Am I Underinsured? How to Make Sure You Have Enough Coverage

Insurance is meant to protect you from unexpected financial losses in the case of a disaster, accident, or lawsuit. But what happens when an accident occurs and you don’t have enough coverage when you need it? Many home and business owners are finding out too late that they are underinsured- leaving them liable for the out-of-pocket costs they assumed were covered.

It is important to understand what being underinsured is, how it happens, and what you can do to ensure you have the right protections in place.

What does it mean to be underinsured?

Being underinsured means your policy does not provide enough coverage to fully pay for a loss. This could happen in several ways:

1. Your home’s replacement cost has increased due to rising construction prices, but your policy limits haven’t been updated. Since February of 2020, the combined effects of the pandemic and the subsequent inflation have caused construction materials to increase by approximately 40.5%.
2. Your business doesn’t have enough liability coverage, leaving you particularly vulnerable to large lawsuits. The increasing frequency and magnitude of lawsuits in the US has created significant concern for business owners. Factors such as third-party litigation funding, legal advertising and solicitation, and nuclear verdicts exceeding $10 million are greatly impacting a business’ liability.
3. Your car insurance has low limits, meaning an accident could leave you paying out-of-pocket. An accident resulting in an injury could cause medical bills to exceed your coverage, plus the added threat of lawsuits and legal fees associated with the accident. Vehicle repair or replacement costs can be higher than your property damage, leaving you to pay the difference.

Common Reasons People Are Underinsured

Many people are unaware they are underinsured until a claim is denied or not fully paid and they are left with a hefty bill. Here’s why this may be the case:

• Inflation and Rising Costs: The cost of materials and labor has skyrocketed, making rebuilding or replacing damaged property much more expensive than before.

• Coverage Misunderstandings: Policyholders often assume they’re covered for everything, but exclusions and coverage caps may apply.

• Not Updating Policies: Businesses grow, homeowners renovate, and equipment values change- but if your insurance stays the same, you could be underinsured.

• Minimum Coverage Requirements: Many people buy the minimum required coverage to save money not realizing it may not be enough in a real-world claim.

How to Know If You’re Underinsured

Ask yourself these questions:

1. If my home or business was destroyed, would my policy cover 100% of the rebuilding costs? Would your personal property coverage offer enough financial assistance after a loss?
2. If I was sued, would my liability limits be enough to cover legal fees and settlements?
3. Have I reviewed my policy in the last year to adjust for inflation and changing needs?

If you’re unsure about any of these, it’s time for a coverage review!

How to Fix an Under Insured Problem

• Get a policy review- Work with an insurance professional to check if your limits align with current costs.

• Increase your coverage limits- Adjust your policy to reflect today’s values and potential risks.

• Consider Umbrella Insurance- This provides extra liability protection beyond your standard policy.

• Update your business coverage- If your business has grown, make sure your insurance has grown with it.

• Check your policy for add-ons- Things like inflation protection and extended replacement cost coverage can help.

Don’t wait until it’s too late!

Being underinsured is a risk you don’t want to take. A quick coverage check can save you from major financial headaches down the road.

Let’s make sure you’re fully protected! Contact us today to review your policy.