Breaking down an annual insurance review to bite-size pieces you can chew
When it comes to wealth management, insurance isn’t the most exciting topic, but it’s important. As our lives change, our insurance needs change. That’s why an annual insurance review should be part of your financial routine.
That review should include taking a look at each type of coverage and doing an updated cost/benefit analysis of coverage options based on your current circumstances. Don’t just automatically renew your policies (often at a higher rate). Be open to exploring new ways to protect yourself.
But who has time for this?!?
Use this overview to get started with your annual insurance review.
Life insurance
The purpose of life insurance is to provide for your dependents if you die. When you’re younger, especially if you have children, you probably need this coverage. As you get older, you may not need as much—or even any—life insurance. Take a look at the coverage you have, the possible needs of your beneficiaries, your assets, and the cost of premiums.
If you are 65 or older and decide you don’t need your policy anymore, you may consider selling all or part of it to a life settlement company. Don’t just let the policy lapse without checking to see if you can sell it, and don’t keep paying for coverage you don’t need.
Another option available for terminally ill policy holders with a life expectancy of 24 months or less is a viatical settlement. That will give you access to a portion of your life insurance proceeds to use as you wish while you are still alive.
Health/medical insurance
One of our greatest insurance expenses is health and medical coverage. You may choose the traditional insurance route, especially if you get coverage through your employer, or you may want to consider a cost-sharing plan. I use Christian Healthcare Ministries, and I’m a huge fan of what they offer.
Your annual review should also look beyond your basic medical to extra coverages like dental and vision. Analyze what’s covered, what your premium and copays are, and what limitations (such as provider choice) apply. And when you become eligible for Medicare, you have a new set of considerations. Check out my article, Medicare Made Easy: Avoid These Common Mistakes.
Homeowners insurance
The homeowners insurance market, especially in Florida, is challenging and always changing. Issues you need to consider before you renew include any changes in the value of your property or the cost to repair/rebuild; changes in the coverage provided; and how much you can afford to self-insure (increasing your deductible can lower your rates).
Automobile insurance
Consider the age and value of your vehicles, whether your driving habits have changed (if you’ve retired, you may be driving less), and who is driving your cars (if the kids are grown and out of your house, they don’t need to be on your policy). Of course, be sure you have sufficient liability protection.
Disability and long-term care insurance
When you’re younger and in your high-earning years and have dependents, you need to be more concerned about protecting your income than when you’re older and moving into retirement. If your employer provides disability coverage, fine. But if you’re buying it for yourself, evaluate how much income protection you really need.
Long-term care coverage is important—but it’s also expensive. What you need is a total long-term care plan. Read my article Beyond Long-Term Care Insurance: Building a Comprehensive Plan to decide the best way to blend insurance with other long-term care plans.
Extended warranties
We don’t always think about extended warranties when we’re talking about insurance, but essentially that’s what they are: insurance on a specific item. Extended warranties typically have a number of limitations on what they cover and the length of time the coverage is in force.
Evaluate your extended warranties both individually and collectively. How much does the warranty cost, what is your potential loss, and what is the likelihood of that loss occurring? Look at your history: how much have you spent on extended warranties versus how much have you recouped or saved by having them? Would you be better off self-insuring for those risks—that is, forgo the warranties and simply pay out of pocket to repair or replace the items?
Get started on your review
The first step in an annual insurance review is the commitment to do it. You might want to recruit some allies, such as your agent, to help you.
Make a list of all the insurance you have and set aside the time to review everything. Use your favorite AI app as an information baseline—ask it to evaluate your circumstances and tell you what coverage you need and what it should cost. Of course, don’t include any personal information that could leave you vulnerable to fraud or identity theft. Then take that knowledge to your trusted advisors and ask them to help you choose the insurance products that are the best fit for you today.
If you have a business, you should do this annual analysis for all of your business coverage.
The bottom line is that an annual insurance review is not fun or exciting. At best, it’s boring. And it could be frustrating. But it’s an important part of your long-term financial health.
