Every year, you should be reviewing your property and casualty insurance policies.
“P&C (property and casualty) reviews often get overlooked until something catastrophic happens,” said Judson Meinhart, a certified financial planner with Parsec Financial. “They can also be a great opportunity to save some dollars if you're paying for additional coverage you don't really need.”
What should you review?
Higher deductibles: “The thing I see most often is a deductible that is too low,” said Matt Stephens, a certified financial planner with AdvicePoint. “As part of our planning process, my clients usually have an emergency fund large enough to cover any deductible so increasing it even from $500 to $1,000 can make a huge difference in the premium.”
Others agree. “Because there are often negative side effects from filing a claim, it usually makes sense to use the highest deductible you can stomach,” said Randall Lee, a certified financial planner with TrustCore.
Full replacement: For homeowners policies, we always want to ensure the policy can cover the expenses of fully replacing your home -- not just the current value of the home, said Meinhart.
It is not uncommon that consumers' homeowner's policies have insufficient dwelling coverage, said Kevin Gahagan, a certified financial planner with Private Ocean. “It is essential that coverage be sufficient to cover the expected cost of rebuilding on a per-square-foot basis,” he said. “In many cases, consumers believe that the ‘extended replacement cost coverage’ most policies offer will cover them if rebuilding exceeds the stated amount of dwelling coverage. However, extended coverage only applies if the dwelling is insured for fair market rebuilding costs. If this is not the case, it is quite likely that a claim will be paid at less than 100 cents on the dollar -- a circumstance we often hear about following catastrophic events.”
Along with basic dwelling coverage, Gahagan said it is important to understand what limitations and coverage the policy does provide. For example, how much extended replacement cost coverage is provided, what level of deductible is being applied, etc.
In addition, you may need to increase your coverage if you’ve made substantial improvements to the property. “They need to be sure that their coverage keeps up with any increases in the value of the property,” said James Shagawat, a certified financial planner with AdvicePeriod.
If you made material improvements or additions since your coverage was last written, it makes sense to have an agent or representative visit your home and ensure they have it right, said Lee.
Another task to consider: Take photos or videos of the contents of your house, said Lee. “In the event of a loss, the insurance company may require an inventory,” he said. “The photos/videos can help jog your memory and can also serve as proof of your possessions. Don’t forget to also document closets, attics, basements, garage, etc. And store the photos/videos off-site or in the cloud.”
Inflation protection: It’s a good idea to have an inflation endorsement for your home coverage, said Patricia Hausknost, a certified financial planner and an instructor at UCLA Extension’s Certificate Program in Personal Financial Planning. “Building codes may require different construction than the original if you need to rebuild,” she said. “If you have a mortgage, the lender may only require an amount equal to your debt; that may be insufficient.”
Consider additional coverage: Know, too, the unique risks associated with your location and consider flood, hurricane, earthquake, sinkhole, and tornado coverage if you live in areas where this type of weather and events are typical, said Hausknost.
For his part, Stephens said some insurance companies will combine the wind and hail coverage with the regular homeowner's policy for significant savings compared to buying two separate policies. “Many clients don't know about this strategy, especially if they're moving (to warmer climes) to retire from somewhere else,” he said. “So, we're able to help them get lower prices that way as well.”
Got enough umbrella insurance? Personal umbrella liability insurance pays for losses from bodily injury, property damage and personal injury to others beyond the policy limits, according to the National Association of Insurance Commissioners.
“This is some of the best bang-for-the-buck in the insurance world,” said Lee. “This layers on top of the base liability insurance in a homeowners and auto policy.
Most people, however, do not have personal umbrella liability coverage, said Diane Pearson, a certified financial planner with Pearson Financial Planning.
Ideally the amount should be equal to your net worth, said Hausknost. “Many people have a $1 million policy, but this should be reviewed to make sure it is adequate,” she said. “They may need to increase liability coverage limits under homeowner and auto policies to obtain the excess liability coverage.”
Robert Braglia, a certified financial planner with American Financial & Tax Strategies, recommends having a $3 million to $5 million policy, if not more.
Lee also noted that umbrella liability coverage should include uninsured and underinsured motorist protection. “This coverage actually flips the direction of payment for umbrella coverage,” he said. “It actually pays benefits to you if you’re injured, and the other party isn’t adequately insured. Not every company offers this.”
Gahagan said it’s essential that both home and auto maintain the required underlying liability coverage under both the home and auto. “If there is a gap, if there’s less underlying coverage than is required under the umbrella, the gap must be made up by the consumer before the umbrella will pay,” he said. “We also want to know whether the umbrella provides coverage for ‘uninsured/underinsured’ drivers. If not, it will be essential to maximize ‘uninsured/underinsured’ coverage under the auto policy.”
While many property and casualty provisions protect the insured against lawsuits from others when the insured is at fault, one of the most important and often overlooked pieces of your auto insurance policy is uninsured or underinsured motorist, said Clark Randall, a certified financial planner with Financial Enlightenment.
“This provision of the policy protects the insured from his/her injuries and/or property damage due to the negligence of another uninsured or underinsured motorists who is at fault and injures the insured and/or damages his/her property,” he said. “I have seen many clients present auto insurance policies with $25,000 limits on this coverage. That would barely pay for a used car, much less medical injuries from an accident.”
Toys and other expensive items Do you have watercraft, ATVs or other powered “toys”? If so, make sure they have coverage -- most importantly liability coverage -- and be sure your umbrella policy names each one specifically, said Lee.
Also remember if you have jewelry, furs, artwork, or other collectibles you may need special endorsements for that coverage, said Hausknost. “Ordinary coverage amounts may not be sufficient,” she said, noting that your insurance agent will typically require a receipt or a valuation to support the amount you are requesting.
Auto insurance: For those with an older vehicle that is a low value, Meinhart recommends that you consider dropping your collision insurance “since you would likely buy a new car if your ’93 hatchback gets totaled.”
In addition, if you have children who are driving, make sure they are covered as drivers and that their liability limits are adequate, said Shagawat.
Stick with one agency, if possible. Try to keep all coverage with one agent or agency, said Lee. “This reduces the likelihood of something getting missed or having insufficient coverage,” he said.