For this year’s summer project, we reviewed our clients’ property and casualty insurance policies. We review these policies when we first begin working with clients, but a few years can pass, life circumstances can change, and coverage can drift from what a client actually needs. This summer, our goal was to take a fresh, detailed look.

Property and casualty insurance is not always top of mind for clients as part of financial planning, but as wealth grows and folks move further along the retirement pathway, liability and risk management become more important parts of protecting the overall financial plan.

So, what were the common themes we found and areas to potentially improve?

OVERALL

·      Bundling coverage – Some clients had insurance spread out among multiple carriers. There can be good reasons for this: some insurers don’t cover certain geographic areas, sometimes excess liability is outsourced to another insurer, or some risks are specialized to particular carriers. In general, though, bundling insurance is worth consideration because it may reduce coordination issues between insurers and help ensure liability limits are properly aligned. Umbrella policies typically have requirements for underlying auto, home, and other policies, and using the same carrier makes it more likely the agent or broker will confirm coordination between policies.

·      Low deductibles – Increasing deductibles usually lowers premiums, and many clients can afford a larger deductible. It’s not fun to have to pay a few thousand dollars in the event of a loss related to your home or auto, but typically (hopefully!) these instances are infrequent enough that it’s worth the premium savings over the long term. It also prevents you from making small claims that may eventually increase premiums and/or reduce flexibility in switching carriers.

·      More underlying liability coverage than required – Umbrella insurance typically has minimum personal liability requirements for auto and homeowners insurance. We found several cases where the auto and homeowners policies had more personal liability coverage than the umbrella policy required. Lowering this may lower premiums.

Umbrella Insurance

·      Liability limits that may be too low – A frequent comment we had was that liability limits were too low to protect the client’s total net worth, projected income, and other exposures. There can be some other protections against liability depending on the state—ERISA creditor protection, Tenancy by the Entirety titling—but we generally err on the high side for umbrella coverage, for a few reasons:

     o  The potential for market growth to continue increasing net worth

     o  The risk that a small accident happens and you cannot increase your umbrella coverage when you need to (even a speeding ticket can interfere)

     o  Any public visibility of potential wealth, such as the value of a home, a nice car, or a lucrative career

·      No excess uninsured/underinsured motorist coverage – Uninsured/underinsured motorist coverage protects you when you get into an accident with someone who doesn’t have insurance or doesn’t have enough. Your auto policy typically has some (often around $250,000 per person / $500,000 per accident), and excess coverage in the umbrella policy increases this coverage. If you get into a serious accident, your medical bills and loss of income can easily exceed the limits in your auto policy.

·      Unclear overseas liability coverage – Most umbrella policies don’t make it clear whether you have liability protection while overseas. It’s important to confirm this if you travel outside of the US and are renting a vehicle.

Homeowners / Condo Insurance

·      Dwelling coverage that may be too low – We were surprised how often we found this to be the case. Increases in home values, construction costs, and home renovations can sneak up on you. The relevant question is not necessarily what your home is worth on the real estate market, but what it would cost to rebuild it after a major loss.

     o  Related, the intersection between condo master policies and dwelling coverage – Condo master policies can have varying levels of coverage. The lowest level of coverage—sometimes called “bare walls” or “studs out” policies—doesn’t cover damage/loss to drywall, flooring, fixtures, or appliances. Condo dwelling coverage on personal policies was often low, and we didn’t always have the master policies to confirm there was enough coverage.

·      Unclear extended/guaranteed replacement coverage – Especially with potentially low dwelling coverage, extended replacement coverage, or even better, guaranteed replacement coverage, means you can cover a loss even if material costs go up or building codes make rebuilds more expensive.

·      Personal property coverage that looked too high or low – Best practice is to create an inventory for your belongings, though often personal property may be set as a percentage of dwelling coverage by the insurer.

·      No or insufficient water / sewer backup coverage – Standard homeowners policies may provide limited or no coverage for damage caused by water or sewage backing up through drains, sump systems, or septic tanks. For many homeowners, this is an inexpensive coverage worth discussing with their agent or broker.

·      No service line coverage – This covers utility lines (gas, water, sewer, electrical) running to your house as well as pipes leading to a septic tank.

·      Trust owns the home but is not listed on the insurance policy – If you put your home in trust, you need to make sure your agent/broker is aware and the trust is listed on your homeowners policy.

·      Flood insurance – We often hear that flood insurance is not needed because the home is not in a floodplain. Unexpected inundations are increasing flood risk even outside of these areas, meaning flood insurance is something everyone should consider depending on their risk tolerance and lot topography.

Auto Insurance

·      Coverage when renting abroad or via Turo – Your auto insurance will not necessarily cover you if you rent a car outside the country or through a car-sharing app like Turo. You may need to obtain supplemental insurance.

THE BOTTOM LINE

These are not one-size-fits-all recommendations, but they are good prompts for making sure coverage, deductibles, and liability limits still match your current financial picture. If it has been a few years since you reviewed your property and casualty insurance, consider asking your agent or broker for a coverage review – and make sure they know about any significant changes to your home, assets, family situation, or estate plan.

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