Personal Finance
Top 10 insurance tips
January 23, 2001: 10:52 a.m. ET

Experts suggest reviewing coverage yearly. Here's what to watch for.
By Staff Writer Alex Frew McMillan
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NEW YORK (CNNfn) - Insurance pros recommend giving your coverage a once-over every 12 months. The start of the year makes a good time. Are you paying too much? Or would a disaster wipe you out?

Being underinsured could leave you facing huge bills, or unprotected from a nasty lawsuit. Being overinsured means you're throwing money away.

  A rare event that would really kill you is the best to insure.  
  Bob Hunter
Consumer Federation of America
The best way to shop is to get as comprehensive a policy as possible, insuring against unlikely but costly occurrences, according to Bob Hunter, director of insurance for the watchdog group the Consumer Federation of America.

"A rare event that would really kill you is the best to insure," he said.

Coverage will be cheap, since calling on it would be rare. But it would save you.

    Credit insurance mainly ends up protecting the creditor, insurance pros say -- and is very expensive. "A lot of this stuff is totally unnecessary," insurance agent Don Beery said. Get good life insurance instead.
On average, you'll only get back 60 cents to 65 cents of every dollar you spend on insurance, he said. So insuring for every little possibility isn't worth it.

And the best way to save money is to shop around. That's really Rule No. 1, Hunter said and the reason to check your coverage once a year. Prices and the best deals change.

Five ways you may not have enough coverage

The trade association the Independent Insurance Agents of America developed the following checklist to help you consider your coverage.

Are you underinsured?

1. Do you own a business in your home? An IIAA study found that at least 60 percent of work-at-home entrepreneurs are underinsured. Most thought their homeowner's policy was enough to cover their business. But a typical homeowner's policy only covers up to $250 of computers used off-site and it doesn't cover the cost of lost data.

Don Beery, vice president of Eustis Insurance in New Orleans, noted that some companies offer special endorsements for certain types of business, such as dance studios. And he said people who work from home should be able to find a stand-alone home-business policy for around $250 a year, with $20,000 in business protection and $1 million in liability. Business visits aren't normally covered by homeowner's liability so stand-alone coverage could be valuable if you have a lot of work-related callers.

2. Do you have valuables or collectibles? Standard homeowner's policies cover the contents of a home up to half the value of the house, as well as home liability. But most policies have limits on the amount they'll pay out for different categories of goods $1,000 or $2,000 on jewelry, for instance, or $2,000 on firearms. Those caps tend to be rising, so shop around.

The IIAA recommends considering an "endorsement," or add-on rider, to your homeowner's insurance to protect valuables or a collection. An endorsement is normally cheaper than a separate policy. Beery noted that after Christmas, collectors have often added to their holdings and may need to reassess what they are worth

3. Are you in a high-income bracket? Richer people have more to lose. They may also have more visitors who could get injured. Insurance pros recommend an "umbrella" policy that can cover you for a serious financial loss of almost any kind. It offers extra coverage beyond your underlying homeowner's or car insurance, which you must get first.

A good policy costs as little as $150 per $1 million in liability coverage and would protect you for car- and home-related claims. Some very wealthy people have policies up to $5 million. Hunter at the CFA calls umbrella policies the best kind of coverage to have low-cost, high protection.

4. Do you have replacement-cost coverage? This coverage is more expensive around 10 to 15 percent more than a conventional "actual cash value" policy. But replacement-cost coverage will pay to replace an item with one of similar quality, even if it has depreciated since you bought it. It's sometimes called "new-for-old" coverage.

Actual cash-value policies pay out only the value after it has depreciated. So you can easily make up for the higher cost of the policy by having to replace a few items. Beery, for instance, had a small kitchen fire but his "new-for-old" coverage meant he was covered for new knives and appliances.

5. Do you have children in college? Your homeowner's policy covers children staying in dorms, but not if they rent an apartment. The IIAA states 80 percent of college kids don't have insurance to cover property at school.

Hunter notes that if they're dependents, children should still be covered at 10 percent of the parents' property insurance, just as with coverage that normally applies for possessions away from home. But that may not be enough to protect expensive computers and the like. "It's less necessary than the other kinds of insurance," Hunter said, but worth thinking about. If your child moves abroad to study, it's worth reviewing health-care coverage, too. The local national health service may cover your kid, but your health care may not. First World countries should be OK, Hunter said. But repatriation policies might be good from a country with poor care.

But maybe you've got it too covered

Insurance companies aren't always as scrupulous as they can be in selling you new policies. So it's worth checking if you're overinsured, too.

The IIAA says you might be overinsured if:

6. You've bought travel insurance. Any employer-sponsored health insurance plan likely gives you broader health and disability insurance than you'll get buying travel insurance. And your homeowner's policy should cover baggage insurance, under the 10 percent protection for possessions away from home. Most short-term policies are costly and unnecessary, according to the IIAA.

7. You buy credit life insurance. This coverage, which kicks in on credit-card debt or furniture debt in case you die, really serves to protect the creditor, not your beneficiary. Hunter at the CFA said mortgage insurance falls in this category too. Insurance pros say you're better off getting a good life insurance policy to cover your estate. "If you're the breadwinner, you need life insurance, because you have a dependent," Hunter said. "You shouldn't buy [insurance] a squeeze at a time, like toothpaste."

8. Your deductibles are too low. A $100 or $250 deductible is probably too low. Why not raise the deductible to $1,000, which will likely cut 10 to 20 percent off your cost? "You're really buying insurance to cover major kinds of things that would destroy you financially," Beery said. You could then use the savings to buy an umbrella policy giving you $1 million or more in liability coverage. Or, like Hunter, you could find the difference in cost in raising your premiums, raise them, then set the difference aside in a separate account. You'd "self-insure."

9. You have computer insurance. A standard homeowner's policy will cover basic computer equipment at your home, for personal use. A standard policy insuring your home for $100,000 will cover up to $50,000 in personal property, the IIAA said. But a homeowner's policy typically covers business computers up to $2,500. Again, an endorsement is likely a better buy than a separate computer-oriented policy.

10. You have policies with numerous companies. Many insurers give discounts for combining family policies or for having your car insurance, homeowner's insurance and any coverage all in one spot. That might get you a 15 percent discount. You may also qualify for a discount for having a good driving record or for installing theft deterrents on your home or car.

However, it's not always the case that going with one insurer is cheaper. Hunter pointed out that using an agent isn't always the best deal, either he recommends getting a quote from an insurer such as Geico or USAA, both of which sell direct to the public, as well as a couple of agencies.

Hunter reiterated Insurance Rule No. 1. "The most important thing is shopping," he said. "Some companies are charging double what other companies are charging." graphic