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Why You Need An Annual Insurance Review

When big life events happen, like getting married or renovating your home, you need to update your insurance coverage to compensate. That’s where an annual insurance review comes into play. It’s a comprehensive look at your coverage to make sure your homeowners insurance policy still meets your needs. Learn more about how an insurance review can help you stay financially protected after a mishap.

Why You Need an Annual Home Insurance Review

An annual home insurance review is like a financial health check, ensuring your coverage keeps pace with life’s changes. During this review, you might work one-on-one with a professional insurance agent to discuss your current coverages and identify areas where you might require more or less protection.

There are many reasons to review your insurance policy annually. For example, your home might have changed value because you added on an extension or the market shifted. Or, you might have invested in new, expensive furniture that you would want to replace if there was a fire or other accident. You might even have gotten married or divorced, changing your income and liability regarding your property.

The Benefits of an Annual Home Insurance Review

Conducting an insurance policy review annually has plenty of benefits, including the following:

  • Cost savings: Regular reviews help identify potential cost savings so your coverage aligns precisely with your needs. You can reduce coverages that are no longer needed to lower your premium.
  • Increased coverage: Life changes, and so do your insurance needs. An annual review is your chance to add on additional coverages to reflect any changes in property value, possessions, or liability concerns.
  • Protection against gaps: With an annual review, you can pinpoint areas where you’re underinsured, closing gaps to ensure you’re adequately protected.
  • Better understanding of your policy: Knowledge is power, especially regarding insurance. Insurance policies can undergo updates and changes, and regular reviews inform you about any modifications.
  • Potential policy discounts: An annual review may uncover opportunities for discounts. Your insurance company may offer new discounts or adjust existing ones based on changes in your circumstances, potentially reducing your premium costs.

How Often Should You Change Your Coverage?

How often to change your home insurance depends on your individual circumstances. Here are key situations when assessing and adjusting your coverage could be a good idea:

  • When you move: Moving to a new location often changes property values and potential risks. Reevaluate your coverage to ensure it aligns with the characteristics of your new neighborhood.
  • When your money situation changes: Significant shifts in your financial situation, such as a salary increase, inheritance, or financial setbacks, warrant a review.
  • When you have a baby: Welcoming a new family member, whether through birth or adoption or experiencing other changes in your family structure, requires a reassessment of your coverage.
  • When you improve or expand your home: Renovating or otherwise increasing the value of your home necessitates a review. Ensure your policy covers these improvements and reflects the increased value of your property.
  • When your neighborhood changes: Changes in your neighborhood, such as the construction of new infrastructure or alterations in local risk factors, may impact your insurance needs.
  • When you get married or divorced: Significant life events like marriage, divorce, or retirement can influence your insurance requirements.

How to Review and Update Your Homeowners Insurance

Changing your homeowners insurance is a two-part process. First, you need to review your current policy to better understand how much and what types of coverages you have. Then, after determining any excesses or gaps, you have to update your policy officially. Here’s a closer look at how both of those processes work.

Review Your Current Homeowners Coverage

Regularly reviewing your homeowners policy helps ensure it aligns with your current property value and possessions. This practice guarantees your coverage always reflects your current needs. Use these steps to get started.

1. Determine How Much Your House Is Currently Worth

Property values can fluctuate due to renovations, changes in the real estate market, or improvements you’ve made. To determine your home’s value, consult a professional appraiser, use online valuation tools, or examine recent comparable sales in your area. With a better idea of your home’s fair market value, you can adjust your coverage to reflect what your home is currently worth. Remember that your home’s replacement cost does not include the value of the land. Therefore, the value of your home may be different than what you should insure it for

2. See if There Are Any Gaps in Coverage

Review your policy terms meticulously, paying attention to exclusions and limitations. In particular, look for any areas that might lack protection. For example, you might not have standard coverage for flooding, as many policies do not. This may not have been a problem before, but a big construction project next door has created drainage issues in your neighborhood. Adjust your policy accordingly by adding endorsements or expanding coverage limits as necessary.

3. Assess the Deductible

Your deductible is the out-of-pocket expense you pay before the insurance company foots the rest of the bill. Check your policy for the current deductible amount. Opt for a deductible that balances affordability and reasonable out-of-pocket costs. Choosing a higher deductible generally lowers your monthly premium, but you must pay more if you ever file a claim.

4. Calculate the Value of Your Possessions

Creating a detailed inventory with estimated values of your belongings helps avoid underinsurance. You can use an app, spreadsheet, or even pen and paper to record what your things are worth. When you have everything written down, add it up to find the total worth. With this number, you can know how much personal property coverage you need to replace your items if they’re stolen or destroyed.

Update Your Homeowners Coverage

After thoroughly assessing your coverage, you’re ready to update it. Your insurance agent can help you make these changes. Here are some of the concerns you may want to discuss with them.

1. Reduce the Premium

Insurance companies determine your premiums based on your property’s location, size, construction, and the coverage limits you select. Your deductible also plays a role, as higher deductibles equate to lower premiums (and vice versa). One easy way to reduce your premium is to choose a lower level of coverage or increase your deductible. You might also get a more affordable premium if you bundle policies with the same insurer.

2. Look for Discounts

You may be eligible for discounts if your home has safety features like smoke alarms or security systems. Loyalty discounts for longstanding customers and multi-policy discounts for bundling home and auto insurance with the same provider are also common. To apply for a discount, collect evidence, such as photos of your home’s security system or installation receipts, that show your home meets the insurance company’s requirements.

3. Factor in Your Additions

When updating your policy, consider how additions within your home, like new kitchens, rooms, or basements, may impact coverage needs. Ensure these additions are accounted for in your coverage to avoid underinsurance. While shopping around for insurance, provide detailed information about these improvements to get coverage that reflects the increased value of your home.

4. Consider Your Property

External additions to your property, such as pools, carports, or sports facilities, can impact your insurance needs. When updating your policy, factor in these external features. For example, you may need to add other structures coverage to your standard dwelling coverage.

Things to Keep In Mind Before Making Changes to Your Policy

Before you switch up your policy, consider the following factors:

  • Consider full replacement cost: Full replacement cost includes rebuilding in case of a total loss. This is different than actual cash value, which would only give you the current market value of your items. Evaluating replacement cost coverage ensures you can fully recover from a significant loss without out-of-pocket expenses.
  • Evaluate coverage limits vs. premium costs: Underinsuring your property or possessions to save on premiums could mean you have a more significant share of repair bills. Striking a balance between cost and coverage ensures comprehensive protection.
  • Review policy exclusions and limitations: Be aware of specific risks or items requiring additional endorsements. This helps avoid surprises when filing a claim, ensuring your policy aligns with your expectations and needs.

Putting It All Together

Conducting an annual insurance review can help ensure you have the homeowners insurance coverage you need. It allows you to step back, assess any changes in your life, and make sure your insurance reflects them. In particular, it’s good for reducing costs, filling in coverage gaps, and even scoring discounts. During your review, closely examine your policy, premium, and deductible. If you need more help, partner with an experienced insurance agent for the review.