When I plan a trip, I try to talk to other people who have traveled to the same destination to get tips on places I should visit, things I should do, and places I should eat. When my wife and I took our first trip to Maui a few years ago, a friend told me we had to eat at Mama’s Fish House, located off of Hana Highway (a.k.a. The Road to Hana), and that we should try to make our reservation later in the day so we could enjoy the sunset. Even when compared with snorkeling, our helicoptor tour, and exploring the island, our dinner there ended up being one of the highlights of our trip! The food was fantastic and the sunset was beautifuI. I’m so glad I asked for – and took – my friend’s advice.
Now, I would never try to compare a trip to Maui with purchasing insurance. However, I do have a few recommendations you should consider during the process. These tips will help you make an educated decision and hopefully make your experience a positive and profitable one. Notice that I didn’t say exciting. I’m not that crazy!
The products I’m going to discuss in this article are homeowner’s, automobile and personal umbrella insurance. The primary purpose of a homeowner’s policy is to rebuild your home and replace your personal belongings if a loss occurs. Always ensure that your homeowner’s policy provides replacement cost coverage (RCC) for both your dwelling and personal property. Replacement cost means your insurance company pays the total cost to replace the damaged dwelling or personal property with no deduction for depreciation. RCC treats every covered item needing replacement as if it’s brand new.
The two primary types of homeowner’s insurance are HO-3 and HO-5 policies. An HO-5 policy automatically includes RCC for your dwelling and personal property. HO-3 policies also include RCC for your dwelling, but you must add an endorsement to it to obtain RCC for personal property. Your insurance agent can explain which type of policy you have. There are other differences between these policies that make an HO-5 superior. It’s like the difference between an all-inclusive resort and one that’s a la carte; most companies give you the ability to make your HO-3 policy resemble an HO-5, but you must add additional endorsements to do so.
Additional recommendations regarding homeowner’s insurance:
• Get identity fraud coverage. You can usually add it for a minimal premium.
• Increase your personal liability limit to $500,000 and ensure it includes personal injury coverage.
• Carry a deductible you can afford if a loss occurs, but one that also will deter you from making small claims. A small claim is defined as a loss you can afford to pay for even if it’s covered under your policy. Homeowner’s policies are designed to protect you from a catastrophic loss, not to be a maintenance policy. Usually a $1,000 deductible is your best bet. Some carriers offer a disappearing deductible if you select at least a $2,500 deductible.
• Make sure your policy provides sufficient coverage for sewer and drain water back-ups.
• Ask your agent about loss assessment coverage if you live in a neighborhood that has a homeowner’s association. This type of coverage is usually very inexpensive and can potentially save you thousands of dollars.
• Homeowner’s policy don’t cover earthquake or flood damage; adding either requires an endorsement or separate policy.
There are many aspects to an automobile insurance policy. The part I want to highlight here is uninsured/underinsured motorist (UM) coverage. When reviewing your automobile insurance, make sure your UM limits are equal to your liability limits. Last year, the Insurance Research Council (IRC) reported that nationally 1 in 6 drivers was likely uninsured, and rates of uninsured drivers approached 1 in 3 in some states. The report also noted a remarkable correlation between unemployment and being uninsured. With unemployment high (and fears it could go higher), you now may be commuting with 1 in 5 drivers who are uninsured. UM coverage provides you with protection, as defined by your limits, if you experience a loss caused by someone who either doesn’t have insurance or doesn’t have enough insurance. If you or someone in your household is severely injured in an accident, do you have enough UM coverage to protect you if the at-fault driver doesn’t have insurance? While we expect others to properly cover themselves, unfortunately, that isn’t always the case. There are drivers on our roads who, for one reason or another, don’t have insurance or who carry the minimum coverage allowed. Take appropriate steps now to protect you from someone else’s mistake by reviewing your UM coverage and increasing it if necessary.
Additional recommendations regarding auto insurance:
• Have liability bodily injury limits of at least $100,000 per person and $300,000 per accident. Also review what the cost would be to increase those limits. You might be surprised at how little it costs to increase your coverage.
• Talk with your agent about all of the discounts available to you.
• Does your carrier offer “full glass” coverage? With it, you don’t have to pay a deductible if you need to replace your windshield.
• Does your carrier offer agreed value coverage? With it, you know in advance how much you’ll receive from your carrier if you total your vehicle.
• Have sufficient coverage for a rental vehicle in case you need to replace your vehicle while it’s being repaired due to a claim.
• Most policies allow your coverage to transfer to a car that you rent. If you’re involved in an accident while driving the rental vehicle, the rental car company can charge you for the money it loses as a result of not being able to rent the vehicle while it’s in the shop for repair. Inquire whether or not your policy provides this coverage.
I’ve heard two very popular radio hosts who specialize in consumer protection state that umbrella policies are the best ones you can purchase because of the amount of protection it provides and how affordable it is. An umbrella policy provides additional liability protection above and beyond the liability coverage you already have in place. For example, if you’re at fault in a car accident and the damage to someone else exceeds the liability you have under your auto policy, the umbrella policy will cover the excess amount as defined by your policy limit.
ACE Private Risk Services released a brochure last year listing samples of recent jury verdicts. It demonstrated the wide range of exposures facing individuals:
• The family of 21-year-old college student sued the drivers of two vehicles involved in a multi-vehicle crash. The plaintiff’s counsel claimed one defendant was sleep-deprived and that the other was on a cell phone. The plaintiff was in a coma for one month and is expected to require lifetime 24-hour care. The verdict/settlement was for $49 million.
• A teenage male was killed while riding an ATV on a neighbor’s property. The neighbor had invited him to drive the ATV, permitting him to operate it without proper safety equipment or adult supervision. The teenager struck a fence and was decapitated. The verdict/settlement was $20 million.
• A 16-month-old child was attacked and killed by a pit bull kept at a family friend’s home. The verdict/settlement was $5.9 million.
• A 55-year-old male cyclist was killed by a motor vehicle operator who drove through a stop sign. The verdict/settlement was $5 million.
There are more examples in the brochure, but you get the idea. What would a loss like one of these do to you financially? Let’s say it was only a $1 million verdict/settlement. What kind of affect would that have on you and your family? If you have an umbrella policy, discuss with your insurance agent whether or not you have enough coverage. If you don’t have an umbrella policy, contact your insurance agent and talk about adding one to your portfolio today.
Additional recommendations regarding personal umbrella insurance:
• At a minimum, have enough coverage under to protect your assets. Always consider higher limits because you never know how much you could be sued for if a loss occurs.
• Have the correct underlying liability limits (as required by your umbrella policy) on all of your policies to avoid any gaps. Your agent can help you with this.
• Add uninsured/underinsured motorist coverage to your umbrella policy. Don’t find yourself in a bad situation because of someone else’s mistake.
• Look for a policy that pays for your legal defense without reducing your liability limit.
Finally, never just assume you have the right coverage. Take the time to read and understand your policy. And always contact your insurance agent with questions or concerns. You don’t want to find out the hard way that you don’t have coverage – or enough coverage.