Why You Should Give Your Insurance Policies a Checkup

By Geoff Williams

The insurance industry often urges customers to check their policies every once in a while to make sure everything is up to date. While that sounds like self-serving advice -- because you know any conversation with your insurance agent will end with a pitch to buy more insurance -- it's actually a good idea.

As Bill Swymer, an adjunct finance professor at Bentley University in Waltham, Massachusetts, observes: "The No. 1 reason people need to be reviewing all insurance policies is because circumstances change, and you do not want to be left underinsured or paying for insurance you no longer need."

If you bought life insurance when you were married or after your first child was born, and you're now on baby No. 4, you're probably long overdue for an upgrade. Or maybe after you bought a new car, your insurance policy covered you for every possible circumstance. If you're now driving a clunker that isn't worth the gas you're putting in the tank, you are probably vastly overpaying for your coverage. Some other things you might realize in a review.

You Might Catch Mistakes

You probably have a lot of insurance policies -- health insurance, life insurance, auto insurance, homeowners insurance. There may be an error or two or three in one or more of those policies. For instance, Aflac, which provides supplemental health insurance, found in its annual employee benefits study, which surveyed 5,209 employed adults and 1,856 benefits decision-makers at companies, that 42 percent of workers waste up to $750 each year on insurance benefit mistakes.

You Might Find Better Rates

Ken Davidson, co-founder of Dallas-based Eagle Independent Insurance, points out that you may lower your premium if you regularly compare insurance quotes. "Insurance premiums can frequently change for several reasons," he says, citing homeowners insurance as a type you'd want to look at fairly often. The crime rate, for example, could go up or down, changing your rates. You may have purchased your homeowners insurance policy after recent storms inflated rates, and perhaps yours haven't come down but competitors' rates have.

"So only by comparing different policies at every renewal period -- or even more frequently -- can consumers ensure they're getting the best deal at that time," Davidson says.

You Might Find More Assets That Need Coverage

Your life doesn't just change. What you cover does. Leigh Needelman, CEO of Florida Assurers, an insurance agency in Miami Beach, Florida, recalls a client whose diamond ring was stolen in a home burglary. Fortunately, it was insured, and the client was sent a $6,000 check. So the client went to the jeweler to replace the diamond ring. But she wasn't able to replace the diamond ring -- or if she did, she had to kick in a lot of her own money. "When the jeweler was given the check to replace the diamond ring, he advised [her] that the ring had appreciated to $18,000," Needelman says.

Even if you aren't concerned about insuring your engagement ring -- maybe you're single or need a microscope to see the diamond and figure it isn't worth the trouble -- if you've been around a while, you have probably collected some stuff over the years, and perhaps a lot of it is expensive. For instance, maybe you locked in your home insurance rates when your new home was filled with secondhand furniture. If all of that has been replaced with sofas and a dining room table purchased from an actual furniture store, and that 20-inch TV was swapped for a 60-inch set, it may be time to discuss these upgrades with your homeowners insurance agent.

Sure, you'll likely see your rates go up, which is painful, but if a disaster occurs, you'll actually be covered for what you own. According to Liberty Mutual New Beginnings Report, which surveyed 1,936 American adults, fewer than one in five Americans adjust their insurance policy after making a major purchase. Only 18 percent have formal documentation of their belongings, meaning, apparently, that everyone else just makes an estimated guess and stores all the information in their heads. One-third of Americans don't know the value of their household possessions, and almost 10 percent are unaware that they should check to make sure they have enough coverage to protect their belongings from theft or damage, the study found.

You Might Decide It's Time to Bundle

If you have four different policies with four different carriers, you might want to bundle a few. That is, have your homeowners and car insurance with one company, for example. You can often get discounts of at least 10 percent when you start bundling, says David Spencer, a senior vice president at ACE Private Risk Services, which offers insurance for high-net-worth individuals and businesses.

You Might Get Some Discounts

Yes, your insurance agent may talk you into buying more insurance, but at the same time, you may learn that you're due for some discounts. "Homeowners can earn credits on premiums by installing safety devices like burglar alarms, water leak detection systems, battery backups for sump pumps and automatic standby generators. When combined, these credits can reduce homeowners' premiums by 30 percent or more," Spencer says.

Think about that. If you bought a security system months ago, or years ago, and you didn't tell your homeowners insurance agent, you have probably been overpaying on your homeowners insurance for some time.