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| The Basics | Polish up your financial plans
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Spring-cleaning your insurance policies and your retirement and estate plans can get your house in order, put your mind at ease and maybe even save you money.
By Liz Pulliam Weston
In the first part of this series, we concentrated on decluttering and reorganizing three areas of your financial life: bills, credit and rewards programs. Now let's tackle some even trickier (and potentially more expensive) categories of personal finance: insurance, retirement and estate planning.
The three areas have a lot in common: They're not a lot of fun, they cost a lot of money and the benefit may be way down the road, if you get a benefit at all. (You don't really want your life insurance policy to pay off now, do you?) But having these areas of your life organized and up-to-date can have a big psychic reward. Trust me, you'll sleep better at night knowing you've taken care of all this.
Inspect your insurance coverage
The average annual outlay for auto insurance is $821, according to the Insurance Information Institute, while homeowners coverage costs an average $668. Those are a big chunk of most budgets, and you want to make sure your money is well spent. Here are some things to consider:
Raise your deductibles. One of the better ways to save money on insurance is by raising your deductibles. Insurance is best used for catastrophic expenses you couldn't easily handle yourself; if you're using it as a maintenance fund or to fix every little ding in your car, you'll wind up with higher premiums and perhaps have trouble in the future finding coverage. So boost your deductibles to $250, $500, $1,000 or more and keep an equivalent amount of cash handy in a savings account.
Related news and commentary on MSN Money
Check your limits. With all insurance, there's a sweet spot: You don't want too little, but you don't want to pay for too much.- Homeowners. Most homeowners, unfortunately, don't carry enough coverage, as I wrote in "Why 2 out of 3 homes are underinsured." Your policy might not reflect rising construction costs, improvements you've done or valuable recent purchases. Make sure you have enough coverage to rebuild your home if it burns down. If you're not sure, call your insurer and ask for a reassessment, or talk to a local contactor about average square-foot rebuilding costs in your neighborhood. Also check your contents coverage, since many items of value -- jewelry, guns, furs, collections and business equipment among them -- get only limited protection. You may need to buy extra coverage. Once that's done, walk around your house with a camcorder to document all your stuff, and stick the disk or tape somewhere safe: with an out-of-state relative or in a safe deposit box.
- Renters. Some insurance is better than none, of course -- and "none" is what more than half of renters have. That's dumb. Your landlord's policy doesn't cover the cost of your possessions, so if your apartment burns down, you'd be out of luck without your own policy. So if you don't have one, get one; if you have a policy, make sure you still have enough coverage to replace your stuff.
- Auto. Here's where you may need to trim coverage, rather than adding it. Are you paying for medical coverage when you already have health insurance through work? Should you pay for miscellaneous coverage, like towing or rental-car reimbursement, if that's an expense you can easily handle out of pocket? Does it still make sense to carry collision and comprehensive coverage on your beater? (A rule of thumb: If your total premium exceeds 10% of the car's value, consider dropping comprehensive and collision coverage.) Also, are you getting all the discounts to which you're entitled? If you're driving less than you used to, for example, you may be able to win a significant break on your premiums.
- Liability. Liability coverage is what kicks in if you get sued or hurt someone else, and it's a part of homeowners, renters and auto policies. Unless you're flat broke, you probably want to buy more than the minimum coverage offered. A good rule of thumb is to buy liability coverage that's one to two times your net worth. If your current policies don't offer enough, consider adding an "umbrella" or "personal liability" policy to extend your coverage.
- Life. Two decisions are key: Do you need life insurance, and, if so, do you have enough? If you have people who depend on you financially, the answer to the first question is yes; if you don't, it's probably no. The "enough" question is one you'll have to research; MSN's Decision Center on life insurance can help you assess your needs.
Shop around. Yes, it's a pain. But you could save hundreds of dollars, in which case the hour or so you spend chasing quotes will feel like time well invested. Since insurers constantly tweak their premiums and policies, this is an exercise you should do at least once a year.
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