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Insurance Coverage Guide

I have found over the years that many people have not adequately analyzed their  insurance coverage needs and are often times not correctly insured.  This guide is designed to give you a broad overview of things you should think of, and that should serve as a launching point for a more detailed review of your needs.  You should not rely on this as a complete analysis of your own individual needs.

By way of background, we all know that accidents happen and sometimes people are blamed for things which may or may not be their fault.  That is the reason we have insurance.   Whether you are an individual with a young family, a homeowner or a business owner, there is a need to make sure you are properly insured.

  1. Your Home:  As a homeowner, the primary things to insure are your house, contents and liability for injury on the property.
    • Regarding a house, you need to have adequate insurance in case the house is damaged or destroyed, usually by fire, wind or water.  Also, if someone is injured on your property, you need the proper amount of liability coverage.  For your furniture and contents, most policies start out with an actual cash value formula for determining how much they would pay.  Many times that is far less than the true cost of replacement.  Understanding whether you have actual cash value coverage or replacement cost coverage is important.
    • Typically you will want full replacement cost coverage for both the structure and contents, and liability coverage at a minimum of $300,000.00.
    • Your homeowner’s policy also has a provision for covering medical bills if someone injured on your property.  That typically would involve someone suffering a fall or perhaps a recreational injury (a game of touch football, for example).  In this situation, having medical coverage for at least $10,000.00 is advisable.  If available, you might want to consider increasing that amount to $25,000.00 given the cost of rising healthcare.
  2. Your Car:  Regarding your car, there are many parts of coverage under your policy which are important to understand.  Those generally are:
    • Collision Coverage:  This covers the value of your car if you are involved in an accident.  It is usually based upon the fair market value of the car, normally determined by a Kelley Blue Book or NADA valuation.  Related to this is gap insurance.  If you have borrowed money to buy or lease the car, and then the car is completely destroyed, sometimes you end up owing more than what the car is worth.  Gap coverage ensures that any loan or lease on the car will be paid in full.
    • Liability Coverage:  This is the amount of money the insurance company will pay someone else if you are the cause of an accident and injure someone or damage their car.  You want to make sure you have sufficient coverage  if you cause a serious injury, and the person sues you.  If you only have the minimum coverage ($25.000.00), and you cause a serious injury, the person will not only get that insurance, but they can come after you and your personal assets.  Thus, as you get older and acquire more wealth, you have more to protect and you need larger amounts of insurance.   As the amount of insurance coverage increases, the additional cost is calculated at a lesser rate because the likelihood of the insurance company paying out those larger sums is smaller.  This, it is not as expensive as you might think.

      In this modern day, you should probably have at least $100,000.00 of coverage and the more assets you have, you may readily find that you should have at least $250,000.00 or even $500,000.00 in coverage.

    • Medical Pay Coverage: On your auto policy, you also have a medical pay provision that says if you are in an accident, your medical bills will be paid. Often times, that may only be a $5,000.00 or $10,000.00 benefit. You should try to get that as high as possible, given the cost of medical care. If you do not have high medical pay coverage, you may find your medical bills falling back on general health insurance, which is subject to deductibles and co-pays. Recommended medical pay coverage would be at least $25,000.00.
    • Uninsured/Underinsured: This coverage is often overlooked or minimized and results in unwanted surprises. This coverage protects you if another driver causes the accident that hurts you, leaving you with serious injuries. If that other driver has minimal insurance, then his insurance will only pay the limits of his policy, and you would be left with no ability to recover the full value of damages for those serious injuries. As an extreme example, if you are put up in a hospital for a week or two, or even something severe such as a loss of limb or life, your damages will go uncompensated if the other driver has no coverage. Thus, you should have your own insurance policy limits for underinsured/uninsured the same or perhaps even higher than your primary liability coverage. Thus, if you have $250,000.00 in liability, you should have $250,000.00 in uninsured/underinsured coverage.
  3. Umbrella Insurance: In addition to the above coverage for homeowners and automobiles you might want to consider having what is called an umbrella policy. This descriptive term pretty much says what this policy is for. It is excess protection in the event of a very serious accident that you caused. Often this insurance is issued in increments of $1,000,000.00, and because it is rarely invoked (people are not often injured that seriously), the cost is relatively cheap. You should talk to your insurance agent about this option.
  4. Business Insurance: If you have or are a part owner in a business, you want to make sure you have proper commercial insurance, and you want to make sure that those policies coordinate well with your personal decisions mentioned above. In particular, the umbrella insurance for you, personally, would also cover you in the event you are personally sued for a business matter or activity. Commercial coverage can vary widely depending on the nature of the business, and thus it is beyond the scope of this overview. However, you should talk to us if you have any questions about what the proper scope of insurance coverage is, depending upon the business.

I hope this overview is enlightening and helpful to your overall decision-making process. I urge you to ask me any questions about your particular situation when we meet.