An annual financial review is one of the most effective ways to keep your retirement plan and personal finances on track. Taking the time to see where you are, what you did right and what you could be doing better allows you to make the necessary changes going forward.
Your annual insurance review should incorporate more than your stock portfolio and your retirement plan at work. Insurance is an integral part of your financial future, and you need to make sure you still have the protection you need.
Have You Made Any Home Improvements?
If you made any home improvements during the last year, you might need to revisit your homeowners insurance and make sure you still have adequate protection in place. Things like adding an above ground or in-ground pool, building a new shed or garage and remodeling the kitchen or bath can change the value of your home. Since many homeowners insurance policies are based on the value of the property, you may need to adjust your coverage accordingly.
Another option is to add an endorsement for the full replacement cost of the damaged property. Using replacement cost instead of assessed value makes a lot of sense, since building costs and property values often move in opposite directions. The price of building materials and labor may have gone up, even if property values were declining.
Do You Still Have Enough Life Insurance?
If you got a raise at work, you might need to raise your life insurance coverage. Life insurance coverage is designed to provide an income to the family members you leave behind. If your salary has risen, it will take more money to replace that income.
A good rule of thumb is to insure your life at 10 times your annual salary. If your salary went from $45,000 to $50,000 over the past year, that would mean increasing your insurance coverage from $450,000 to $500,000.
What About the Liability Limits on Your Car Insurance?
The liability limits on your car insurance should also be part of your annual financial review. You need to carry enough coverage to fully protect yourself and your personal assets in the event of an accident.
Since you are already reviewing your finances, determining the best level of protection will be a lot easier. Just look at your total assets and make sure the liability limit on your auto insurance policy is at least that high.
Do You Need An Umbrella?
If you have significant assets to protect, an umbrella policy makes a great deal of sense. An umbrella policy provides additional protection, over and above the coverage limits on your homeowners and automobile insurance policies. That can protect you from personal liability in the event of a car accident or an incident at your home in which someone is injured.
Umbrella policies can be quite inexpensive, so there is no reason not to explore this option. You may be able to get a million dollars of coverage or even more for much less than you would expect.
An annual review of your insurance coverage is one of the best ways to protect yourself, your assets and your family. Insurance needs do not remain static over time. They change and evolve as your life changes. Reviewing your coverage once a year lets you stay one step ahead of those changing needs.