Have You Mastered These Insurance Policy Basics?

Insurance Literacy: Have You Mastered These 5 Coverage Basics?

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Why bother measuring your insurance literacy? Simple: the more you know, the better able you are to protect yourself, your family, and your largest investments. Test your policy knowledge and learn more with this short quiz.


  1. Your homeowners policy should equal the estimated replacement cost of your home, not the purchase price.
  2. Your homeowners insurance policy covers flood damage.
  3. A solution for people who want extra levels of liability insurance protection above the limits provided by their auto and homeowners policies — protecting finances and family — is called an overflow policy.
  4. Your address may impact your auto insurance rate.
  5. Your life insurance policy should cover 10 times your yearly income.


  1. True.
    It's up to you to choose the policy and limits that meet your needs, but it's best to insure your home for at least 100% of its estimated replacement cost — the cost of repairing or replacing your home to restore its original condition. Estimated replacement cost is different from market value or purchase price. If you select a policy amount lower than the estimated replacement cost, certain policies may be unavailable to you. Periodically review your policy and limits with your agent and notify your agent of any changes or additions to your home.
  2. False.
    Homeowners policies typically exclude flood coverage. Adding coverage may be worth looking into, no matter where you live. According to FloodSmart.gov, more than 20% of all flood claims happen in moderate- to low-risk areas. State Farm® agents enrolled in the NFIP Direct Program are able to write and service flood insurance policies for qualifying homes directly through the federal government program, NFIP Direct.
  3. False.
    A personal liability umbrella policy layers on top of your existing underlying policies to provide extra protection when home and auto liability limits are exhausted. Your agent can help explain how a Personal Liability Umbrella can help ensure that your family and financial health are protected in the event of a covered crash or lawsuit.
  4. True.
    People who live in densely populated areas — noted for higher occurrences of crashes and theft — will likely pay more for auto insurance than those who live in rural areas, where crashes and theft are less prevalent. Other factors that may influence the cost of auto insurance: vehicle type, coverage, and driving record.
  5. False. 
    There is no 'one-size-fits-all' formula for selecting life insurance policies — it's a personal matter.

Want to know more? Enhance your knowledge of insurance by talking to your State Farm agent. Establishing an open dialogue with your State Farm agent is the best way to answer any questions you may have.


Because insurance protection is a contract, any coverage descriptions in this article are general only and are not statements of contract. All coverages are subject to all policy provisions, including applicable endorsements.

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