How to Review an Insurance Policy

Insurance policy reviews should be part of a financial plan

A young couple reviews an insurance policy.
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It is important to review your insurance policy on a regular basis. All too often we set insurance policies aside in a file drawer and forget that some items in them need to be updated from time to time. Then when the time comes to make a claim, pay a bill, or renew, we're left scrambling or hunting through files for policy details.

The easiest way to organize and review your insurance policies is to create a one-page summary for each policy. Most insurance policies contain a page in front of the contract that is called a "declarations page" or "policy summary." It will contain most of the information you want to review.

You can also create your own policy summary template on a pad of paper, in a word document, or in a spreadsheet. Writing down the relevant information in your own template can help you understand and remember it. Also, there may be items that the company doesn't include in their summary, and so by conducting your own review you can make it custom.

Here is a simple guide to get you started and organized, as well as a few tips for how to approach a number of different types of insurance policies.

What to Include in Your Review

All insurance policies, no matter the type of coverage, are built on a set of basic elements. Here are the basics to have on hand, and to include in your summary page:

Type of Policy

The first thing you'll want to know at a glance is what type of policy you're looking at. Is it ​health insurance, life insurance, long-term care insurance, disability insurance, property and casualty insurance, or auto insurance? If you are reviewing or summarizing a life insurance policy, specify what type of life insurance policy it is: term life, whole life, universal life, or variable life. The type of insurance may be the title of your file, or a label used to further organize the whole lot once you're done.

Insurance Carrier

What company provides the insurance? Keep track of a customer service number you can call, or the contact information for your insurance agent.

Policy Number 

You will always need your policy number when you call and ask questions about an insurance policy.

Date Issued

It is important to know the date the insurance was issued for a few reasons. First, most policies only cover a certain amount of time. Then when it tolls, your coverage may lapse, or you may need to renew. If you have a bank account linked your payment, renewal might happen automatically. In this case you should know when to expect that charge.

Knowing the date of issue is especially important for life insurance, as term insurance has an expiration date, and permanent insurance will have a surrender charge that may apply if you cancel the policy in the first five to 20 years.

Premium Required

Always keep track of the premium you pay and how often it is paid. In the case of a whole life insurance policy, the policy could be paid up. In that case, if you were creating a policy summary you would write, "No premiums required at this time as premiums are being paid by the dividends inside the policy." For other types of insurance, you might list something like, “Premium of $225 per month paid by automatic deduction from checking account.”

Insured

Who do the benefits apply to: you, your spouse, or a dependent child? If you are looking at home or renter's insurance ask yourself the same question: does the policy cover your roommates? Does is cover your tenants? In the case of car insurance, does it cover other drivers?

Beneficiary

A beneficiary is someone you designate to receive the benefits of the policy in the event that you cannot. Many types of insurance, such as life insurance, are designed specifically for beneficiaries, and not as much for the policy holder. For life insurance, who is the beneficiary? Is your choice up to date? If it is an ex-spouse, a beneficiary designated prior to marriage, or someone who you may have fallen out with, they will receive benefits as long as they are still named on the form. It is crucial to keep this section current. If you need to change the beneficiary, contact the insurance company. You will most likely need to fill out a lengthy form, and prove your identity.

Naming someone in a will or trust will not override the person you select as a beneficiary on your insurance policy.

Review the Details

Once you have all the basics down, you'll want to look at the details of the policy so you have a good sense of how it works. This includes the claims process, billing, and benefits or payouts. You should also note what restrictions may apply. Looking at the details can help you spot areas where you may have duplicate coverage, too much coverage, or areas where you are underinsured.

To conduct a more thorough insurance review, you may wish to make an appointment with your agent. They can walk you through each feature of your policy, and explain when it would apply, how you would qualify, and how much you pay for it. 

Tips for Reviewing Specific Types of Insurance

Since each policy covers a distinct set of needs, each will also have unique features. These may not be included in all forms of insurance coverage, or they may even seem obscure, but will be crucial to your understanding of a specific policy. Below is a brief overview of the details you'll want to review for each type of insurance you may have.

Life Insurance Policy Review

For life insurance, first keep track of the total death benefit. This is the amount of payment that will be made upon the death of the policy holder. Look also for an any additional riders, such as a waiver of premium in the event of disability. Some life insurance policies contain a clause that may allow you to access the death benefit early if you are diagnosed with a terminal illness.

If you have a term policy, put a reminder on your calendar for the year the policy is set to expire. At this time you'll need to assess your options and decide whether you still need the life insurance coverage.

If your policy has a cash value, the company will be using it to invest. You can track how well it performs with something called an "in-force illustration." It is used to project how the policy should perform from now through the rest of your life. You can request this data from your agent, and may be worth the phone call. If the policy has done well, and the forecast looks good, you may be able to forgo premiums. If the policy has not done well, your premiums may go up to keep it in force. When you review your policy on a regular basis you can keep an eye out for these future changes.

Long-Term Care Insurance Policy Review

Long-term care insurance picks up where most health insurance leaves off, and covers things like the cost of living in an assisted living facility, an in-home health aid, or other such needs related to your health after you retire. You should know the “per day” benefit, which factors into the standard of care you can afford to receive on a daily basis. Long-term care facilities charge for housing, food, nurses, and a host of other things that add up, and are tallied into a daily rate. Look also to see how long the benefit would last. For example, your policy may pay $100 per day for up to 500 days in the event that you qualify for long-term care benefits.

You'll also want to know if your policy covers in-home care or only services provided in an assisted living facility.

To be eligible for benefits, most policies require that you need help with two out of six activities of daily living. They will and will have some type of waiting period, such as 90 days or 120 days. The longer the waiting period, the more of your own funds you'll want to have set aside so you can pay out-of-pocket if a short-term care need occurs.

Health Insurance Policy Review

For health insurance, make sure you know your deductible and maximum out-of-pocket costs (often called MOOP). The deductible is the amount you'll have to pay on your own before insurance funds kick in. The MOOP is a limit on how much you have to pay on your own over a full year or term. For example, if the policy has a $3,000 deductible and a $6,000 MOOP cost, you'll want to have $9,000 set aside. An emergency fund or health savings account are good ways to save for that purpose. You'll also want to know the portion of cost that will be paid once insurance kicks in, and whether there are any fees or copays. You might write something like, “policy pays 80% of covered services after I make a $50 co-pay.” 

Disability Insurance Review

For disability insurance, you want to know how much will be paid to you each month, and for how long you'll be paid. It's also worth looking up how the insurance company defines disability. A policy that only pays if you lose an arm and a leg is not very useful for most people. Many disabilities are not of that nature. 

If you work in a field that requires special skills, you may want a policy that protects your ability to perform in your career. For instance, a surgeon needs all 10 fingers; if they were to be injured and lose the use of a finger, they may no longer be able to perform surgery. Perhaps there are many jobs they could still do, but they would be best off to seek out a disability policy that will insure against this specific loss, or at least still provide a benefit for the time it might take to secure a new career path.

Property and Casualty Insurance Review

For property and casualty insurance, take a look at your total coverage and compare it to what you own and to your net worth. As your net worth grows, the amount of insurance protection you have should also increase. If someone were to be injured on your property and sue you, would your coverage hold up? It helps to know what items are excluded from coverage. This type of policy can be complex, since it covers against legal action, so you may want to review it with your agent and adjust coverage as needed.

If you run a business out of your home, be sure to bring this up to your agent as well. Yes, additional coverage may be needed, but it is better to pay a small premium to have things covered than to suffer a devastating uncovered loss.

Once you've done a full review, you'll have a better sense of your security in the case of an accident or event that triggers a claim. Reviewing policies may not be exciting, but it is part of a sound long-term financial planning process.