Most people recognize the need for homeowners and automobile insurance , even if they don’t appreciate how much property and casualty coverage they should have.
A mortgage lender will typically require insurance on the mortgaged property, but in any case it would be foolish not to have it. The loss of a home could be financially devastating, and even partial losses can put a significant dent in a family’s financial security. It is important to have sufficient coverage to replace the dwelling, and although contents are generally included, special endorsements may be necessary to cover certain valuables such as jewelry, art or furs. In some areas it is important to procure specific coverage for perils generally excluded, for instance earth movement or floods. Another significant piece of the HO policy is liability coverage, in case the homeowner is found responsible for injury or damage to other persons or property.
People who rent their home might overlook the necessity for insurance, but it’s just as important for them to obtain coverage for their personal property, as well as liability protection. The landlord’s policy does not cover the tenants. Renters insurance is similar to homeowners except that the dwelling itself and related structures are not included. However, any improvements added by the tenant can be covered by an endorsement. There is also a special policy type for condominium owners. A good way to be prepared in case there is a need to file a claim is to go through the house and videotape the contents of each room, storing the video at some secure offsite location, or perhaps online.
Auto liability insurance is another critical item, and most states require at least a minimum amount of coverage on registered vehicles. (Some states may allow proof of financial responsibility as an alternative to insurance.)The required minimum is usually inadequate in the case of any major mishap so if the client has significant assets to protect, this should be considered in choosing the amount of coverage. Auto liability coverage can be a split limit or single limit. With a split limit, e.g. $100,000/$300,000/$50,000, the first number is the maximum amount that will be paid for bodily injury to any one person, and the second is the maximum for bodily injury per accident, and the third number is the maximum that will be paid for property damage. A single limit will pay the stated amount per accident, without any restriction on how much goes to one person. The limit of liability for property damage is a separate amount.
Further protection can be obtained to cover theft or damage to the insured vehicle. It comes in two parts, collision and ‘other-than-collision,’ formerly known as comprehensive. There is usually a deductible amount for claims under these coverages, and the insured should consider how much he or she is able to pay out of pocket when choosing the deductible. A higher deductible may be worth the premium savings. For some older vehicles this damage protection may not be worth buying, depending on a number of factors, including the cost of coverage and the amount the insurer will pay vs. the value of the vehicle.
In analyzing a client’s insurance coverage, keep in mind the aim of protecting assets. Often a person of higher net worth will need additional liability coverage in the form of an umbrella policy, which protects above the limit of the HO and auto policies. One rule of thumb is to have coverage equal to the client’s net worth.