reviewing Your Policy Important to Securing Your Family’s Future.
Home values often increase to meet demand during good economic times. Or they can head south when demand cools or the economy sours. Values typically go up when we make major renovations or landscaping improvements. When reviewing your homeowners policy, ask yourself, “Does my policy provide enough coverage to rebuild my home?”
One day you may face the prospect of rebuilding from scratch or replacing significant portions of your property. You’ll want to know any money, work, and improvements you’ve put into your home are replaced at a comparable value.
Other considerations improve:
- Additional coverage for valuables such as art, jewelry, musical instruments, antiques, or sporting equipment
- Additional coverage for circumstances unique to a finished basement such as water backup coverage
- Additional coverage for your location, such as flood or wind coverage
- Coverage for outdoor appliances, equipment, and landscaping
- Discounts for security and smoke alarms; a newer, premium–quality roof; a no-claim history; and other eligibility factors
Auto insurance variables — such as tying premiums to car values and coverage–level options — are pretty standard from one insurer to the next.
The auto insurance market is fiercely competitive. Many insurers attract new customers by advertising better rates. If you’re considering switching for a better rate, try to compare coverage rates line for line. (Just make sure you’re getting the right level of coverage from a reputable and respected insurer.)
Making the switch
Be sure to ask yourself if the quality of the policy you’re considering is comparable to what you already have.
With any type of insurance, it is important to thoughtfully consider all factors before making any changes to your policy or changing insurance companies. Be sure to ask yourself how the quality of the policy you’re considering compares to what you already have. It is important for the insurance company to be around if you must file a claim. Do your research and verify if they are financially sound.
Be especially careful about switching life insurance policies. Ask yourself the following:
- What are the tax advantages/consequences of the switch?
- Is there a waiting period before the policy takes effect?
- If purchasing a new policy later in life, will I end up paying more over the lifetime of the policy?
- Is the cash value of my current life insurance policy enough to pay for the entire new policy?
- What other costs will I have to pay to enter into a new policy agreement?
- Will the new policy allow me to take out loans under the same conditions?
In some cases, it may make more sense to exchange your policy for a new one with the same insurer and avoid certain fees that often apply to switching companies.
Make it a habit
Insurance is easy to avoid or handle once and forget. When you review your insurance policies regularly and maintain proper coverage, you’ll protect your loved ones more thoroughly, effectively, and efficiently.
- Review all your insurance coverage.
- Plug any coverage gaps and scale back any overages.
- Set an annual date or timeframe for insurance reviews.
Insurance products are offered through nonbank insurance agency affiliates of Wells Fargo & Company and are underwritten by unaffiliated insurance companies.
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