Suze Orman: Protect Yourself by Reviewing Your Insurance Coverage
Financial expert Suze Orman is urging people to regularly review their insurance policies, emphasizing that adequate and up-to-date coverage is more critical than ever, particularly in light of increasing natural disasters.
Orman cautions that maintaining active insurance policies is paramount, even if you experience damage to a home or vehicle while making payments. “Your policy must be ‘in force’ when you are making claims,” she said. This is particularly crucial for homeowners with mortgages, as lenders require active insurance to protect their investment.
Understanding the Gaps in Your Insurance
Insurance policies vary in the protection they offer. The details hidden in the fine print can significantly impact your ability to recover from a loss. Homeowners insurance usually includes four primary types of coverage, which include:
- Coverage A (Dwelling Coverage): This protects your home’s structure.
- Coverage B (Other Structures): This covers detached structures like garages or sheds.
- Coverage C (Personal Property): This covers your belongings.
- Coverage D (Loss of Use): This provides for additional living expenses if you are unable to live in your home.
Dwelling Coverage is often the most crucial, determining how much your insurer will pay if your home is damaged or destroyed. However, many homeowners have policies with Actual Cash Value coverage, which doesn’t always provide adequate protection.
Actual Cash Value coverage reimburses the depreciated value of your property. If an older roof is damaged, for example, you would only receive payment for its current worth, not the cost of a new roof. “That’s not good enough as it won’t be enough to cover the current (think about inflation) cost to replace things,” Orman explained.
As repair costs rise, this disparity becomes a serious problem. Homeowners insurance premiums increased by an average of 8.7% per year between 2018 and 2022, according to data from the U.S. Treasury Department, outpacing inflation.
Replacement Cost Value coverage is a better option, and reimburses homeowners based on today’s prices, allowing you to rebuild or replace damaged property affordably. Orman also recommends annual reviews of policy limits, as construction costs continue to rise. “There’s typically a dollar limit to the total value of Replacement Cost coverage,” she noted. Some homeowners may qualify for Extended Replacement Cost coverage, which covers 10% to 25% above the policy limit, providing extra protection when natural disasters drive up the cost of labor and materials.
Auto Insurance Considerations
Auto insurance also presents potential coverage gaps. Many drivers save money by dropping comprehensive coverage. However, if their car is damaged in a storm or stolen, they would not receive a payout. According to Bankrate, the average cost of full coverage car insurance has climbed to $2,638 this year, a 12% increase from 2024 due to higher repair expenses and more claims.
The National Association of Insurance Commissioners reports that approximately 80% of insured drivers carry comprehensive coverage, recognizing its value in protecting against theft, damages from severe weather, and other non-collision incidents.
The Importance of Regular Reviews
Insurance is not a set-it-and-forget-it expense. With the rising costs of insurance coverage and repair, it’s worthwhile to examine your policy annually to ensure you have complete and up-to-date protection.
