September 2018: Part 3-Protection
Property and Casualty Insurance, Umbrella Policies
Rules of Thumb- All of your major assets should be insured against loss. In addition, you should adequately protect yourself and your family from potential liabilities. i.e. lawsuits and similar claims
Reality- Trying to figure out where to go for insurance, how much insurance you should have, and reading through your policies can be very time consuming. Over time, you and your family are an ever changing dynamic (i.e. home, multiple cars, mortgage), requiring you to adjust the type of insurance you have and the amount of coverage you possess as changes in your life occur.
The Basics- Insurance provides protection from the potential chance you suffer a loss of some kind. Insurance is the process of transferring risk from you to the insurance company. For protecting the insured assets and protecting us from potential liabilities, insurance companies require you to pay a fee on a periodic basis, known as a premium. Premiums differ based upon a number of variables, i.e. age, coverage amount, insured object, etc.
It helps to understand what property and casualty Insurance actually means and protects. An explanation of what property insurance is and what it covers can be read further here, Casualty Insurance. In addition, if you would like to learn more about casualty insurance, you can read this Property Insurance. Essentially, property insurance covers our destroyed or stolen assets, while casualty insurance protects our assets from potential liability caused by the insured. Some people misinterpret their insurance policies, they do not fully understand their liability limits, how their insurance company reimburses them and what percentage of their insured asset is replaced. Each insurance policy has their own specific rules, but understanding at what point you become liable for damages and how much your assets are insured is important to know. If you would like a better understanding of insurance liability limits, we recommend reading over Aggregate Limit of Liability. In addition, we recommend reading The 2 Reasons Your Insurance Company Won’t Replace Damaged Property, which discusses replacement value.
Suggestions- A good habit to form is reviewing your coverage and policies on a bi-annual basis or before a major life event occurs, which may require you and/or your family to change insurance coverage completely. For example, if you are purchasing your first home, this would be a time to review your other insurance policies, like your auto and life. The lowest premium may not always be the best option. It is always best to compare policies side-by-side to make sure coverages are the same, the best policy for your situation may not be the cheapest. In addition, it is a good practice to find out the rating of the insurance company that is providing the quote. Ideally, you wanted a company that is A-rated and is adequately reinsured.
How much coverage is the right amount of coverage? Every person has their own unique situation. Ultimately, your coverage should be appropriate for your economic situation. Your property insurance should realistically match the value of the insured assets. Your casualty insurance should be increased as your assets increase. Not to mention your casualty insurance should increase as you have more assets to protect.
If you have reached liability limits with your insurance policies and still have assets exposed above this threshold, then you should consider getting an umbrella Insurance policy. Umbrella policies are essentially blanket liability policies that go into effect after your other property and casualty policy limits have been exhausted.
A final tip for new homeowners: Your homeowner’s insurance usually does not protect you from flood and earthquake. If you are in area that is prevalent to these types of natural disasters, each require their own separate insurance policies.
Life Insurance was not discussed in this article, although may also be an important part of your insurance needs. We will cover that topic in a future newsletter. As always, if you have any additional questions please contact us.