Important Considerations when Choosing the Right Coverage

Where you live, what you own and how you live all affect your risk profile. A home in a flood plain faces risks that a home in the mountains doesn’t. A household with a swimming pool or a trampoline carries liability exposure that a different household doesn’t. A teenager who just got a driver’s license changes the risk equation entirely. When assessing your coverage needs, think about what can realistically go wrong. Liability from lawsuits – not just property damage – represents one of the largest financial risks most families face, and it’s one that many people underestimate.

Before you can choose the right coverage, you need to know what you’re protecting. Real property and personal property are treated differently under a homeowners policy, and the difference between replacement cost and actual cash value can mean thousands of dollars in a claim. Understand what your home is worth to replace – not what it’s worth to sell – and make sure your personal belongings are documented and insured accordingly. Don’t forget jewelry, collectibles and fine arts, which require separate riders.

Insurance is designed to protect you from losses that would genuinely harm your financial situation. It’s not meant to cover every small expense. If your car is worth less than $3,000 and is paid off, it may not make sense to pay for collision and comprehensive coverage. And when something minor does happen, think carefully before filing a claim. After two or three claims – regardless of size – many insurance companies will either raise your premium or cancel your policy. Reserve your coverage for the losses that would truly be difficult to absorb on your own.

Rates for identical coverage can vary by more than 300% between insurance companies. Getting only one quote is one of the most expensive mistakes you can make. Get at least three quotes before making a decision, and consider working with an independent broker who can shop dozens of carriers on your behalf. When comparing quotes, investigate each insurer’s reputation as well – some companies with low rates only accept drivers with pristine records and will cancel your policy at the first sign of trouble.

Your life changes, and your insurance should change with it. You buy a new car, remodel your kitchen, add a deck or get a dog. Each of these changes can affect your coverage needs. Have your home appraised every five to seven years to make sure the replacement cost on your policy still reflects reality. Review your coverage any time you make a significant improvement to your home. And notify your insurer if anything changes that could affect your risk profile, like a new driver in the household or a change in where you store your car.

A deductible is the amount you pay out of pocket before your insurance kicks in. Choosing a higher deductible is one of the most effective ways to lower your annual premium. On a homeowners policy, increasing the deductible from $100 to $1,000 can save 20% to 35% per year. On an auto policy, raising the deductible from $100 or $250 to $500 or $1,000 can cut premiums by 10% to 20%. The key is to make sure you have the cash reserves to cover that higher deductible if you have a claim. Keep those reserves available and let your insurance handle the major losses.

Insurance companies reward loyalty and consolidation. If you insure your cars with the same company that covers your home, you’ll often qualify for a multi-policy discount. Paying your premium in one annual payment instead of installments can also reduce costs. And if you want to add an umbrella liability policy – which you should – many carriers will only sell you one if you also carry your homeowners and auto coverage with them. Bundling your policies simplifies your coverage and usually saves you money.

Insurance companies reward loyalty and consolidation. If you insure your cars with the same company that covers your home, you’ll often qualify for a multi-policy discount. Paying your premium in one annual payment instead of installments can also reduce costs. And if you want to add an umbrella liability policy – which you should – many carriers will only sell you one if you also carry your homeowners and auto coverage with them. Bundling your policies simplifies your coverage and usually saves you money.