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Farmers

Avoid 5 common gaps in insurance coverage

Gayle Bennett
for Farmers
Making home improvements? Be sure to evaluate the changes with an insurance agent and adjust your homeowner insurance accordingly.

If you own a home, you probably have homeowner insurance. And if you own a car, ditto for auto insurance. If you're lucky, your employer provides you with life and disability insurance. But even people who can check all of these insurance boxes might have gaps in coverage that can unexpectedly drain a savings account if a worst-case scenario strikes.

Here are some common, little-known gaps many of us have in our insurance coverage.

Auto: It's not all the same

All states require car owners to have auto insurance, and while some types of coverage are mandatory (e.g., liability, personal injury protection), other types are optional. "Not all auto insurance policies are equal so when it comes to protecting your family and property, take the time to work with a professional to customize your policy with the coverage options that fit your specific needs," says Jeff Reinig, head of personal lines underwriting for Farmers Insurance.

According to the Insurance Information Institute, collision coverage, which kicks in if you have an accident, and comprehensive coverage, which covers damage caused by fire, falling objects, storms, and vandalism, are optional coverages.

Take action: Don't assume you have them; check your policy or talk to an agent to find out for sure.

Homeowner: Undervaluation

Marshall & Swift/Boeckh, a provider of building cost information, found that 60 percent of homes in the United States were undervalued by an average of 17 percent in 2013. If you have made any improvements to your house without updating your homeowner policy, you probably are a piece of this statistic.

"With renovations or any other big changes around the home, it's always a good idea to touch base with your insurance agent to check if updates to your policy are needed. If your renovations significantly increase the value of your home, your previous coverage may not be enough and you may be left with a coverage gap," says Reinig.

Take action: Plan to review your homeowner policy yearly with your agent. Increase coverage and add additional coverage to cover new, expensive purchases and any home improvements.

Homeowner: Where-you-reside loophole

If you have a mortgage, you probably have homeowner insurance, because lenders generally require it as a condition of the loan. But did you know that if you move out of your house while you continue to own it, and then a tornado strikes, a fire starts or a vandal wreaks havoc, your insurance probably won't kick in?

"Most consumers are not aware that if they move to a nursing home or get relocated for their job and have to move, once they stop living there, their homeowners coverage may vanish with regard to the coverage on the dwelling itself," says Bill Wilson, associate vice president of education and research at the Independent Insurance Agents & Brokers of America.

Take action: As soon as you plan to move out, call your insurance agent to switch to right policy and coverage.

Life: Too little when it's too late

Without your salary, could your spouse pay the mortgage? Would the college fund continue to grow? Would your parents be taken care of? "If you have someone dependent on you for something, you probably need life insurance," says Mark Maurer, president and CEO of Low Load Insurance Services Inc., which works with financial planners.

If you get insurance through your company, that policy is likely one to three times your salary, Maurer says. That's great, but it's probably not enough: The American Council of Life Insurers recommends life insurance coverage that is seven to 10 times a person's annual salary.

Take action: Consider purchasing additional insurance to cover the gap. The younger you are when you do this, the lower the premium you will lock in.

Disability: A percentage of salary

According to the American Council of Life Insurers, only 32 percent of workers were covered by disability income insurance in 2013. Even if you are part of that percentage and have a policy through your employer, it might not be as comprehensive as you think.

"Most group disability plans will pay 60 percent of your income up to $10,000 per month. A lot of us would have a hard time living on 60 percent of our income, let alone if we are disabled and we have additional medical expenses," says Maurer.

Also, if you make a portion of your income from commissions or bonuses, those don't count as income for disability insurance purposes. So, if you make $100,000 a year as a base salary, but you make $50,000 in bonuses on top of that, one-third of your income is not protected, even at the 60 percent level.

Take action: Consider supplemental disability coverage, which can fill in these gaps.

This story is provided and presented by Farmers.