Why a Yearly Personal Insurance Audit Could Save You Some Serious Cash
Short and Sweet Summary: A yearly personal insurance audit allows you to review what’s working and not working in all of your insurance policies. Depending on life changes and circumstances, you may need to add, delete or change coverage. It’s insanely difficult to remember every nuance of every insurance policy so it’s important to set up a dedicated time each year to review your policies and make sure you are getting the most bang for your buck.
Insurance is a necessary evil.
We don’t really want to spend money protecting “what ifs” because for most of us, the “what ifs” never come to fruition. But when the “what if” becomes an “oh shit,” we’re glad we’ve got the insurance to cover whatever catastrophe comes our way.
A yearly personal insurance audit could save you some serious frogskins by adding, deleting or changing policy options.
You’ve suffered enough of a shit storm. Don’t let inadequate insurance coverage ruin you financially. Please take steps to conduct a personal insurance audit to minimize risk and preserve assets as part of your overall financial plan. I know insurance isn’t fun. It’s a mind-numbing, soul-sucking plunge into intimidating minutiae and boring policy declarations. I would rather stick a hot needle in my eye than go over my auto insurance coverages line-by-line.
But I do, and will continue to, review my insurance policies annually. I’ve already added coverage I didn’t know I needed, deleted coverage that no longer served me and saved money by switching insurers.
I recommend doing a personal insurance audit at least once a year to make sure you:
- Have all the types of insurance coverage you need (Life, Health, Disability, Home, Auto, etc.)
- Understand existing coverage
- Remove Unnecessary Coverage
- Add Coverage if Your Situation Changes
- Evaluate other insurance company options
You’d be surprised how much you can save just by getting additional quotes on current policies. Gather all the policy documents related to each type of insurance before you begin to compare your current policy to quotes from new insurers.
HOW TO CONDUCT A LIFE INSURANCE AUDIT
Do you have enough coverage? Do you have the correct beneficiaries listed on your policy? What exclusions apply?
Asking these questions and more will help you determine if you have the proper life insurance in place.
My husband was my life insurance policy beneficiary, so I obviously changed that after he died. But, life insurance companies won’t pay proceeds to minors so I can’t name my kids as beneficiaries. If something happened to me and my kids were listed as beneficiaries, it would force the court to appoint a conservator to act in my kids’ interest, which leads to a whole big probate deal.
(You can avoid probate by establishing a living trust in which an appointed representative controls and/or distributes your assets. An estate planning attorney can help you set up a trust if you don’t have one. Click to read more about trusts vs. wills).
- Reevaluate Your Coverage Amount – Over time, your life insurance needs may change. If your children have grown up, your mortgage is paid off, or your debts have decreased, you may not need as much coverage as you once did. On the flip side, if your income or family obligations have increased, you might need more coverage to ensure your loved ones are adequately protected.
- Compare Term vs. Whole Life Insurance – Term life insurance provides coverage for a set period and is often more affordable, while whole life insurance offers lifelong coverage with a cash value component. If you originally bought whole life insurance but no longer need the cash value or permanent coverage, you may consider switching to a less expensive term policy. Conversely, if you want lifelong coverage or investment options, review if your whole life policy still aligns with your financial goals.
- Check for Policy Riders – Life insurance policies often have optional riders, such as disability waiver of premium, accidental death benefits, or critical illness coverage. During your audit, review if you’re still paying for riders you no longer need. For example, if you’ve built a substantial emergency fund, you may not need a critical illness rider anymore.
- Update Your Beneficiaries – Life events like marriages, divorces, or births may require updates to your policy’s beneficiaries. Ensure the right people are listed, and if your estate plan has changed, consider adjusting your policy accordingly.
- Assess Premiums and Costs – Just as you shop around for other types of insurance, compare life insurance rates regularly. Premiums for new policies may be lower than what you’re currently paying, especially if your health has improved or you’ve quit smoking since taking out your original policy. Also, make sure you’re aware of any premium increases that could occur as your policy ages, particularly with term life.
HOW TO CONDUCT A HEALTH INSURANCE AUDIT
Are you paying for more coverage than you need by signing up for the same health insurance policy year after year with no regard to lifestyle or financial changes?
A personal insurance audit for your health care plan could save you money.
Deductibles are sky-high right now, but if you don’t go to the doctor for anything other than wellness visits or yearly checkups you might live with a higher deductible in exchange for a lower monthly premium cost.
- Compare Premiums, Deductibles, and Copays – This is the most time-consuming but essential part of your audit. Take the time to compare your monthly premium, deductible (the amount you pay before insurance kicks in), and copays for doctor visits. If you rarely visit the doctor outside of preventive care, consider a plan with a higher deductible and lower premiums to save money.
- Review Prescription Costs – Prescription drug prices vary significantly from one pharmacy to another. Use tools like GoodRx to compare prices, and check if a generic option is available. You can also ask your doctor about lower-cost alternatives for ongoing prescriptions.
- Verify Your Doctors Are In-Network – Health insurance networks change regularly. Be sure to verify that your current doctors and specialists are still in your plan’s network to avoid paying higher out-of-network rates. You should also check if any new doctors you’re considering are covered.
- Assess Your Dental and Vision Needs – Dental and vision insurance can add extra costs to your premium, and not everyone needs comprehensive coverage. If you only need routine cleanings or eye exams, check whether you could pay out-of-pocket for these services at a lower cost or if your dentist/optometrist offers a cash discount.
- Explore Health Savings Accounts (HSAs) – If you’re enrolled in a High-Deductible Health Plan (HDHP), you might be eligible for an HSA, which allows you to save for qualified medical expenses tax-free. An HSA can help you cover future medical costs while reducing your taxable income.
HOW TO CONDUCT A DISABILITY INSURANCE AUDIT
I took over running my husband’s business after he got sick. About two years after his death I checked into disability insurance. As the sole breadwinner of the family now, we need to replace my current income if I become disabled.
Different disability policies exist for short-term or long-term disability, but most won’t pay more than 60% of your current income. You can choose policies that payout for five years or until age 65. Widows between ages 50-60 are eligible for Social Security disability based on their husband’s work record and several other factors so it’s important to consider all of the options to recoup your income.
- Compare Benefit Amounts and Waiting Periods – Look closely at your policy’s benefit payout and compare it to your current income. The goal is to replace a sufficient portion of your income in case of disability, but not to pay for more coverage than you need. Additionally, review the elimination (waiting) period before benefits start. Opting for a longer waiting period can reduce premiums, but make sure you have sufficient savings to cover expenses during this period.
- Check for Own-Occupation vs. Any-Occupation Coverage – Disability policies generally fall into two categories: “own-occupation” and “any-occupation.” Own-occupation covers you if you cannot perform the specific job you trained for, while any-occupation means you’ll only receive benefits if you are unable to work in any capacity. Own-occupation coverage is usually more expensive, so ensure you have the right type of coverage for your needs and budget.
- Verify Coverage for Short-term and Long-term Disabilities – Make sure you understand the difference between short-term and long-term disability coverage. If you already have emergency savings, you may opt for less short-term coverage and focus on long-term protection to save on premiums.
- Understand Any Exclusions or Limitations – Disability policies often include exclusions, such as certain health conditions or risk factors. Review these carefully during your audit to ensure you’re not paying for a policy that won’t cover you when you need it most.
- Review Group vs. Individual Policies – If you receive disability insurance through your employer, compare it to individual policies. Employer-sponsored plans often provide less comprehensive coverage, and you may want to supplement with a private plan for more complete protection.
HOW TO CONDUCT A HOME INSURANCE AUDIT
You can typically save money by bundling your home and auto insurance with the same insurance company. If you aren’t getting bundled discounts, please change companies ASAP. Shopping around applies to home insurance, too. It pays to get at least 3 quotes to find apples-to-apples comparisons online items like personal liability and loss of use.
- Reevaluate Your Dwelling and Personal Property Coverage – Ensure that your dwelling coverage reflects the current cost to rebuild your home. If you’ve made renovations or improvements, your home’s replacement value may have increased. At the same time, verify that you’re not over-insuring personal property. Go room by room and update your inventory of belongings to determine if your personal property coverage is too high or too low.
- Review Your Deductible – A higher deductible can significantly reduce your premium. If you have enough in savings to cover a higher deductible in case of a claim, this could be a good way to lower costs. However, make sure it’s a figure you can comfortably afford should disaster strike.
- Assess Coverage for Natural Disasters – Standard home insurance typically doesn’t cover natural disasters like floods or earthquakes. Review whether you need additional coverage based on your home’s location. If you’ve moved to a lower-risk area, you may be able to drop unnecessary coverage and save money.
- Take Advantage of Discounts – Many insurance companies offer discounts for home safety features like security systems, smoke alarms, and deadbolts. If you’ve made any upgrades, be sure to inform your insurer. Additionally, check for bundling discounts if you also have auto or other policies with the same company.
- Check for Changes in Liability Coverage – If you’ve added features like a pool or trampoline, or if you’ve started renting out part of your home, you may need to adjust your liability coverage to protect against potential lawsuits. On the other hand, if you no longer have certain risk factors, you may be able to reduce liability coverage and save on your premium.
- Consider an umbrella policy. Yes, it’s an additional cost, but it could save you thousands of dollars in the long run. If someone is injured on your property they can sue you. Typical home insurance personal liability coverage of $300,000 is mere pennies once a lawyer gets involved. While you may not think you’re worth much or have many assets, lawyers can and will garnish your wages to collect monies due. My umbrella policy of an additional $1,000,000 coverage only costs me $110 per year or roughly $9.00 per month. I’m willing to pay for the peace of mind of my financial well-being.
HOW TO CONDUCT AN AUTO INSURANCE AUDIT
My husband always paid the insurance bills, while I took care of other household bills. We had the same auto policy from the same friend-of-the-family agent for years and years. My in-laws, their friends, and friends of their friends did, too. No one ever seemed to question the rates or coverage. My husband was proud of our “elite” policy that, according to him, was the best of the best.
After I started paying the insurance bills, the policy prices kept increasing. I finally decided to dig deeper into our coverage and find out what was going on. I realized pretty quickly we were paying premium prices alright, but for crappy ass coverage.
The bottom line is, after I shopped around, I saved over $1,300 per year by switching to another auto insurer. Not only did I save money, but I received 5-10x the coverage I had with my “elite” policy. For example, the property damage (per accident) coverage with my elite policy (damage to owned property like fences, garage doors, light poles, etc.) was only $100,000. My new policy covers up to $1,000,000 for property damage and I’m paying less for it!
- Reevaluate Your Coverage Levels – If your vehicle is older, you may not need comprehensive or collision coverage. These cover damages to your car in accidents or other events, but if the repair cost is more than the car’s value, you might consider dropping them. Liability insurance, however, is mandatory in most states and should be enough to cover your assets if you’re at fault in an accident. Be sure to adjust coverage based on the age and value of your car.
- Check Your Deductible – Raising your deductible (the amount you pay before insurance kicks in) is a quick way to reduce your premium. If you have enough savings to cover a higher deductible in case of an accident, this can significantly lower your monthly cost.
- Take Advantage of Discounts – Many insurance companies offer discounts for safe driving records, bundling multiple policies (like home and auto), or installing safety features like anti-theft devices. Review your policy to ensure you’re getting all the discounts you qualify for, and ask your insurer about any new ones that might apply.
- Reassess Your Mileage – If you’re driving less, you might qualify for a lower mileage discount or a usage-based insurance plan that charges you based on how much you drive. Update your insurer with your current driving habits to take advantage of these savings.
- Verify Your Policy for Unnecessary Add-Ons – Review your policy for optional coverages like roadside assistance or rental car reimbursement. If you have a membership with a service like AAA, you may not need to pay for roadside assistance through your auto insurance. Similarly, if you don’t rely on rental cars often, you might consider removing this coverage.
- Improve Your Credit Score. Believe it or not, insurance companies can use your credit score to predict the odds of you filing a claim. You could potentially lower your premium by improving your credit score. See this Consumer Reports article on How Your Credit Score Raises Your Premium.
WIDOW WRAP UP
A yearly insurance audit can save you big bucks.
It’s insanely difficult to remember every nuance of every policy so it’s important to set up a dedicated time each year to review your policies and make sure you are getting the most bang for your buck. Because our lifestyle situations change we can’t expect our insurance to keep providing practical benefits if we don’t update our policies.
You’d be surprised how much you can save just by getting additional quotes on current policies. A great way to save money is to conduct a yearly personal insurance audit to review what’s working and not working in all of your insurance policies.