Adequacy Of Coverage

View more Business & Finance videos

The adequacy of coverage concerns how well your insurance policies protect your assets against unforeseen losses. In order to evaluate the adequacy of your insurance coverage, you should consider many different loss scenarios and judge whether your insurance deductibles and limits are sufficient.

The concept of adequacy of coverage is subjective, and largely depends on one's propensity to take on risk rather than pay higher insurance premiums. One's ability to absorb losses should also be considered, as a person with very few liquid assets will be unable to pay large deductibles or sustain other uninsured losses. Alternatively, those with substantial assets may wish to obtain higher limits to their coverage to avoid losing the wealth built up over many years. 

Investopedia Says:

When considering adequacy of coverage a four-squared matrix can be used as a rough model for dealing with the four main types of losses: 

1) Frequent expensive losses - avoid these high-risk behaviors because insurance will be very expensive.

2) Frequent inexpensive losses - self-insure for these losses by planning ahead and setting aside funds.  

3) Infrequent expensive losses - buy insurance for these losses.

4) Infrequent inexpensive losses - self-insure, these losses are no big deal.

Related Links:
If your employer is cutting medical benefits, a health savings account may be right for you. Fighting The High Costs Of Healthcare
Don't assume you're insured. Find out what you can expect from this healthcare program. What Does Medicare Cover?
Would your death leave loved ones financially stranded? Find out how to ease your mind and keep them protected. Life Insurance: Putting A Price On Peace Of Mind
No one is immune to the possibility of one day needing long-term care - and the costs can deplete a life savings. Long-Term Care Insurance: Who Needs It?
Accident, theft, vandalism - make sure your coverage will protect you when you need it most. Top Tips For Cheaper, Better Car Insurance
Learn how to save money by saying "no" to unnecessary coverage. 15 Insurance Policies You Don't Need
Do you know why you might need one policy versus the other? Read on to find out. Variable Vs. Variable Universal Life Insurance