We all get those renewal statements from our home & auto insurer every year. As we walk back from the mailbox, we may open and peruse the summary sheet, our eyes likely focusing on the price of the premium to see if we’ll be paying more for our insurance coverage. Most of us then probably toss it in a pile of paperwork to be filed or reviewed or maybe even toss it in the “circular filing cabinet” after we make sure our premiums are paid and the ID cards are placed in our vehicles.
For most of us, home & auto coverage is an afterthought and more of a necessary evil than something we really consider. I wouldn’t be surprised if we researched our next TV or laptop purchase more than we do our insurance coverage. But I believe a little homework and a solid understanding of our coverage can be time well spent as knowing our coverage can go a long way toward protecting us from potentially having a really bad day sometime in the future. The reason? Understanding, and properly “fitting” or home & auto policies to our lives can potentially save us thousands if not hundreds of thousands of account-draining, retirement-killing expenses if some unfortunate circumstance were to befall us.
Realizing this and recognizing the need for specialized industry knowledge, I recently sat down with Dennis Neate, Vice President at the Hoffman Group a local provider of commercial & personal insurance services. Dennis has been in the industry 21 years and has been a helpful resource in providing comprehensive answers on the nuances around personal insurance coverage for my clients. His company represents 13 property & casualty insurance providers and works with their customers to tailor-fit their insurance needs with their coverage. We discussed the ins & outs of auto, home & umbrella policies and provided some useful insight as to what we should really consider when purchasing our insurance coverage. (Please note: I receive no referral fees, commissions or compensation of any kind for including Dennis in this article or for any sale of insurance products.)
Dennis is the first in what will be a periodic spotlight of industry specialists in my blog articles, which are intended to provide a deeper dive into specialized topics. As a financial advisor who provides integrated advice families (to my full retainer clients), I believe it’s best to engage specialists for some aspects of my clients’ financial lives. I then coordinate the specialists’ knowledge with my clients’ broader financial strategy with an objective and conflict-free perspective along the way.
So let’s get to it:
Know Your Coverage: Before getting into the weeds on home, auto and umbrella policies, Dennis first emphasized the need for consumers to “understand what they are buying” and to “know your coverage”. This is because no two families are alike and we all could probably use some tweaking to our coverage in order to ensure we have the right fit in the most cost-effective manner possible. This means we must make sure those liabilities that could be “one-offs” (e.g. trampoline in the backyard? boat? RV?) are properly accounted for.
- The Big Picture: First and foremost, folks should understand those numbers on the statement. For example, $100,000 / $300,000 / $100,000” is translated as: In an auto accident that is your fault, after you pay your deductible (the first dollar expenses as noted in your policy), the insurance company will cover $100,000 of expenses per person you could have injured, up to $300,000 per accident (total) and up to $100,000 in property damage.
- Biggest Mistakes: Related to the “know your coverage” point noted above, the biggest mistake people make is aligning their coverage with their personal balance sheets. For example, the “$100,000 / $300,000 / $100,000” limits are probably too low for most families and while it’s well above the State of Ohio minimum required coverage (according to Dennis), it’s the lowest level the Hoffman Group will quote. It seems the $100,000 of liability would quickly be reached in most cases. After that, we are on the hook for all expenses related to the accident and if substantial injuries were involved, this could mean liquidation of retirement accounts, future wage garnishment and other reimbursement mandates that would make for a really bad day.
- Best bets: According to Dennis, people probably have too low of coverage (as noted prior) and too low of deductibles. This means most families should increase their coverage (which would increase premiums) but also increase their deductible (which would lower premiums). This is often the conclusion I come to in working with families and insurance providers in the periodic Insurance Review meeting, which I hold with every full retainer client. In addition, Dennis noted people should keep an eye out for redundant coverage such as having a new car (may already be covered for towing, labor under manufacturers’ warranty), or if they have AAA coverage, which may already cover some expenses also covered in the policy.
- The Big Picture: Overall, you are covered for some dollar amount for:
o “Dwelling” – Should cover the replacement value of your home. This includes the cost to demolish and rebuild your home in the case of near-total destruction from fire, tornado
o “Liability” – covers your liability for injuries to people while on your property including slips/falls, dog bites, swimming pool accidents
o “External Structures” – covers anything NOT attached to your home like a shed, fence
o “Personal Property” – covers the “stuff” in your home like jewelry, artwork, electronics
- Biggest Mistakes: Much like auto coverage, having coverage levels and deductibles that are too low are the most common mistakes. Another one is NOT having additional coverage for backup of sewer & drain coverage, especially if you have lots of money invested in a finished basement. In addition, damage from a flood is NOT covered by homeowners insurance and needs to be a separately purchased policy, usually with very limited coverage.
- Best Bets: People should be aware of the difference between “replacement cost” and “actual cash value” when evaluating coverage. Replacement cost is the dollars it would take to replace your property while “actual cash value” is effectively the “depreciated value” (much lower). For that destroyed 10-year old couch in your home, you probably won’t be going to buy another 10-year old couch, you would buy a new one so you’ll want to be properly covered for “replacement value”. Another recommended attribute is the aforementioned backup of sewer & drain coverage, especially up north with our “man caves” and “media rooms”.
Other Nuggets of Insurance Wisdom
- Consider an Umbrella Policy: Much like I noted in my video blog (http://knwm-llc.com/umbrella), most people should consider adding an “umbrella” policy for liabilities that go above auto and home liability coverage. It’s usually cost effective and can really be a God-send in serious situations.
- Buy From a Broker: While this may seem self-serving, this is my recommendation too. I have purchased from an insurance broker myself because I like the fact I can make a call to a “consultant” first as to what to do (should I file a claim?) before I have to make a call to my insurance company, which could negatively impact my coverage in some cases. In addition, I like having a consultant to help customize coverage for my unique situation and having them “shop” across many insurance providers for the most cost effective solution.
- Package Discount: Typically, it makes sense to bundle your purchase of home, auto and umbrella policies as insurance carriers usually provide a package discount for buying all three. While you may get a cheaper policy by buying auto insurance on-line, your overall insurance expense may still be lower by buying all three policies from one carrier.
Dennis Neate contributed to this article and can be contacted at email@example.com or 330-723-3637.