We have had numerous discussions with clients lately about their homeowner’s insurance. Whether they are buying, renovating, downsizing or their policy is up for renewal, the questions
are similar: Do I have enough or too much insurance; What coverage do I need; How can I save money on the premium; Does it cover me if I’m sued and many more questions.
Let’s start with the basics, what is Property & Casualty (P&C) Insurance? The property part is insurance for the things you own, your home (either a house, condo, co-op or rental); your automobile, personal property. The casualty part protects you financially if you are found legally responsible for bodily injury or property damage to a third party.
How much insurance do I need?
- Home insurance: Most standard policies include Replacement Cost Coverage for your home and other structures, like an attached garage. Replacement Cost means if there’s a covered loss, your insurance company will pay to rebuild your home using materials purchased at current costs, up to your policy limits. It is very important to insure your home for at least 80% of its replacement cost. If you have a loss and your home is insured for less than 80% of its replacement cost, your insurance company may cover less than the full amount of your claim. Review your homeowner’s insurance policy every few years, so you have enough coverage to rebuild at current costs if you have a loss. You can include any home improvements you have made, i.e. new kitchen, any renovation. Also remember that land isn’t part of a home’s replacement cost value and can be deducted from the total home value.
- Car Insurance: Newer cars and financed cars will usually require “Full coverage” which is a combination of liability, collision, and comprehensive insurance that covers both your vehicle and others’ damages. There is a minimum coverage for your state, but higher liability limits like $100k/$300k/$100k (which means $100,000 per person injured, $300,000 total per accident, and $100,000 for property damage) at least will protect your savings and assets if you are sued.
What other coverage do I need?
- For home insurance: It depends on where you live. Do you live in an area prone to fires or floods? Or are you in a high crime area? Do you have other structures? Things not covered on a home insurance policy generally refers to a detached garage, fences, storage and garden sheds, etc. Do you have extensive landscaping, a pool, a deck? All these things need to be listed in order to be covered. And then there is personal property. To know the value of your personal possessions, you best make an inventory and take pictures (and or videos). That way you can show, in case you have to file a claim, how you made your assessment. If you have valuable artwork, collectible items, sports memorabilia, jewelry, or antiques, these will most likely need a separate “rider” on your policy, with a dollar valuation. Getting coverage in a flood or fire prone area is getting more and more difficult. Make sure you are covered at least by government insurance.
- For car insurance: If you have an older vehicle, you might want to drop collision which covers repairs to your car caused by an accident. The value of your car will be so low, that insurance will not probably not pay for the damages. You need coverage for damages you are causing others, liability, medical payments and maybe you want to be insured for uninsured/underinsured motorist, which protects you from others that are not insured.
How can I save money on the premium?
Shopping insurance every 3-5 years might make sense, as rates change and you might find better deals and better coverage. Consider working with a broker who has access to several insurers and can find the best policies for you. There are also ways to discounts on your premium:
- Multiple Policy Discount: If you have more than one policy with the same insurance company, i.e., car insurance, home insurance, vacation home insurance, umbrella insurance, you can usually get a lower rate.
- Higher Deductible: this brings your premium down. You have to assess you can afford to pay of a claim. Unfortunately, nowadays, after you file a claim (or maybe after two), there is a chance that your premium goes up, or if you have made too many claims the insurance company will stop the coverage. Assess how much you are willing to pay yourself in any damages in your home, car or other insurance. You will need to keep that money in savings so that if you have a claim, so that you can cover what the insurance does not.
- Car Insurance: There are multiple discounts available, for example: Multi-Vehicle Discount, Seniors & Over 50 Discount, Defensive Driving Course discount (10%), Student Discount, Pay annual/semi-annual premium instead of monthly Discount. Discuss this with your insurance person.
Does it cover me if I’m sued?
Home insurance and Casualty insurance both have a personal liability coverage, but usually not more than a million combined. That might not be sufficient as you can be sued for all you have. You need to understand what your total “Net Worth” is (your personal assets minus your liabilities) and be sure you are covered for a good portion of that. If your home and car insurance doesn’t cover that, you will have to add an ‘Umbrella’ policy that increases the total liability on the other policies. Not only does your insurance cover the cost of the liability, but it also provides a lawyer that is versed in liability lawsuits.
There are probably more questions we haven’t explored, please contact us if you would like our help.
