Does Your Insurance Have You Covered?

by on Mar 21, 2016 Categories: insurance, financial planning, wealth management

Insurance is an important component of any good financial plan. It can be used to help protect both your loved ones and the assets you’ve worked to accumulate. Insurance decisions should be made based on your family’s age and economic situation. Regardless of what types of insurance make the most sense for you, it’s important to understand that all policies carry different terms. It’s even more important that you know the details of your policy to prevent any surprise shortages in coverage that could be costly to you and your family.

While your financial advisor can help you understand the types of insurance that will help protect you and your assets, you’ll need to make sure you understand how policies can vary and that the plan you select provides the appropriate coverage discussed by you and your financial advisor. To find out how policies can differ and what you should lookout for, we spoke with Erin Wells, Personal Risk Advisor at Brown & Brown Insurance.

Insurance 101 - Difference in conditions:

In an Economics 101 course, the key concept is the relationship between supply and demand that determines the cost of goods and services. All else being equal, an increase in supply will lead to a decrease in pricing. This change will in turn bring about an increase in demand, and following an increase in demand, prices will rise. Not unlike a scale, the two market forces balance and check each other in almost every marketplace.

While this simple model presents the base of all transactions, it is important to note that all else is not equal.  No matter the product, there is always a difference in conditions. A customer shopping for a car could buy a Ford Fusion or a Ford Mustang GT, and that is the same choice consumers face with every single product.

In the case of insurance, demand is much more stable. Car insurance is required for all drivers, and homeowners insurance is purchased by nearly every property owner. With demand remaining stable, there is a misconception among buyers that all home insurance programs are alike, as long as you have the same coverage limit. For example, a house insured for $500,000 under one policy is the same as another as long as the limit is the same...this is incorrect. There are stark differences between home insurance programs. The basic home insurance policy, formed by the Insurance Services Office (ISO) provides a basis for which most home insurance policies are formed. However, all insurance companies add their own policy language and coverage options to form their specific home insurance policy and no two are exactly the same. 

To illustrate the difference in conditions, here are several variances between the ISO Homeowners form and more comprehensive coverage forms from other insurance carriers.

Clearly, there is variation between coverage provided by carriers and this is just a small sample. You would not see these differences by just comparing limits on a policy declarations page. Two insurance companies can provide a quote for coverage with the same limit of coverage shown, however the actual coverage provided might differ drastically. Do you know what your policy really provides? Do you know the difference in conditions? Communicate to your agent what your coverage needs are, because in the event of a loss, being properly covered is everything.