How to Manage Insurance Risks
Insurance is the promise you receive from a company to protect you and restore you financially in the event of a specific loss. You can purchase insurance coverage for just about anything, including your home, your auto, your health and your pets. It is wise to determine what kinds of insurance you need by examining your exposure to risk, and then make your policies cost-effective. Risk is any potential for loss. It is also associated with debt---the bank that holds your mortgage requires you to have homeowner's insurance because any loss to your property is also a loss to the bank.
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Instructions
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Locate all declarations pages and life insurance policies. It's the law in every state to have automobile liability insurance coverage, so if you operate a vehicle, you should have a declarations page from your insurer. You normally get a copy of this when you renew your policy, which is typically every six or 12 months. If you have a mortgage on your home, you must have homeowner's insurance. You should have a declarations page for this as well. A declarations page specifies what the policy covers and who is insured. You may also own life insurance, or your parents or grandparents may have purchased policies on you when you were a child.
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Familiarize yourself with your policies. Basic policies include low levels of coverage for liability and place limits on losses from damage or theft. Liability is any situation in which you have caused damage to another person or his property. Liability insurance protects you against lawsuits. You'll want to know what your current company provides as standard coverage. If you have questions about coverage under your current policies, call your agent. Keep in mind that no homeowners' policies cover earthquake or flood damage. If earthquakes and floods are a possibility in your area and you want to protect yourself against losses, contact an agent to purchase special coverage.
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Make a list of things in your home that would represent a substantial financial loss to you. Most people own items that should be included specifically in their homeowners' policies, but they often fail to report them and find out too late that there's not enough coverage. Expensive pieces of jewelry, antiques, guns and collectibles can all be covered for their full values. These items must be "scheduled" on your policy and can usually can be covered for their appraised value for a minimum premium. Many insurance companies also insure electronics, televisions and cell phones on schedules, so be sure to compare prices if you own multiple high-value items. You may find that in a family with five cell phones, you'll pay your cell phone company $25 a month for insurance, whereas you may be able to cover all phones with a zero deductible for $40 per year with your home insurance carrier.
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Evaluate your deductibles. Your deductible is the portion of the risk of loss that you are willing to take. Depending on your unique needs and situation, you may have the wrong deductibles. If you live in a small town and often bike or walk to work, you can afford to take a higher deductible on your auto insurance. Conversely, if you commute every day or you travel often, you may want a lower deductible. This evaluation is called "assessing your exposure." Your exposure is your assumed chance of loss. Auto insurance premiums for teens are so high because the exposure to loss with an inexperienced driver is very high. If you live in an area that does not experience harsh weather, you may choose to increase your homeowner's insurance deductible. Similarly, you may have a group or individual health policy that allows for flexibility of the deductible amount. If you are fairly healthy and rarely use your health coverage, you may want to take a higher deductible. This can result in substantial savings, but there is a risk: Taking a higher health insurance deductible means that if you are in an accident or suffer a severe illness, you'll be responsible for a larger portion of your care.
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Assess the need for life insurance for yourself and your spouse or significant other. The greatest risk of loss that any family assumes is the risk of loss of life, yet a surprising majority of Americans are uninsured or underinsured for their human life value. In studies done by the LIFE Foundation, a stay-at-home mother's valuable contribution to her family is more than $300,000 a year. When assessing your own life insurance needs, take into account final expenses (a typical funeral costs about $10,000); income replacement to a spouse or survivor who depends on your income; education funding for any children or grandchildren; and debt reduction or elimination for your survivors. A personal relationship with an agent can make the process of purchasing life insurance easier for your family. This may be the most important step you can take toward managing your insurance risks.
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