Tips to Spot Insurance Policy Renewal Red Flags
So, your insurance renewal paperwork just arrived in the mail. If you’re like most people, you look at it, assume all is fine, and move on with your day. But what if it isn’t fine? What if you have gaps in your coverage or you’re underinsured? Here are some key areas to look at and nine potential red flags:
- Dwelling Value — Your home is insured for the cost to rebuild after a total loss, so the amount of coverage is different than the market value. Typical costs to rebuild can vary from -$250 per square foot to over $1,000 per square foot depending on local market conditions. More often than not, we find clients are underinsured — sometimes by millions of dollars. If you do not know how your home’s insurance replacement cost was calculated, this is a red flag.
- Liability Limits Below $500,000 — Homeowners liability coverage is inexpensive; consider increasing limits to minimize use of your umbrella policy and to meet underlying limit requirements.
- Low Deductible — Many people are paying higher premiums to be overinsured, with the cost of the lower deductible outweighing any financial benefit. Consider increasing your deductible for premium savings. In some states, insurers will apply a percentage deductible on a higher value home. Some people assume the 2% deductible listed on their policy means they will pay 2% of the loss, but this is a common misconception. A 2% deductible means you pay 2% of your dwelling value before a loss is covered by the insurance company. A $2,000,000 home with a 2% deductible has a $40,000 deductible. Unless the deductible is specific to a catastrophic risk like earthquake or wind, a percentage deductible may be a red flag that you are with the wrong insurance company. Some states it is wind/hail, some hurricane. Broader might be better.
- Split Liability Limits — Split liability limits cap coverage for bodily injury and property damage. An auto policy with $100,000/$300,000/$25,000 in liability is unlikely to provide enough coverage to protect you if you cause significant damages or injuries to others.
- Low Deductible —Physical damage deductibles as low as $100 or $250 typically mean you’re paying a higher premium to carry a lower deductible. Some carriers will surcharge for carrying lower than $500 or $1000 deductibles.
- Multiple States — When you own homes, cars, or other recreational vehicles in multiple states, they should all be listed on your umbrella policy. If any are missing, this is an exposure that could be costly.
- Coverage Limit — If your umbrella liability limit is $5 million or less and your net worth is more than $5 million, it’s a red flag. Our liability coverage estimator tool can give you a preliminary estimate of the liability coverage amount that may be appropriate for you.
- Multiple Effective Dates — Multiple effective dates and billing cycles create an administrative burden for you and increases the chance a bill is inadvertently missed.
- Multiple Agents — If you’re juggling multiple agents, who’s overseeing and coordinating coverage across all states and all insurers? Work with one professional who can offer insurance solutions for all of your exposures.
Lastly, insurance is complicated. If you are not working with a professional who takes the time to conduct a comprehensive, consultative risk assessment, that may be the biggest red flag of all.