Ten Tips for Buying the Right Insurance in 2013

Most people buy insurance the wrong way. They buy it piecemeal. They buy a little bit of this here and a little bit of that there. They buy too much in some areas and not enough in others. Then, when there is a serious claim, their insurance coverage often fails them. If your New Year's resolution for 2013 is to fix that, we have some tips that can help you accomplish it.

Homeowners insurance

Tip 1: If Hurricane Katrina wasn't reminder enough, along came Superstorm Sandy in 2012 to remind everyone that homeowners policies do not cover flooding. The policies cover those homes destroyed by fire, and homes damaged or destroyed by a storm. But they do not cover flooding. If you are exposed to any chance of severe flooding, even if you don't live anywhere near a body of water, talk to your agent about flood insurance and check out the government flood insurance website at FloodSmart.gov.

Tip 2: If you work from home even part time, you need to add an endorsement to your homeowners insurance called "incidental occupancy endorsement." Homeowners policies, besides covering your building and contents, also cover personal liability, including liability for guests injured on your home premises. But they do not cover injuries to those who come onto your premises for business purposes. That includes not only businesses that have regular visitors to the home -- such as yoga instructors, piano teachers or day care providers -- it also includes injuries to the occasional visitor, such as a co-worker or delivery driver who's dropping off some work from the office and falls on your icy driveway in the winter and gets injured. No coverage. How much does it cost to add this nifty endorsement? Less than $30 a year. For that small price, it's silly not to have one.

Tip 3: Speaking of liability coverage, be sure to standardize your liability limits on all your policies -- auto, home, cabin, boats, etc. I recommend no less than $500,000. Remember, if you injure someone seriously, you will get sued for all the medical bills, for the lost wages they incur, and for pain and suffering.

Just the medical bills alone can easily reach $500,000 in a serious accident. If you have any income or assets that you are concerned about losing in a lawsuit, add an extra layer of protection on top of your basic policies in your insurance portfolio -- called an umbrella policy -- of at least $1 million or more. A $1 million policy costs about $200 a year. I consider it the best buy in the insurance business.

Car insurance

Tip 4: Most people are underinsured for lawsuits. The most common limit I see is $100,000 per person. That won't even cover the medical bills in a serious accident. The minimum liability coverage that anyone with any assets or income to protect should be carrying is $500,000 to $1 million or more. If your liability limits are low, contact your insurance agent right away and get those limits raised to more realistic figures. Raising liability coverage is surprisingly minimal in cost.

Tip 5: When you raise your liability limits on your car insurance, don't stop. Raise your limits on your home, cabin, boats, snowmobiles, etc., to the same amount. You don't know where the lawsuit may come from. You want the same amount of money protecting you, so it won't matter where it comes from.

Tip 6: Raise your uninsured and underinsured motorist coverage on your car insurance to the same levels as your liability coverage for people you hurt. It's estimated that 10% to 20% of all drivers have no insurance. I guarantee you that these are not the drivers with perfect driving records. Since we can't control who hits us or how much insurance they have or don't have, buying high limits of this coverage is the only way we can ensure that we and the loved ones riding with us get fairly compensated.

Tip 7: Save money by dropping collision and comprehensive coverage of older vehicles you can comfortably afford to replace without car insurance. Make sure you save enough money to make it worth the risk.

Save money on insurance by self-insuring more of the small losses on your vehicles with bigger deductibles. Not only does it save money, but it also reduces the number of small claims you file, thus keeping rates as low as possible now and in the future.

Life insurance

Tip 8: Remember that buying life insurance is an act of love. It's the only insurance policy that you can buy where you are not collecting on it. For a family of four, financial experts recommend that survivors of one parent's death make do with 7.5 times income. I recommend 10 times income. The extra cushion will allow the surviving parent to work fewer hours and spend more time with his or her children. Nothing can replace the emotional loss to the family. Don't compound the pain by adding financial stress to the picture.

Tip 9: For a young family getting started financially, I recommend term life insurance as the most cost-effective way to provide the most money for the lowest premium. Lock in the price for at least 20 to 30 years. And make sure the policy is convertible to a permanent policy, so if at the end of the term you find that you still need life insurance and can't qualify for it medically, you are assured you can convert.

If one spouse is a homemaker, carry at least $250,000 to $500,000 in life insurance on that person. Buy an amount high enough so the surviving working spouse can be more available to the children and still hire replacement services such as a nanny.

Tip 10: It's quite common for employers to provide some life insurance for their employees as a company benefit and at the same time offer them supplemental group life insurance on a payroll deduction basis. What most people don't realize is that the costs for the supplemental life insurance are quite a bit more than a healthy nonsmoker will pay on the open market for the same amount of coverage. The tip here is to not just buy group life insurance because you assume it's cheaper. It probably isn't. In addition, when you leave the company or the company closes down, so does your life insurance.