Are You Underinsured? Strengthen Your Coverage Before the New Year

As the year winds down, many people focus on financial to-dos — reviewing investments, maximizing retirement contributions, or finalizing tax plans. But there’s one important step that often gets overlooked: making sure your insurance coverage still fits your life. 

Being underinsured — having coverage that’s too low or incomplete — can turn an unexpected event into a long-term financial setback. A quick year-end insurance review can help identify gaps, eliminate unnecessary expenses, and potentially uncover ways to save. 

Auto insurance: Don’t let low limits follow you into the new year

Many drivers carry only the minimum liability coverage their state requires. That might save a few dollars now, but it can cost much more later. 

For example, if you cause an accident that injures multiple people or damages an expensive vehicle, the minimum amount of coverage may fall short. You could end up responsible for uncovered costs. 

If you have a 25/50/25 policy, that means it covers $25,000 per person for injuries, $25,000 for property damage, and a total of $50,000 for bodily injury overall per accident. Your insurance covers only up to its limits — anything beyond that could come out of your pocket. In some cases, that might mean wage garnishment, a lien on your home, or even losing your savings. Certain legal judgments, especially those tied to bodily injury, often can’t be wiped out in bankruptcy. 

It may be beneficial to carry uninsured and underinsured motorist coverage. This protection can be a financial lifeline if you’re hit by someone without enough coverage. According to the Insurance Research Council, 15.4% of motorists, or about one in seven drivers, were uninsured in 2023.¹  

Year-end checklist: 

• Increase liability limits to at least 100/300/100. 

• Add uninsured/underinsured motorist (UM/UIM) coverage if you don’t already have it. 

• Consider an umbrella policy for an added layer of liability protection. 

Homeowners and renters insurance: Time for a fresh look

Winter storms, thefts, and fires don’t take holidays — and neither should your homeowners or renters coverage. This is a good time to verify that your policy still reflects your home’s current value, rebuild value, and any recent renovations or major purchases. 

Also, check whether your policy uses actual cash value (ACV) or replacement cost. ACV subtracts depreciation, meaning your payout for an older roof or appliances could be much lower than what it costs to replace them. 

Year-end checklist: 

• Update your home inventory with photos and receipts. 

• Switch to replacement cost coverage if available. 

• If you don’t already have it, add coverage for high-value items like jewelry or art. 

• And if you’re renting, secure coverage. It’s typically less than $20 per month. 

Life insurance: Revisit coverage after a year of change

A lot can change in a year — a marriage, a new home, baby, or even a career move. Those milestones can alter your life insurance needs. 

Employer-provided policies often cover only one to two times your salary, which may not be enough to maintain your family’s lifestyle if something happens to you. A general rule of thumb is 10-15 times your annual income in coverage. 

Year-end questions: 

• Do you rely solely on your employer’s coverage? 

• Would your current policy replace your income for 10+ years? 

• If you’re a stay-at-home parent, have you accounted for unpaid caregiving? 

Disability insurance: Safeguard your income for the year ahead

Your ability to earn an income is one of your most valuable financial assets. Yet many people enter the new year without adequate disability insurance, leaving themselves exposed if illness or injury prevents them from working. 

Employer-provided short-term disability insurance typically lasts only a few months. A long-term disability (LTD) policy can help replace a portion of your income during a longer recovery period. Would you be able to cover your expenses if you couldn’t work for 6 months or more? 

Add to your year-end review: 

• Understand what your employer covers — and for how long. 

• Explore an individual LTD policy to fill any gaps. 

• If you are self-employed, in a physically demanding profession, or highly specialized field, look for policies that cover both illness and injury and consider riders for inflation protection or own-occupation coverage. 

Umbrella insurance: Explore extra protection for a new year of possibilities

Many people assume their home or auto insurance provides enough liability protection, but that’s not always the case. One serious accident or lawsuit could put your savings, home equity, and even future earnings at risk. That’s where umbrella insurance comes in. 

Umbrella insurance provides an extra layer of financial protection when the limits on your existing policies — like homeowners, auto, or renters insurance — are reached. For example, if someone is injured on your property and sues for $1 million, but your homeowners insurance only covers $300,000, an umbrella policy could cover the remaining $700,000. Without it, you’d be responsible for paying the difference out of pocket.  

But umbrella coverage doesn’t stop there. It also protects against certain claims that standard policies typically don’t,  

such as libel, slander, or false arrest — risks that can arise more often than you might think in today’s connected world. 

So, who needs umbrella insurance?

If you own a home, have significant savings or investments, host guests, own rental property, have pets or teen drivers, consider umbrella coverage as an additional layer of protection. Essentially, if a large lawsuit could threaten your financial stability, an umbrella policy can be a smart and cost-effective safeguard. Remember, you’re not being sued for what you have; rather, you could be sued for what you have taken away from others, such as their work, employment advances or bonuses, and time spent with family. 

Umbrella insurance can be affordable. It’s a small price to pay to help ensure long-term financial protection. 

Consider before year-end: 

• Review your current liability limits. 

• Request an umbrella quote (most policies start around $150 – $300 per year). 

• Make sure your auto and home policies meet the required minimums. 

Health insurance: Know your deductibles before the clock resets

Many health plans reset at the start of the year, so now is the time to make the most of your coverage and plan for next year’s costs. Review your deductible, out-of-pocket maximum, and what’s changing in your plan for the coming year. 

If you have a high-deductible health plan (HDHP), consider opening or contributing to a health savings account (HSA). Funds roll over from year to year and can grow tax-free. 

Before the new year begins: 

• Schedule any last-minute medical, dental, or vision appointments. 

• Contribute to your HSA or flexible spending account (FSA). 

• Review next year’s employer-provided coverage options during open enrollment. 

Pet insurance: Protect every member of the family

Pets are family, and their medical bills can be surprisingly high. A sudden illness or injury can easily cost thousands of dollars. Pet insurance can help manage those expenses and protect your emergency fund. 

Depending on the plan, pet insurance can help cover accidents, illnesses, and even routine care. It’s especially valuable for breeds prone to genetic conditions. If you have a pet but no emergency fund set aside for vet care, or if an unexpected vet bill would strain your finances, pet insurance can be a useful tool to consider. 

What to do before year-end: 

• Compare pet insurance plans by coverage, cost, and exclusions. 

• Enroll early to lock in lower premiums. 

• If you’d rather skip pet insurance, set aside funds specifically for potential vet care. 

Wrap up the year with confidence

Insurance is more than a safety net; it’s a core part of your overall financial wellness. As you complete your year-end financial review, take time to confirm that your coverage fits your life today. 

Not a Mercer Advisors client? We provide insurance advice and solutions as part of a comprehensive financial plan, along with investment management, tax planning, estate planning, and more. When you’re ready to amplify and simplify your financial life, let’s talk.