February 17, 2023
While a lot of attention is paid to tax and investment planning at the start or end of the year, we want to make a case for the importance of annual insurance planning. A review of your property and casualty (P&C) insurance policies helps you address how your coverage needs change over time and assess whether you have the proper coverage at a competitive rate. We encourage this periodic, proactive assessment because the worst time to find out you don't have the right P&C insurance coverage is after you need it.
To start, let's define the different types of coverage provided by P&C insurance and highlight some general considerations.
Property insurance covers your physical property, like your home, vehicle, and possessions. When performing an annual review, it is important to compare current property coverage limits to the current value of the property being insured. If the values differ significantly, you may want to either increase coverage (reducing your potential out-of-pocket costs in the event of a loss) or decrease coverage (reducing premium costs and avoiding being over-insured).
Casualty insurance, also known as liability insurance, covers losses you may incur if you cause damage to someone else’s property or injury to another person. The coverage can extend beyond yourself to any family members who are named within your homeowner’s or auto insurance policy. A good starting place for review is to understand what assets are protected in your state of residence, and then ensure your casualty insurance amount covers the remaining assets in case of a lawsuit. (In some states, Traditional or Roth IRA assets may be exempt from creditors; see whether this is the case in your home state by consulting this table.)
MAKE SURE YOUR COVERAGE IS ADEQUATE
Now let’s review the specific P&C insurance policies you may have, depending on your financial situation and the type of assets you own, as well as the circumstances that warrant revisiting your coverage and limits.
HOMEOWNERS INSURANCE
A homeowners insurance policy helps protect your home and possessions against covered perils, including theft and fire. Most policies also include liability coverage that helps protect you (and other family members in your household) if someone is injured at your home or you cause damage to someone else’s property, though liability coverage limits can be low.
Review your coverage/policy if you:
- Experienced significant home value appreciation or depreciation
- Added a hot tub or pool
- Bought new appliances
- Completed a home improvement or renovation project
- Purchased or sold jewelry, exercise equipment, musical instruments, artwork, or collectibles
RENTERS INSURANCE
If you rent rather own your residence, you should have a policy that covers the value of all property in your apartment, townhome, condominium, or single-family home. If you live in a multi-unit building, your potential for losses is increased, since other people’s actions in common areas or other units may cause an adverse event to your unit and the property inside of it. Renters insurance also typically provides $500K of personal liability coverage in case someone is injured on your property.
Review your coverage/policy if you:
- Purchased or sold jewelry, exercise equipment, musical instruments, artwork, or collectibles
LANDLORD INSURANCE
If you own a rental property, landlord insurance protects the structure itself—not the renters’ possessions—and can also provide liability coverage if litigation results from an incident on the property.
If you have a lease agreement, you may want to require tenants to show proof of renters insurance that provides coverage for damage to their personal property, relocation costs in the event of a fire or natural disaster, and personal liabilities. This helps to mitigate the risk of being sued by tenants seeking to recover their property losses or liability claims.
Review your coverage/policy if you:
- Experienced significant property value appreciation or depreciation
- Added a hot tub, pool, workout facility, or other shared amenities
- Bought new appliances
- Completed a property improvement or renovation project
AUTO INSURANCE
You likely have casualty—known as liability or collision—coverage for your vehicle. Your policy may also include coverage for accident-related medical costs incurred by you and your passengers. Adding property, or comprehensive, coverage to your vehicle can help reduce repair or replacement costs in the event of auto damage for reasons other than collision (like hail damage or vandalism).
Review your coverage/policy if you:
- Purchased a new vehicle, RV, boat, or jet ski
- Added a new driver to your policy
- Own an older car (its decreased value may not warrant collision coverage)
Each type of insurance policy above has its own deductibles and coverage limits. Find out what yours are and run some numbers. If you have built up your cash reserves to address short-term emergencies, consider increasing your policy deductibles to bring down premium costs. If your coverage limits aren’t sufficient to protect your property and belongings and to provide peace of mind, think about either increasing your coverage limits or adding umbrella liability insurance to cover higher-dollar incidents.
UMBRELLA LIABILITY
Umbrella insurance covers high-dollar liability claims, providing you with protection if someone injures themselves on your property or if you are sued for your or a family member’s liability in an accident (auto or otherwise).
Review your coverage/policy if you:
- Have asset levels higher than what your state protects from creditors (again, see whether your home state considers Traditional or Roth IRA assets to be exempt from creditors by consulting this table)
- Have a long commute or do lots of driving
- Frequently have guests over
- Have a dog or swimming pool
CONSIDER COVERAGE RIDERS AND ENDORSEMENTS
Riders are insurance policy provisions that add additional coverage to basic insurance policies or otherwise change policy terms. For example, adding a replacement cost rider to your homeowners insurance can protect you in several ways—the most common example is protecting against total loss (i.e., if your home is destroyed in a fire). Most policies only cover the actual cash value of your home, which equates to what your home was worth at the time of the fire—not the cost to rebuild it. If your home is several years old, depreciation can account for tens, or even hundreds, of thousands of dollars in costs that your insurance company will not reimburse. A replacement cost rider ensures you can rebuild your home exactly as it was without paying out of pocket beyond your deductible.
You may also want to consider a law or ordinance endorsement. Say a fire only damages a portion of your home, but when a contractor comes out to begin repairs, they discover that your entire electrical system needs to be replaced because it doesn’t meet current building code standards. A basic homeowners policy wouldn’t cover this scenario. If those updates are required by building code enforcement, you won’t have to pay out of pocket with a law or ordinance endorsement.
COMPARISON SHOP
Every two to three years, get a few competitive quotes from highly rated insurers. Shop around since you want to make sure you’re getting the best deal without compromising value. Different insurers experience different localized losses, and their policy costs will vary accordingly.
Keep in mind, however, that it may be beneficial to consolidate your insurance policies with a single carrier to the extent possible. Bundling often offers premium discounts and access to more affordable riders and endorsements.
The Mather Group, LLC (“TMG”) is registered under the Investment Advisers Act of 1940 as a Registered Investment Adviser with the Securities and Exchange Commission (SEC). Registration as an investment adviser does not imply a certain level of skill or training. For a detailed discussion of TMG and its investment advisory services and fees, see the firm’s Form ADV on file with the SEC at www.adviserinfo.sec.gov. This has been provided for informational purposes only. TMG's advisors are not licensed insurance agents; therefore, they are not able to provide advice or assist in the purchase of insurance or insurance-related products. This should not be considered a solicitation for the purchase or sale of any security. TMG may be able to assist clients with finding vendors who can assist them with their insurance needs.
