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Take A Look At Your Insurance

With the end of the year fast approaching, it may be a good idea to go through a checklist of your insurance needs. Review how much coverage you have for your life, your home, and your car, and determine if that amount is right for your needs. CBS This Morning Money Editors Ken and Daria Dolan help with a checklist of the right questions to ask yourself.

What are some factors that may cause you to re-examine your life insurance?

If there have been any big life changes, you need to update your policies. For instance, you may want to increase your policy if you have had a child, have gotten married and your spouse has children, or if your spouse is going to stop working. You may want to decrease your coverage if your children are out of college and on their own, or if the mortgage is paid off and your debt is gone. Now you will actually be able to save money.

The key is to think about what you want your insurance to do for your beneficiary.

Managing Your Money
Another option: instead of decreasing your policy, you can turn it over into an estate plan or trust so that your children won't have to pay as high a tax on their inheritance from you.

How do you determine how much life insurance you need?

One rule of thumb is five to seven times your gross annual income. But you have to think about a variety of factors. For instance, if you die today:

  • Can your spouse support the family?
  • How much debt do you have?
  • How many children do you have to put through school?
  • What is your income? How much supplemental income needs to be provided if you die?
    Those are just a few of the questions you need to answer. If you decide to talk to an agent, he or she will help you determine your needs.

What factors might make you want to update your homeowner's or renter's insurance?

Check your policy and think about any major life changes or purchases you may have made.

If your adult children move back home and bring in $10,000 worth of stuff, or if they have moved out with $10,000 worth of stuff, you can change your policy to reflect that. If you bought a big screen TV, fixed up your house, or remodeled it, you want to insure those costs so that you're covered if something happens.

Do you have enough insurance to rebuild your home in case of fire or destruction?

To find out how much you would need to rebuild, have your insurance adjuster come out and give you an estimate, and get a contractor to give you a second opinion. This should include labor, materials, and inflation.

Note that the cost to rebuild your home has nothing to do with homuch it may be worth on the market. A home's appraisal and its rebuilding costs are two different things.

Do these homeowner policies cover everything?

Jewelry is usually only covered for $2,000, so you have to insure more valuable pieces separately. The same applies to furs.

For these kinds of valuables you can get a "floater," and that has a few advantages. It has no deductible and broader coverage, and you set the limit so there is no negotiation. For instance, if you spend $5,000 on an engagement ring and have the bill of sale, you can insure it for that amount. If something happens to the ring, you will get a check for $5,000 or a $5,000 ring. If you think the ring will appreciate, then you can set a dollar value to insure it for. Just get the ring appraised regularly.

One thing to keep in mind when you want to cover your possessions is that you should keep receipts and take photographs. As you buy new things, don't forget to update your photographs and your policy.

How do you know if you need to change your auto insurance coverage?

Legally, you need only liability coverage to drive. According to the rule of thumb of the Insurance Information Institute, if you can't get more than $1,000 for your car on resale, then you should drop other coverage. These include collision insurance (the insurance you get to cover any damage to your car), and comprehensive coverage (the insurance for every other kind of loss, such as vandalism or a disaster.

To find out how much your car is worth, check the "blue book" value, ask your insurance agent how much they would pay if it were stolen or totaled, or call a local car dealer to see how much he would buy it for. Now figure out the cost of your comprehensive and collision coverage and subtract that amount. Do you get more than $1,000 back? If so, you might need coverage beyond liability.

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