Give Yourself An Insurance Check-Up

Insurance provides vital protection for you, your family, and your property in the event of a natural disaster, accident, illness, death, or lawsuit -- but only if you have the right type and amount. And what might have been the right insurance five, 10, or 20 years ago may no longer address your family's needs today. That is precisely why the California Society of CPAs (www.calcpa.org) recommends that you give yourself an insurance check-up every year or two. Here are a few suggestions for updating your coverage.

For individuals who have dependents to support, either fully or partially, life insurance is essential. However, many people whose children are grown and on their own still maintain large amounts of life insurance. If no one is depending on your income, life insurance is optional. Unless you have a specific reason for retaining it, such as using it to pay estate taxes, the costs most likely outweigh the benefits and you should think about terminating coverage.

If you put less than 20 percent down when you took out your home mortgage, the lender most likely required you to have Private Mortgage Insurance (PMI), a special type of coverage that protects the lender if you default on the loan. The Homeowner's Protection Act of 1998, establishes rules for automatic termination and borrower cancellation of PMI on home mortgages. Under this federal law, you can request that your PMI be canceled once you've built up 20 percent equity in your house based on the original property value. (Keep in mind that if your house has appreciated in value over the years, you may have reached the 20 percent equity threshold.) Your mortgage holder is not required to terminate your coverage until you reach 22 percent equity in your home, but as long as your payment record is good, your lender may allow you to cancel your PMI at the 20-percent point.

When you bought that new convertible five years ago, you undoubtedly took out collision insurance to protect it from dings and other damage. Since older cars typically don't have great value, the cost of collision coverage is likely more than the cost of repairing your car. Compare the premiums you pay with what you would get if the car were totaled to determine if collision insurance is worthwhile. And you'll pay less for car insurance if you take the highest deductible available.

Many homeowner's policies guarantee to pay actual cash value for your losses. If you're young and strapped for cash, that can sound pretty good. But the truth is, if your home burns down, you won't get the full rebuilding price. If possible, upgrade your coverage to replacement cost, which provides for the full cost of replacing your home and its contents up to the dollar limit of your policy. Better yet, guaranteed replacement cost coverage pays the full amount even if it exceeds your policy's face value. To keep your premiums as low as possible on a homeowner's policy, opt for the highest deductible you can handle.

Have you joined the millions of Americans working from a home office? If so, talk to your agent. Most conventional homeowners' policies cover business property on a limited basis, so you may need additional coverage. Ask your agent if you can add to your homeowner's policy an "incidental business option" rider that includes protection for office equipment and general liability coverage for your business.

Have you acquired fine artwork, valuable antiques, or expensive jewelry and furs? If so, you should consider purchasing a separate rider to insure these big-ticket items since most homeowner's and renter's policies limit coverage for high-priced property.

The advice here is simple. If you don't have it, get it. While most people are diligent about insuring themselves against the cost of healthcare and loss of life, fewer recognize the need to insure what is likely their most valuable asset -- their earning power. Disability insurance pays you a monthly income if, due to an accident or sickness, you are unable to perform a suitable job.

Many people take out insurance policies, renew year after year, and never update or change them. If you want to be sure that your insurance protection remains in line with your needs, you should review your policies periodically.

In accordance with IRS Circular 230, the information on this website is not intended or written to be used, and cannot be used as or considered a "covered opinion" or other written tax advice and should not be relied upon for the purpose of avoiding tax-related penalties under the Internal Revenue Code; promoting, marketing, or recommending to another party any transaction or tax-related matter(s) addressed herein; for IRS audit, tax dispute or other purposes.