The process of getting insurance is relatively straightforward and easy. But before you apply for your insurance policies, you must decide how much insurance to buy. The amount you choose can mean the difference between being adequately reimbursed after an insurable incident or not having enough insurance to make you whole.
Defining Underinsured
When you’re underinsured it means that you have too little insurance coverage. This can occur when the limits on your insurance policies are less than the value of the property you're insuring. It can also occur when you don't have sufficient insurance coverage for the risks you face. For example, if you live in a flood zone and have only home insurance then you are underinsured because home insurance won’t reimburse you for losses caused by a flood.
Financial Consequences of Being Underinsured
When your insurance coverage is not sufficient to make you whole after an insurable incident you must take money out of your savings in order to replace the lost assets, repair your home or car, or pay liabilities. If you don't have the money in savings, you may need to liquidate certain investments or dip into a retirement fund, resulting in penalties and tax consequences. If you have no means to pay for replacements and repairs yourself then you may simply have to adjust to life without the items that you lost and lacked sufficient insurance protection for.
Being underinsured sets you back in your financial progress, can put many of your financial goals completely out of reach and forces a complete change in spending priorities that you may not be able to afford.
Avoiding Being Underinsured
It’s not difficult to determine what kind of insurance policies you need and how much coverage to buy for each asset. An insurance agent is a great resource for both determining necessary lines of insurance coverage and proper amounts. On your own, you can think about all the property your family owns and all the risks that could create a loss of that property. Then, research various insurance policies to find out which covers each risk. Finally, determine whether the insurance policies in question pay claims based on actual value, replacement value or another reimbursement formula (such as rebuilding expenses, as with Miami home insurance).
We would love to work with you and review all of your insurance policies to make sure that you are not underinsured. Give us a call at Allstar Direct Insurance & Financial and make your appointment today.
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