Would Your Insurance Have You Covered When You Need It?
5 Elements of Property and Casualty Insurance High Net Worth Individuals Shouldn’t Overlook
While you’re working on sticking to your New Year’s resolutions, here’s a good one to add to the list that will benefit you in 2018 and beyond: double-check that your property and casualty insurance policies have you covered.
Natural disasters and other unexpected events happen all the time. It’s always a good idea to review your insurance policies with your agent at least once each year. Doing so ensures you and your agent fully understand what is covered and what you’re self-insuring. A thorough review also brings to light some often-overlooked areas of property and casualty insurance coverage.
Check Your Property and Casualty Insurance Policy for These 5 Things
Excess Liability Coverage
Excess liability insurance covers personal losses over and above the primary policy. For example, if you experienced a car accident and were sued by the other driver, your auto policy would cover up to a certain amount of liability (usually $250,000 per person, $500,000 per accident), at which point your excess liability policy would kick in.
You should always know the level of excess liability coverage you have. Data suggests that claims/settlements for lawsuits has increased over time, so a $5M or $10M policy may not be enough in today’s litigious environment. Additionally, keep your exposure in mind when determining the amount of coverage needed. Here are some key questions to ask:
- How many drivers are in your household?
- How many of those drivers are inexperienced?
- How many homes will need coverage?
- How much of a public figure or entity are you and your family?
- What is your level of net worth?
- What other asset protection do you have in place?
There are certain exclusions to what a typical excess liability policy will cover, such as business risks, directors and officers, and employment practices. It’s important to review the exclusions with your agent to be sure you understand what is and is not covered, and to determine whether any excluded coverage can be added via an endorsement or separate policy.
All-Risks Policies and Exclusions
Most high net worth carriers typically write their homeowners policies as “all-risks” or “all-perils” coverage, which means all risks are covered unless they are specifically excluded. Typical exclusions are floods, earthquakes, and occasionally wind if your property is in a coastal area.
You should know which perils are excluded so you can determine what you are self-insuring. There may be options to add coverage for the excluded perils–simply ask your agent for a quote. However, there are often limitations on how quickly you can add coverage if there is a known risk–for example, it can take 30-60 days to put a flood policy in place in a coastal area, and it could be longer if an elevation certificate is needed. In short, don’t wait until you need the insurance to try and implement it.
Flood Insurance–National Flood Insurance Program (NFIP) vs. Traditional Private Carrier Coverage
When possible, it’s generally better to obtain flood insurance through a private carrier than through NFIP. The most glaring shortfalls of NFIP are that a loss is not covered unless your neighbors have also sustained damages to their home, and NFIP does not cover any damages to basements. Both of these stipulations usually come as a surprise to the insured, and since private carrier insurance is more in line with what one would expect be covered, it’s usually the better option.
However, some homeowners are unable to obtain private carrier insurance due to their level of risk, so NFIP is the only option. If this situation is true for you, be sure to regularly inquire with your insurance agent if private insurance has come available for your home.
Documentation of Belongings and Valuables Coverage
In the event of a loss, it’s important to have a record of your belongings and quality of workmanship of your home or homes. How long has it been since your last insurance appraisal? It is generally recommended that you have an appraisal following any significant changes to your home, or every 3-5 years. Failing to do so could mean your insurance policy isn’t covering the total value of your home.
You should also consider the following:
- Do any items require separate coverage due to limits on the regular contents, such as fine arts, jewelry, or other collections? If so, consider purchasing a separate valuable articles policy. List higher value items on the policy, as their value will be adjusted for inflation, and get blanket coverage for anything you don’t list.
- What system is in place to keep track of your belongings? Using a home inventory system or taking a video of your home can be very useful when making a claim in the event of a total loss.
In determining any policy’s deductible, the first question you should ask is how much are you willing to self-insure? High net worth families typically have a higher self-insurance threshold, which can translate to material premium savings over time. When onboarding new clients, we often see deductibles for homeowners’ policies somewhere between $1,000 and $10,000. However, when we discuss these numbers with clients, we learn that many have paid more than their deductible for a loss to avoid the hassle of filing an insurance claim, and to avoid seeing higher premiums in the years to come. Increasing the deductible to $25,000, or even to $50,000, makes sense in cases when there is a significant premium savings. Also, most high-net-worth insurance carriers include a waiver of deductible clause if there’s a loss greater than $50,000, meaning the insured would not have to go out of pocket at all.
Another item to consider are special deductibles on policies for losses caused by specifically-listed perils such as winds, floods, or earthquakes. Oftentimes, these special deductibles are based on a percentage of the dwelling coverage. This amount is important as even 1% can make a big difference in how much you’re self-insuring for a high-value home. For example, in the case of a $10,000,000 home in Key West that was destroyed by Hurricane Irma, if the wind deductible was 2%, the owner would have been out-of-pocket $200,000. If the wind deductible were 3% instead, the owner would be out $300,000. Make sure to ask your agent to compare the special deductibles of different carriers.
Don’t Get Caught Without Proper Insurance Coverage
Insurance coverage can easily fall to the backs of our minds–until we need it. Make sure if that time does come, you are covered with policies that will keep you and your family’s assets protected.
Review your insurance plan at least annually to limit surprises and provide financial peace of mind in the case of a loss. Adding a discussion with your insurance agent to your 2018 resolutions will pay off this year and the years to come.