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Short and Sweet Summary: A yearly personal insurance audit allows you to review what’s working and not working in all of your insurance policies. Depending on life changes and circumstances, you may need to add, delete or change coverage. It’s insanely difficult to remember every nuance of every insurance policy so it’s important to set up a dedicated time each year to review your policies and make sure you are getting the most bang for your buck.
Insurance is a necessary evil.
We don’t really want to spend money protecting “what ifs” because for most of us, the “what ifs” never come to fruition. But when the “what if” becomes an “oh shit,” we’re glad we’ve got the insurance to cover whatever catastrophe comes our way.
A yearly personal insurance audit could save you some serious frogskins by adding, deleting or changing policy options.
You’ve suffered enough of a shit storm. Don’t let inadequate insurance coverage ruin you financially. Please take steps to conduct a personal insurance audit to minimize risk and preserve assets as part of your overall financial plan. I know insurance isn’t fun. It’s a mind-numbing, soul-sucking plunge into intimidating minutiae and boring policy declarations. I would rather stick a hot needle in my eye than go over my auto insurance coverages line-by-line.
But I do, and will continue to, review my insurance policies annually. I’ve already added coverage I didn’t know I needed, deleted coverage that no longer served me and saved money by switching insurers.
I recommend doing a personal insurance audit at least once a year to make sure you:
- Have all the types of insurance coverage you need (Life, Health, Disability, Home, Auto, etc.)
- Understand existing coverage
- Remove Unnecessary Coverage
- Add Coverage if Your Situation Changes
- Evaluate other insurance company options
How to Conduct a Life Insurance Audit
Do you have the correct beneficiaries listed on your policy? My husband was my life insurance policy beneficiary, so I obviously changed that after he died. But life insurance companies won’t pay proceeds to minors so I can’t name my kids as beneficiaries. Minors listed as beneficiaries means the court appoints a conservator which leads to a whole big probate deal. Avoid probate by establishing a living trust in which an appointed representative (not a minor) controls and/or distributes your assets. An estate planning attorney can help you set up a trust if you don’t have one. Click to read more about trusts vs. wills.
Personal Life Insurance Audit Questions
- What happens after my term life insurance expires? Is there an option to extend my policy or convert to a different policy?
- What exclusions exist in my policy?
- Does my policy cover me if I become disabled? Some policies offer a rider to compensate you if you become disabled and can’t work.
- Does my policy allow me to access any benefits if I become terminally ill? Some policies offer a rider to provide a portion of your death benefit in advance should you become terminally ill and need money to cover medical costs or living expenses.
How to Conduct a Health Insurance Audit
Are you paying for more coverage than you need by signing up for the same health insurance policy year after year with no regard to lifestyle or financial changes? A personal insurance audit for your health care plan could save you money. Deductibles are sky-high right now, but if you don’t go to the doctor for anything other than wellness visits or yearly checkups you might be able to live with a higher deductible in exchange for a lower monthly premium cost.
Personal Health Insurance Audit Questions
- Are routine examinations (mammogram, pap smear, immunizations, yearly physical) covered? Most policies cover routine exams but verify which exams do not require you to meet a deductible.
- Are my doctors in-network? If you don’t want to change doctors, verify your current doctors are in-network. Verify yearly because networks change.
- What hospitals are in-network? The hospital closest to you may not be an in-network hospital under your coverage. Also, if you want treatment at a specific hospital, verify that the hospital is in-network. For example, when my husband got sick we went to University of Michigan doctors and hospitals. I verify every year that U of M is in-network because that’s where I will go if I get sick.
- What is my coverage if I’m traveling away from home? Verify coverage if you need treatment out-of-state or if you’re traveling abroad. Consider purchasing separate medical insurance if you travel outside of your home country without coverage.
- What are your pre-existing condition policies?
- What is my emergency room or urgent care deductible? Ambulance rides and emergency room visits are very expensive. Verify your policy coverage for emergencies. Using an urgent care vs. an emergency room for non-life-threatening illnesses could save some money.
Make Sure You Don’t Pay for More Than You Need
- Compare Premiums/Deductibles/Copays
This is the most time-consuming, but necessary, part of the audit process. It’s important to understand what you owe before insurance coverage kicks in. Compare total out-of-pocket expenses before making a decision.
- Prescription Coverage
Prescription costs vary widely from pharmacy to pharmacy. Be a good little detective and use Good Rx to find out where to fill your prescription for the cheapest price. Always ask your doctor if a generic option is available.
- In-Network Doctors
Your network doctors can change annually so always verify your doctors are still in your plan’s network of preferred physicians.
Dental coverage can add significant added cost. Ask your dentist if he or she offers any price reduction for cash-paying, uninsured customers. Or seek out a local dental school where dental students, under the guidance of instructors, perform routine services for a fraction of the cost.
- Health Savings Account (HSA)
Are you eligible for a Health Savings Account (HSA)? If so you could save for qualified medical expenses tax-free. HSA’s are only available to those enrolled in a High-Deductible Health Plan (HDHP).
How to Conduct a Disability Insurance Audit
I took over running my husband’s business after he got sick. About two years after his death I decided to check into disability insurance. As the sole breadwinner of the family now, we need a way to replace my current income if I become disabled.
Different disability policies exist for short-term or long-term disability, but most won’t pay more than 60% of your current income. You can choose policies that payout for five years or until age 65. Widows between ages 50-60 are eligible for Social Security disability based on their husband’s work record and several other factors so it’s important to consider all of the options to recoup your income.
Personal Disability Insurance Audit Questions
- Do you have any employer covered short-term or long-term disability coverage? Talk to your HR department to verify disability coverage through your job. Even if your employer offers disability coverage you may still need to purchase an individual policy if the coverage doesn’t meet your needs.
- What is the term length? You can opt for coverage to last anywhere from one to five years or until age 65. Determine the term length based on your individual needs.
- What is the definition of a disability? Your policy definitions of a “disability” determine whether you’re covered if you can’t work in your own occupation or if you can’t work in any occupation.
- What is the elimination period? Your policy specifications determine when the disability benefits kick in. Typically, benefits are paid anywhere from 30 to 90 days after your disability. Keep in mind, the longer the elimination period the lower your premiums. If you can support yourself for three months (90 days) without financial assistance, you could pay a lower premium than if you choose a 30-day elimination period.
- How much of my income will be replaced? Most disability policies do not cover 100% of your income. It’s important to understand how much of your income will be replaced based on your policy choices.
How to Conduct a Home Insurance Audit
You can typically save money by bundling your home and auto insurance with the same insurance company. If you aren’t getting bundled discounts, please change companies ASAP. Shopping around applies to home insurance too. It pays to get at least 3 quotes to find apples-to-apples comparisons online items like personal liability and loss of use.
Personal Homeowner’s Insurance Audit Questions
- Is pet coverage included? Some policies might cover damages caused to another person’s property by your pet. Or some policies might cover pet damage to your own property. Confirm exactly what pet damages are covered.
- Does the policy contain any coverages that are not subject to a deductible?
- What additional endorsements should I consider? If your policy doesn’t cover your pets, water damage, or your boat, you may want to consider adding extra insurance in the form of endorsements. An endorsement adds additional protection not covered in your policy. Ask your insurance agent what endorsements you should consider based on your personal needs.
- Does the policy cover various forms of water damage? Some policies may cover sewer damage but not flood damage. Some policies exclude coverage for water damage caused by sewer backup. It’s important to understand exactly what forms of water damage are or are not covered.
- Does the policy cover any jewelry/firearms/silverware or other valuables? Some policies might not cover valuables without an additional endorsement or the coverage could be minimal. If you have an expensive jewelry collection you may need an additional endorsement/rider to cover theft.
- Are trailers or boats covered? Some policies don’t cover watercraft theft if it’s stolen away from your premises. Without an additional endorsement, your boat might not be covered at all. Confirm what is covered and by how much.
- Am I getting all the discounts I qualify for? Verify all of the credits for which you qualify such as non-smoker credit, new roof credit, home alarm credit, etc.
Make Sure You Don’t Pay More Than You Need To
- Compare At Least 3 Different Quotes
Policies vary substantially, so check out at least 3 offers before committing to one. Compare apples-to-apples line items like personal liability and loss of use for the exact same dollar payout amounts.
- Buy an Umbrella Policy
Yes, it’s an additional cost, but it could save you thousands of dollars in the long run. If someone is injured on your property they can sue you. Typical home insurance personal liability coverage of $300,000 is mere pennies once a lawyer gets involved. While you may not think you’re worth much or have many assets, lawyers can and will garnish your wages to collect monies due. My umbrella policy of an additional $1,000,000 coverage only costs me $110 per year or roughly $9.00 per month. I’m willing to pay for the peace of mind of my financial well-being.
- Seek Out Any Available Credits
Several homeowner credits like installed smoke alarms, security systems and or even having fire extinguishers in the home can qualify for reduced rates. If you’ve replaced a roof, upgraded pipes or improved electrical wiring, let your insurance agent know. Certain home improvements could mean reduced rates. It doesn’t hurt to ask.
- Ask About Insurance Riders/Endorsements
We don’t live in a flood zone so I don’t have flood insurance but I do have a finished basement. If the sump pump backs up or overflows I have an added endorsement to cover repairs to the carpet, furniture, and flooring. If you own high-value items like jewelry, art or antiques, you need to ask your insurance agent about additional endorsements to protect your valuables not covered under your normal homeowner’s policy.
How to Conduct an Auto Insurance Audit
My husband always paid the insurance bills, while I took care of other household bills. We had the same auto policy from the same friend-of-the-family agent for years and years. My in-laws, their friends, and friends of their friends did, too. No one ever seemed to question the rates or coverage. My husband was proud of our “elite” policy that, according to him, was the best of the best.
After I started paying the insurance bills, the policy prices kept increasing. I finally decided to dig deeper into our coverage and find out what was going on. I realized pretty quickly we were paying premium prices alright, but for crappy ass coverage.
The bottom line is, after I shopped around, I saved over $1,300 per year by switching to another auto insurer. Not only did I save money, but I received 5-10x the coverage I had with my “elite” policy. For example, the property damage (per accident) coverage with my elite policy (damage to owned property like fences, garage doors, light poles, etc.) was only $100,000. My new policy covers up to $1,000,000 for property damage and I’m paying less for it!
Personal Auto Insurance Audit Questions
- Am I getting all the discounts I qualify for? Could you save money by taking a safe driving course? Is your mileage low enough to qualify for a discount?
- Do I have enough liability coverage? Your state has legal requirements for the minimum insurance protection you must purchase for bodily injury, property damage, personal protection and uninsured motorists. Consider paying for more than the legal minimums to protect your financial well-being. By paying more in premiums you could be paying less if you get in an accident.
- How much does it cost to add rental reimbursement? If you don’t have access to another form of transportation when your car is in the shop, you might want to consider rental reimbursement. This coverage pays for a rental car (typically around $30/day) while your car is repaired. Keep in mind, this coverage is only activated when you’re in an accident or your car is stolen. If you submit a claim through your insurance company rental reimbursement kicks in. But, if you take your car in for service because the check engine light is on and they need to order parts and keep it overnight, rental reimbursement doesn’t apply.
- How much does it cost to add roadside assistance? If your tire blows out on the highway or you’re battery dies leaving you stranded, roadside assistance can be a lifesaver. The towing cost is usually limited to a certain number of miles or a certain dollar amount. For example, the insurance company might cap your allowable towing mileage at 20 miles or won’t reimburse more than $75. Either way, you need to understand the exact specifications of your policy.
- How much will insurance pay to cover a totaled car? Cars depreciate in value. You may be insuring your car for more than your insurance company says it’s worth. Understand exactly how much you would receive to replace your vehicle if it’s totaled.
- Do I have uninsured/underinsured motorist coverage? Not all states require this coverage. Make sure you understand your state’s requirements. You could be on the hook for an accident involving someone who has no insurance coverage.
Make Sure You Don’t Pay More Than You Need To
- Compare At Least 3 Different Quotes
Policies vary substantially, so check out at least 3 offers before committing to one. Compare apples-to-apples line items like bodily injury and personal property damage liability for the exact same dollar payout amounts.
- Don’t Just Pay the State Minimums
Your state has legal requirements for the minimum insurance protection you must purchase for bodily injury, property damage, personal protection and uninsured motorists. Consider paying for more than the legal minimums to protect your financial well-being. By paying more in premiums you could be paying less if you get in an accident. It’s actually not much more per line item, per policy to ensure you are adequately protected to cover damages caused to people or property.
- Understand Your Coverage
A higher deductible reduces your monthly premium costs. If you can cover a $1,000 deductible, for example, you could save substantially on your policy’s premium.
- Consider Rental Reimbursement or Towing Coverage
If you don’t have access to another form of transportation when your car is in the shop, you might want to consider rental reimbursement. This coverage pays for a rental car (typically around $30/day) while your car is repaired. Keep in mind, this coverage applies when you’re in an accident or your car is stolen. If you’re submitting a claim through your insurance company you can determine if rental reimbursement applies. But, if you’re taking your car in for service because the check engine light is on and they need to order parts and keep it overnight, rental reimbursement doesn’t apply. If your tire blows out on the highway or your battery dies in the middle of nowhere, you need roadside assistance. Towing costs are limited to a certain number of miles or a certain dollar amount. For example, the insurance company cap for allowable towing mileage is 20 miles or no more than $75. Either way, you need to understand the exact specifications of your policy.
- Know Your Car’s Worth
If you have an older car you might consider canceling collision/comprehensive if the annual cost is more than 10% of your vehicle’s blue book value. Over time you could end up paying more in premiums than your car is actually worth to fix.
- Improve Your Credit Score
Believe it or not, insurance companies can use your credit score to predict the odds of you filing a claim. You could potentially lower your premium by improving your credit score. See this Consumer Reports article on How Your Credit Score Raises Your Premium.
Widow Wrap Up
A yearly insurance audit can save you big bucks. It’s insanely difficult to remember every nuance of every policy so it’s important to set up a dedicated time each year to review your policies and make sure you are getting the most bang for your buck. Because our lifestyle situations change we can’t expect our insurance to keep providing practical benefits if we don’t update our policies.
Get the Personal Insurance Audit Worksheet
I created a worksheet to help make conducting your audit easier. You can download it in my free resource library. or if you need the password, you can get it here by filling out this form: