9 tips for getting the right P&C coverage

You have everything you need: your home, your car and your belongings are covered by your P&C insurance, so you’re safe. But how safe are you really? The truth is, there may be other aspects of your P&C insurance that could be strengthened. In fact, when we start working with new clients, we can almost always strengthen this area, helping them save money and be better protected.

Here are some tips for closing the most common P/C coverage gaps:

1. Don’t set your deductible too low.

In the event of a claim, you pay your deductible and the insurance pays the rest. The higher the deductible, the lower the annual premium.

For example, if I choose a deductible of $1,000, my annual premium is $6,901 per year. If I increase the deductible to $2,500, the premium drops to $5,475, a reduction of $1,426. The lower $1,000 deductible would make sense if I was planning on filing a car insurance claim once a year, on average. I take a chance and opt for a higher deductible and a lower premium.

Why is there such a cost difference for a relatively small deductible difference? It comes down to dollars and cents. Processing an insurance claim is time consuming and expensive for the insurance company, so they don’t want to bother with claims for small amounts. Charging a high premium for a low deductible is their way of saying, “Don’t bother us with the small claims — pay out of pocket for the little things.”

2. Cover yourself with umbrella insurance.

Umbrella insurance is liability insurance that covers claims that exceed the limit we typically see for homeowners, cars, or watercraft. Rather than covering damage to the policyholder’s property, umbrella coverage covers injury to others or damage to other people’s property.

For those with significant assets, umbrella coverage offers the policy owner and their household a safety net above the typical $300,000 to $500,000 limit – which is helpful in our litigious society, especially if you are perceived as a wealthy doctor.

Fortunately, umbrella insurance is relatively inexpensive, around $250 per year for the first million dollars. So which umbrella cover should you have? The general rule is to get coverage equal to your net worth.

3. Insure your home for its replacement value and not for its market value.

A mistake we often see – especially with older, high-value homes – is that a home is insured for market value instead of replacement cost. In other words, the cost of rebuilding the house is not factored into the market value.

An example of this is the extended replacement cost. In this case, the insurance company will cap their payout at perhaps 130% of the insured value. So, if the house is insured for $500,000, the company will cover up to $650,000. However, if raw material and labor costs increase, the cost of rebuilding can be over $650,000 – and the policy owner is responsible for any amount beyond that. In older, high-value homes, we often recommend guaranteed replacement coverage.

It’s worth seeing what type of coverage you have for your home to make sure it matches what it would cost to replace your home, not its market value.

4. Papers, papers, papers.

Those who have ever filed a large claim for damage to their home are well aware that it is the policy owner’s responsibility to document the contents of their home – and ideally where and when you purchased the items. This will go a long way toward receiving fair compensation for your claim.

A good insurance broker will inventory the contents of insured homes with a video. If your agent doesn’t provide this service, it’s worth doing it yourself.

5. Protect yourself against the risk of uninsured and underinsured drivers.

An emerging risk for all drivers is protection against at-fault drivers who do not have liability insurance or sufficient liability insurance to cover your damages. Many states require drivers to have at least uninsured motorist coverage, otherwise both coverage for uninsured and underinsured motorists.

Check if your policy includes this type of coverage and for how much. (We recommend including at least $1 million.)

6. Provide sufficient cover for your valuables.

Most policies have a standard limit — typically $1,500 to $10,000 — for jewelry, art, furs, guns, wine, antiques, and other collectibles. If the value of these goods exceeds these limits, consider planning these items separately at an additional cost.

7. Look for a sewer and water backup cover.

Are you covered for standing sewage in your bathtub, toilet, basement, or anywhere else in your home? Some home insurance policies do not include this type of coverage. Other carriers cap payouts for this type of claim too low to cover the actual costs of repairing, cleaning, and replacing damaged furniture and carpets. We’ve seen customers with policies capped at $5,000, which is usually an insufficient amount even for an unfinished basement. Just imagine the cost to tear it down to the studs, clean and dry, rebuild and remodel a finished basement.

When reviewing your policy, make sure your sewer/water backup coverage limit reasonably matches the cost of redoing your basement in the event of this type of claim. If not, you can often increase coverage for an additional premium, or you can choose to switch to a company that does a better job of insuring you against this not uncommon occurrence.

8. Consider the difference between insurance brokers and insurance agents.

Our firm works with insurance brokers and not with insurance agents. Why? Insurance agents who work for a company may be limited to selling only that company’s products, which may not meet your needs. For example, a client of modest means and a $400,000 home needs very different coverage than a more affluent client with multiple expensive residences, expensive jewelry, an art collection, and other possessions.

Most insurance companies design products for a specific target market and their products may not be suitable for your situation. That’s why our firm prefers to work with insurance brokers who typically represent 10-20 companies across the entire home value spectrum.

9. Beware of annual renewals.

We see customers who purchased their P/C coverage from an agent years ago, often with automatic renewals and periodic rate increases along the way. Sometimes the agent hasn’t reviewed your policy since the original purchase, although you may have done home renovations, added teenage drivers, or purchased a new car that they failed to add to your policy . This situation can mean trouble.

If your P/C agent hasn’t contacted you every year about your exposures – and periodically searched the market for coverage better suited to your new circumstances – they are not earning the commission built into your premium that you pay him every year.

Don’t be taken aback.

If you’ve always thought property and casualty insurance was just your home and auto insurance, think again. You can save money and headaches by dealing with other potential exposures, like those above, that your P&C insurance policy may cover.

The above article is intended for informational purposes only. Please consult a legal or tax professional regarding your situation.

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About Dr. Joel Greenwald

Joel S. Greenwald, MD, graduated from Albert Einstein College of Medicine in the Bronx, New York, Joel completed his residency in internal medicine at the University of Minnesota.

He practiced internal medicine in the Twin Cities for 11 years before moving into financial planning for doctors beginning in 1998.

Joel’s wife is a radiation oncologist, which makes him too familiar with the stresses of medical practice.

Knowing first-hand the challenges of practicing medicine, Joel’s passion is to make life easier for doctors by helping them ease their financial worries.

Connect with him on LinkedIn or his website.

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