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Every December, people do the same rituals: They check their credit card rewards, swear they’re finally going to tidy up the garage and promise they’ll eat fewer cookies in January (not to mention resolve to go to the gym and get those rock-hard abs). Oh, and lose weight — maybe that goes without saying.
But there’s one year-end task that matters a lot more than resolutions you probably won’t keep for long, and it should take less time than you think: review your insurance.
If that sounds boring, consider this: Insurance is the thing you buy hoping you’ll never need it. So if you do end up needing it, you want to be very sure it still fits your life — not the life you had three, five or 10 years ago. As you know, change is inevitable.
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Let’s walk through the year-end insurance check. It’s simple, it’s mostly free, and it can save you from nasty surprises and unnecessary heartache.
Do a quick ‘life change’ scan
Before you open a policy, take two minutes to ask yourself: “What changed this year?”
Common changes that should trigger a review:
- You bought or sold a car, RV, boat or e-bike
- You remodeled, added solar, built an ADU (accessory dwelling unit) or upgraded the kitchen or bathroom(s)
- You started working from home full time or launched a side business
- A child started driving, moved out or moved back in (check gray hairs)
- You got married, divorced or combined households
- You traveled more, rented out your home or made it available for renting via Airbnb or a similar service
- You adopted a dog (especially certain breeds) or added a pool/trampoline
Insurance follows risk. If your risk changed, your coverage needs to as well.
Homeowners: Confirm your coverage actually matches the rebuild cost
Most homeowners assume their dwelling limit (called Coverage A) is “whatever online searches show my house is worth.” That’s not how it works. Not even close.
Online sites such as Zillow show what they consider to be your home’s market value. Insurance is about rebuild cost. In many areas, especially where labor and materials have spiked, such as after a large disaster, rebuild costs will be way higher than what you or anyone ever thought they would or could be.
Think of Coverage A like the foundation of your policy. If it’s wrong, everything built on top of it is shaky.
Homeowners: Look hard at your deductibles
Deductibles, especially when listed separately for wind, hail or wildfire, are where you take on more risk yourself.
Two things to review:
- Your standard deductible or percentage
- Any separate percentage deductibles for other types of events
A 2% wildfire deductible on a $1 million dwelling limit is $20,000 out of pocket before the policy pays a dime. Many people don’t realize that until it’s too late.
If a claim happens tomorrow, could you comfortably write that check?
If not, fix it now, not during a disaster.
Homeowners: Spot the silent gaps
Policies age. So do your assumptions. Here are common year-end blind spots:
Ordinance or law coverage. If you rebuild after a loss, code upgrades can be expensive. Without enough ordinance and law coverage, you pay that yourself.
Loss of use limits. If rents jumped in your area, your additional living expense limit may be too low.
Water backup/sump pump/sewer overflow coverage. These are often add-ons. If your neighborhood floods during heavy rain, check whether you actually have this.
Coverage for jewelry, art, collectibles, firearms, wine, musical instruments. Sublimits are small. If you own expensive items, schedule them.
Your policy is full of “yes, but only up to…” statements. Find those and make sure you understand them.
Auto owners: Confirm that liability fits your current assets
Liability is the part of auto insurance that protects you when you hurt somebody else. It’s also the part where most people are underinsured.
A rule of thumb: Your liability limit should at least match your net worth. If you have more to lose now than when you bought the policy, update it. You’ve worked hard — now protect the assets you’ve accumulated.
Auto liability is cheap relative to what it protects. This is not the place to pinch pennies.
Auto owners: Update usage and drivers
Insurers base your premium on who drives and how much.
Umbrella insurance: Consider this
Umbrella insurance is the extra layer above home and auto liability. It’s one of the best bargains in insurance, but only if the underlying policies are set correctly.
If umbrella insurance is the roof, home and auto liability are the walls. Don’t leave gaps between them.
The final step: Document everything and put it on the calendar
A review that lives in your head is a review that disappears by February.
What you can do:
- Write down what you checked and what changed
- Save current declarations pages in one folder
- Set a reminder for next December
- Email your agent a short list of updates or questions
Insurance isn’t a set-it-and-forget-it prospect. It’s set-it-and-review-it-regularly.
Want to learn more about insurance? Visit icgs.org.
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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
