Watters Financial Services, LLC
The following brief article takes a look at some of the insurance issues associated with gaps in coverage. It is an interesting article for anyone who has questions about their current coverage. If you have questions or concerns regarding this article, please feel free to call my office at 201-843-0044.
Are There Gaps in Your Insurance
Coverage?
Buying insurance is about sharing or shifting risk. For
example, health insurance will cover some of the cost of medical care.
Homeowners insurance will assume some of the risk of loss in the event your
home is damaged or destroyed. But oftentimes we think we're covered for
specific losses when, in fact, we're not. Here are some common coverage gaps to
consider when reviewing your own insurance coverage.
Life insurance
In general, you want to have enough life insurance
coverage (when coupled with savings and income) to allow your family to
continue living the lifestyle to which they're accustomed. But changing
circumstances may leave a gap in your life insurance coverage.
For example, if you have life insurance through your
employer, changing jobs could affect your insurance coverage. You may not have
the same amount of insurance, or the policy provisions may differ. Whereas your
prior employer may have provided permanent life insurance, now you may have
term insurance that will expire on a predetermined date. Review your income,
savings, and expenses annually and compare them to your insurance coverage, and
be mindful that changing circumstances may require a change in the amount of
insurance coverage.
Homeowners
insurance
It's not always clear from reading your homeowners policy
which perils are covered and how much damage will be paid for. It's important
to know what your homeowner’s policy covers and, more important, what it
doesn't cover.
You might think your insurer would pay the full cost to
replace your home if it were destroyed by a covered occurrence. But many
policies place a cap on replacement cost up to the face amount stated on the
policy. You may want to check with a building contractor to get an idea of the
replacement cost for your home, then compare it to your policy to be sure you
have enough coverage.
Even if your policy states that "all perils"
are covered, most policies carve out many exceptions or exclusions to this
general provision. For example, damage caused by floods, earthquakes, and
hurricanes may be covered only by special addendums to your policy, or in some
cases by separate insurance policies altogether. Also, your insurer may not
cover the extra cost of rebuilding attributable to more stringent building
codes, or your policy may limit how much and how long it will pay for temporary
housing while repairs are made.
To avoid these gaps in coverage, review your policy
annually with your insurer. Also, pay attention to notices you may receive.
What may look like boilerplate language could actually be significant changes
to your coverage. Don't rely on your interpretations--seek an explanation from
your insurer or agent.
Auto insurance
Which drivers and what vehicles are covered by your auto
insurance? Most policies provide coverage for you and family members residing
with you, but it's not always clear-cut. For instance, a child who is living in
a college dorm is probably covered, but a child who lives in an off-campus
apartment might be excluded from coverage. If you and your spouse divorce,
which policy insures your children, particularly if they are living with each
parent at different times of the year? Notify your insurer about any change in
living arrangements to avoid a gap in coverage.
Other gaps include no coverage for damaged batteries,
tires, and shocks. And you might not be covered for stolen or damaged cell
phones or other electronic devices. Your policy may also limit the amount paid
for a rental while your vehicle is being repaired.
In fact, insurance coverage for rental cars may also pose
a problem. For instance, your own collision coverage may apply to the rental
car you're driving, but it may not pay for all the damage alleged by a rental
company, such as loss of use charges. If you're leasing a car long term, your
policy may cover the replacement cost only if the car is a total loss or is
stolen. But that amount may not be enough to pay for the outstanding balance of
your lease. Gap insurance can cover any difference between what your insurer
pays and the balance of your lease.
Policy
terms and conditions aren't always easily understood, and you may not be sure
what's covered until it's time to file a claim. So review your insurance policy
to be sure you've filled all the gaps in your coverage. This blog post just starts the discussion. Other possible topics could include Long Term Care Insurance and Disability Insurance as well.
