In Part 1, I discussed the biggest myths and misconceptions about homeowners and umbrella liability policies. Now, let’s review the ways to close those gaps and get more bang for your policy buck.
Uninsured and Underinsured Umbrella Liability Coverage
Many people are unaware that some insurance carriers provide underinsured and uninsured umbrella liability coverage. These coverages are like your auto policy which cover you if you get into an accident with a driver who has no insurance or inadequate insurance.
Let’s say you get hit by an uninsured motorist while riding your bike in downtown Seattle and unfortunately, the accident kills you or renders you fully incapacitated. If you had uninsured/underinsured coverage, your insurance would have stepped in on the uninsured motorist’s behalf and paid the claim to you or your survivors.
Find the Right Coverage Limits
In some cases, people have unnecessarily high liability limits on their home and auto coverage. For example, instead of a $500,000 liability limit on their home, a homeowner may have a $1 million limit. They could have opted for the $500,000 limit on their home and placed an umbrella policy on top of their homeowners insurance to provide broader coverage for potentially less money.
Real World Examples of Common Insurance Gaps
One of the biggest risks we see among clients relates to their second properties, vacation properties or rental properties. Often those properties are not properly titled or properly insured.
For example, a new client of ours purchased a rental property a year prior to joining Soundmark, and had the property titled in his name with minimal insurance coverage on the property. He assumed the couple who rented his property had adequate renter’s insurance that would cover any damage or liability issues that occurred.
The problem with this assumption is that if anything happened on our client’s rental property – a slip caused by an unlevel foundation, an electrical fire caused by old wiring, or roof damage caused by a wind storm – he would be liable. His personal assets were at risk. To correct the situation, we recommended he connect with his insurance broker and estate attorney to separate the risk of the rental from the rest of his assets. How? By placing the property in an LLC and insuring it with separate homeowners and umbrella policies.
You might be surprised to know that roughly one-third of injury liability claims are the result of dog bites. In 2015, the average dog bite claim was $37,214, per the Insurance Information Institute and State Farm Insurance. However, perhaps you live in an affluent neighborhood and your dog bites the hand of your neighbor, a highly compensated oral surgeon. Do you think the claim will only be $37,214? In a situation like this, proper insurance is key.
Ways to Reduce Premiums Without Sacrificing Coverage
The easiest levers to pull are your deductibles. If you have low deductibles, then your premiums go up. If you have high deductibles, your premiums go down. Insurance companies often believe that if you have low deductibles, you may be inclined to file a claim more frequently, “oh, it will only cost me $100 and I can fix this dent in my car.” But, if your deductible is high, like $1,000, you may be less inclined to file a claim for a minor car repair. You’ll want to keep this in mind when choosing a deductible amount that works for your budget.
Consider Paying Out of Pocket
When it comes to your home, let’s face it – life happens. You should always try to have emergency savings available to cover the little things such as a broken window, a dented garage door, or knocking over your new flat screen TV. If you file too many claims, you could be labeled as a higher risk, and your rates may go up. You might consider replacing that $1,000 television out of pocket instead of running the risk of your insurance rates increasing upwards of $1,000 a year. Here’s a good rule of thumb: use your homeowner’s insurance only when a major event happens such as fire, theft, water damage, natural disaster, or other property damage.
Connected with Experts
If you or someone close to you has concerns about their insurance or personal liability needs, please don’t hesitate to contact us. We can connect you with local insurance brokers to review your coverage to ensure you understand and mitigate your risks.
James Nevers,CFP® is a Senior Advisor at Soundmark Wealth Management, LLC. James works closely with physicians, business owners, directors and executives at Amazon, Microsoft, and Boeing, and other successful individuals to help them define their financial goals and implement an ongoing financial planning process.