Insurance is like a blanket. A blanket with holes in it isn’t useless, but it won’t give you the coverage you need it to. Likewise, your insurance policies might offer you some protection, but leave you exposed when you really need coverage. With a blanket, the holes are pretty obvious at a glance (and probably fairly easy to repair). With insurance, unfortunately, you may not be aware of gaps until you find you aren’t covered for an event for which you thought you had coverage.
The purpose of insurance, after all, is to shift risk. Gaps in your coverage means you are left bearing the burden of a risk when you may not be prepared to. Let’s take a look at various types of insurance, common gaps, and what you can do to close them.
When you buy life insurance, your goal is to preserve your family’s standard of living and to provide for them as you would have. Life insurance is particularly vulnerable to gaps in coverage because your circumstances and needs change as your family and employment do. For instance, as a childless newlywed with an employed spouse, you may not need much coverage; if anything happens to you, your spouse will continue working and providing for much of their own needs.
Fast forward a few years, and your spouse has quit their job to stay at home with your two young children. Now there are more people in the family, and they all depend on your income. You probably also want to put away money for your children’s education. Your life insurance needs have gone up significantly, so make sure your coverage does, too.
And don’t just depend on coverage through your employer. A change in job could mean a change in insurance coverage. When switching jobs, life insurance offered by the new employer is usually an afterthought for most people. But if you don’t regularly review your needs and coverage, your family could be devastated financially as well as emotionally should you die unexpectedly.
The possibility also exists that life changes will mean you have more life insurance coverage than you need. If your kids are grown and on their own, and you’ve accumulated more savings and assets than you had when you first bought life insurance, you may not need as much coverage. You could scale back your coverage, or maybe even sell your life insurance policy.
Do you know who is covered by your automobile insurance, and which vehicles? Don’t be so sure. When your teenager got their driver’s license, you probably had to put them on your policy, and that was fine while they lived with you, and maybe even when they went to college and moved into campus housing. But are they still covered now that they’re living off campus in the frat house? Don’t assume they are; check with your insurer.
Many auto insurance policies also cover you while you are driving a rental car. But you may be on the hook for extra charges not covered by your insurance, such as charges for loss of use.
Many auto insurance policies also cover you while you are driving a rental car. But you may be on the hook for extra charges not covered by your insurance, such as charges for loss of use. If you are planning on renting a car, review both your own policy and the rental contract in advance.
If you lease a car, as many Michiganders do, find out the circumstances under which your auto insurance policy would replace your car. Many will do so only in the event of theft or a total loss. If that isn’t enough to cover the remainder of your lease costs, you could be in trouble. Consider purchasing gap coverage to avoid getting stuck with a hefty bill.
Reading your homeowners policy declarations is probably pretty low on the list of things you feel like doing. Your policy declaration is several pages of fine print that details what your insurance will and will not cover. Even if you do read it from cover to cover, you still may not have a clear picture of your coverage, so consider scheduling an appointment with your insurance agent before you have a problem.
There are a couple of types of coverage gaps with homeowners insurance. The first is thinking you have coverage for items that are excluded. For instance, certain jewelry may not be covered, and you may need to purchase a rider.
Then there are the items that are covered, but not for as much as you thought. For instance, you might have replacement coverage for the home and its contents, but there might be a cap on the replacement cost. Also, if you’ve made significant improvements to your home that were not in place when you originally purchased the policy, you may want to increase your coverage.
Lastly, there are events that may not be covered, even if your policy claims to cover “all perils.” Look for exclusions, like floods or other natural disasters. In order for those to be covered, you may have to buy specific additional insurance. Also if there is damage to your home from an ongoing problem, like a hidden leak in the bathroom that causes the subfloor to rot over time, it probably will not be covered. Most policies only cover damage from one-time events.
Some gaps in homeowners coverage exist because you didn’t realize that homeowners insurance can cover certain losses.
Some gaps in homeowners coverage exist because you didn’t realize that homeowners insurance can cover certain losses. For instance, with some policies, you can buy a rider to cover costs associated with identity theft, including attorney fees to get your finances sorted out.
Umbrella Insurance Policy
If you are concerned about gaps in your homeowners or auto policy, particularly if you’re worried about liability for injury or damage to someone else’s property, you might want to consider an umbrella insurance policy. As the name suggests, this type of policy provides extra coverage for personal liability. In order to qualify for an umbrella policy, you must already have a base auto or homeowners’ insurance policy. The umbrella policy provides coverage for personal liability once the limits of your other policy are reached. An umbrella policy isn’t necessary for everyone, but you may want to consider one if you have significant assets or are at high risk of being sued for some reason, such as because you have a young driver in the family, or are in a high-risk profession such as medicine.
If you have questions about whether your insurance coverage is adequate, we invite you to contact our law office to schedule a consultation.