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Having the right insurance policies in place can soften the blows from unexpected events that would otherwise mean financial catastrophe for you and your family. But if you're like many people, you may not fully understand all the policies you have, let alone whether they're adequate to meet your needs.

As part of your annual financial checkup, here are some tips to help you assess your current coverage and decide whether you need to make any changes.



Home Is Where the Risk Is

Homeowners insurance may protect you financially in the event of everything from natural disasters to household mishaps. But as millions of homeowners affected by Hurricane Sandy found out the hard way, standard homeowners insurance doesn't protect you against every type of danger.

One of the most common mistakes people make about homeowners insurance is thinking that it covers flood damage. But typical policies specifically exclude flood damage from their coverage. To get flood protection, you have to obtain additional insurance from the National Flood Insurance Program. Similarly, in earthquake-prone areas, you may need to get special earthquake coverage added to your policy, or else it won't necessarily cover damage from a quake.

Even if you have good homeowners insurance, it may not cover all of your belongings. Often, insurers will only cover up to a certain amount for high-value items like jewelry, cash, and artwork as part of their base policies. You'll need to add special provisions for protection above that amount. So if you've obtained any particularly valuable items in the past year, talk to your insurance company about what you need to do to get them covered.

A Matter of Life and Death

The reason we need life insurance is something no one likes to think about, but a policy can be invaluable in providing for your family if something happens to you. Even if you already have coverage, though, doing an annual insurance checkup can lead to cost savings.

As life expectancy has risen over the years, prices of term life insurance policies have generally fallen. So for instance, if you bought a 20-year term life policy 10 years ago, you may find that rates have fallen enough that obtaining a new 10-year policy could actually be cheaper than continuing to pay to retain your existing coverage.

The major area where people make insurance adjustments is in how much coverage to have. Family events like getting married or having a child can boost your insurance needs, so talk to your agent about whether your current policies provide enough benefits to overcome the financial burden your family would face if something happened to you.

Taking a Healthy Interest

Another area where a beginning-of-the-year review makes sense is in health insurance. By now, you should have most of your 2012 medical bills in, and looking at what you spent on health care over the past 12 months can give you valuable information about what type of health insurance is best for you.

Many people pay for expensive insurance plans even when they never use the vast majority of the benefits they provide. By looking at your expenses now, you'll be ready the next time open enrollment season comes around to make smart decisions about your health insurance choices -- potentially saving you a boatload in insurance premium savings while still getting the same benefits you currently use.
What Are Your Wheels Worth?

Auto insurance is expensive, but it's vital to protect you from liability and injury in an accident. Still, you can produce substantial savings by making regular adjustments to your coverage.

One of the easiest ways to save big comes from dropping collision and comprehensive coverage from your policy. Typically, when you have a new car, having collision and comprehensive coverage is smart to protect you from a major loss. Yet as your vehicle ages, the value of collision and comprehensive coverage goes down. Giving that coverage up once your vehicle's value drops below a certain point will produce noticeable monthly savings that you can apply toward a new vehicle or other savings goals.


You can follow Motley Fool contributor Dan Caplinger on Twitter @DanCaplinger.