Addressing Insurance Gaps with Individual Policies

Employer-sponsored insurance at group rates can be a high-value, cost-saving benefit, but the options are often limited to medical, dental and vision, and sometimes varying degrees of life, accidental death & dismemberment and disability coverage. After selecting the coverage that’s right for you from among these group plans, it can make sense to review any potential coverage gaps to make sure you, your family and your assets are protected.

This process generally starts with looking at your property and life insurance coverage. In many states, certain types of property insurance—especially auto and homeowners—are mandated by law, so you will be prohibited from purchasing a car or house without them. On the other hand, life insurance is optional, but it warrants serious consideration as it could help you or your family manage end-of-life expenses and/or replace some of the income of the deceased.

Let’s take a closer look at these common types of insurance available to individuals.

Auto Insurance

An auto insurance policy helps protect you against financial loss in the event of a car accident or theft. After contracting with an insurance company, you’ll begin to pay premiums and, in exchange, the insurance company agrees to cover certain losses as outlined in your policy.

Auto insurance typically provides coverage for expenses in three categories. Check your policy for details and the specific levels of coverage offered in each of these areas:

• Property, including damage to or theft of your car;

 

• Liability, which is your legal responsibility to others for bodily injury or property damage; and

 

• Medical, costs related to medical care, rehabilitation and possibly lost wages and funeral expenses.

 

Auto insurance providers typically allow for customization of policies to best suit your needs and budget. Insurance companies will weigh various criteria, such as your vehicle’s expected annual mileage, safety profile and value, to determine your annual premium. Policies are usually issued for six-month or one-year timeframes and are often renewable. Many providers now offer discounts for individuals with a clean driving record.

It’s worth noting that a personal auto policy will generally cover you and other family members on your policy, whether driving your car or someone else’s car with their permission—and may cover someone who is not on your policy if they are driving your car with permission. A personal auto policy covers personal driving only, such as commuting to work, running errands or taking a trip. It will not provide coverage if you use your car for commercial purposes. There are supplemental plans available for vehicle owners providing ride-sharing services.

Nearly every state requires car owners to carry bodily injury liability and property damage liability, and some states require coverage of medical payments and lost wages for any personal injury to you or your passengers. Other possible requirements include uninsured motorist coverage in case your car is damaged by an uninsured driver; collision insurance for damage when you’re not at fault; and comprehensive insurance, which provides coverage against theft and damage caused by an incident other than a collision, such as a natural disaster. As an option, you can also purchase extra insurance for auto glass.

Lastly, there is something known as "gap" coverage. Collision and comprehensive only cover the market value of your car, not what you paid for it—and new cars can depreciate quickly. If your car is totaled or stolen, there may be a gap between what you owe on the vehicle and your insurance coverage, and gap insurance can cover this amount. 

Homeowners and Rental Insurance

Homeowners insurance: When you buy a home with a mortgage, you will be required to purchase some amount of homeowners insurance, which helps protect your house from various perils, such as damage caused by theft, burst pipes, robbery and severe weather. Homeowners insurance helps protect what is likely your biggest investment and may help you avoid financial hardship by taking on the bulk of costs if your home is damaged or destroyed. Often a single insurance provider will allow you to bundle home and auto policies at a discount.

You can structure a policy to include coverage for your house itself, personal belongings and guests’ medical expenses if they are injured on your property. Mortgage lenders vary in the amount of insurance they require. You may only be required to insure for 80% of the replacement value of your home, for example; however, being underinsured could leave you significantly exposed, especially if you need to completely rebuild.

Some people assume they need coverage equal to their home’s market value, but that value includes the land your house rests on, which will remain even after a catastrophe. As such, you may not need to purchase coverage equal to the full value of your home. An insurance professional can help you determine a coverage amount appropriate for your situation.

While individual circumstances vary, it's often suggested that you purchase enough insurance to cover the labor and materials that would be required to completely rebuild your home, the total of which is called the "replacement value" or "replacement cost." Again, an insurance agent can help you figure out that amount for your home. Mention any unique features to ensure they’re accounted for, and make sure inflation is factored in.

Lastly, when shopping for homeowners insurance, it’s important to inquire about potential supplemental coverage such as sewer backup, earthquake, hail, windstorm and flood insurance. You can also increase coverage on the contents of your home and on most valuables.

Condo insurance: For condominium owners, these policies cover damages within the unit (interior walls, floors and ceiling) and personal property, as well as liability claims, such as someone getting injured in your condo. As with home insurance, many perils are covered by condo insurance, such as fire, theft and vandalism. Some policies will cover your entire condo unit, but that depends on your homeowners association (HOA) master policy.

Renters insurance: If you’re renting an apartment or home, consider renters insurance for your personal possessions. Your landlord should have a separate insurance policy to protect the structure, but that will not cover your belongings. If a fire damages your furniture or an intruder steals your laptop and TV, your renters insurance will help cover your losses, minus your deductible. Liability coverage is also generally included as part of a renters policy.

Life Insurance

While most of us don’t like to discuss worst-case scenarios, we can help protect ourselves by planning for them. A loss of life could leave you or a loved one facing financial hardship; life insurance is designed to lessen the burden on those who survive such a loss.

While you may have purchased a life insurance plan and perhaps an accidental death & dismemberment plan through your employer, these may not be enough to cover the total long-term financial impact should you or a family member pass away, especially if the deceased was earning wages at the time. About 52% of Americans have life insurance coverage,¹ yet 44% say they would feel a negative financial impact within six months if their household’s primary wage earner were to pass away.

Life insurance is broken down into two broad categories:

Term: A term life insurance policy offers coverage for a specific period of time, assuming all required premiums are paid. Because it has a simple goal of paying out a death benefit, it is typically more affordable than permanent life insurance, and it may come with the option to convert to a permanent policy later on. The payout is typically leveraged to help pay off debts, like a mortgage or a child’s education.

Permanent: Permanent life insurance offers coverage for the full lifetime of the policyholder, assuming all required premiums are paid. Permanent life insurance helps you leave a legacy to surviving family members or to a favorite cause. It often comes with an investment component, wherein the insurance company takes a portion of your premium to start an investment account, known as the cash value.

Many people avoid buying life insurance because they overestimate the cost. In 2022, the average cost of a $250,000 term life policy for a healthy 30-year-old is $170  per year, which is significantly less than most would expect to pay.²

The Bottom Line

When making a large purchase, such as a car or a home, be sure you understand your insurance obligations under the law. While life insurance may not be mandatory, think about whether it might be right for you. Many people consider it an essential layer of financial protection for themselves and their families.

Before purchasing any of these policies, do your research and compare both rates and levels of coverage. You might also benefit from speaking with an insurance professional, who can go over your needs and options.

¹ LIMRA, "2023 Life Insurance Fact Sheet:  Life Insurance Ownership Today " Accessed March 7, 2024.

² LIMRA, "2022 Insurance Barometer Study" Accessed March 4, 2023.