perspectives

Protecting Your Assets from
Losses and Liability

AUTHOR Kyle Larson

Property and casualty insurance policies help protect your assets from events like car accidents, theft and house fires, and reduce your exposure to legal claims if your actions injure another person or damage their belongings. This broad category of insurance can prevent a large financial loss that could compromise your long-term plan. It’s best to review your coverage at least once every three years, and inform your insurance agent of any financial or family changes that may affect your coverage needs.



Coverage Considerations

HOME:

How much would it cost to replace your home and everything in it? Your coverage should be equal to this amount. Keep in mind that this number often rises over time, and your home’s market value or assessment values will differ from the cost of rebuilding. If you’ve remodeled or expanded your home, or if construction prices have risen, you’ll need to increase your coverage. If you’re planning an addition to your home, its value increases during the project, and you may also need more liability protection to protect you and your family. In addition it’s prudent to make certain you’re working with licensed and bonded contractors, where you’re not at risk to cover their employees should an incident take place. If you own valuable collectibles – including art, jewelry, and wine – you may need to cover them in a separate rider to your policy. Most insurance carriers will limit jewelry theft losses on average to $2,500.

It’s important to understand how your insurance will cover major disasters – fire, water and earthquake. Read your policy closely to review any exclusions or conditions. Most standard policies do not include earthquakes or floods, and you may need to retrofit your home to qualify. Earthquake insurance is typically more important for homeowners who don’t have a mortgage or have substantial equity in their homes.

AUTO:

Your policy should cover the replacement cost of your own vehicle and other parties’ vehicles or property when you are at fault in an accident, plus medical costs for passengers. You also need ample coverage that mirrors your liability limits and will protect you from damages caused by uninsured or underinsured motorists. If another driver is responsible for an accident and doesn’t have sufficient coverage, this part of your policy covers damages or injuries you many need to be reimbursed for. Your policy should cover your children who drive, including adult children at college, and your nanny or other family members who drive your vehicle. Your premium costs may increase but it's worth it to protect yourself from the additional liability. Insurance companies are reporting higher claims in this area so it’s recommended to secure “Excess Uninsured Motorist” coverage under your umbrella contract for further protection. 

Umbrella (Excess Liability Coverage)

Your home and auto policies typically include a small amount of liability coverage; your umbrella policy provides additional liability protection for significant accidents or events. Some insurance experts recommend purchasing umbrella coverage in an amount equal to or greater than your total assets depending on your overall liability risk factors, but keep in mind that future wages can also be garnished in the event of a lawsuit so the optimal amount is difficult to predict. High net worth individuals and prominent community members are more likely to face financial lawsuits, because of their perceived ability to pay larger settlements. Umbrella coverage is a cost effective way to reduce this risk. If you are targeted in a lawsuit, your insurance company will handle any legal proceedings and fight on your behalf. This coverage tends to be priced relatively low compared to the protection it provides.  Keep in mind the higher the limit, the more likely an aggressive defense on your part.



Common Factors That Increase Your Liability Risk

  • Prominence in the community
  • Swimming pools and homes located in close proximity to water
  • Motor boats, yachts and luxury vehicles
  • Second homes and rental properties
  • Young children, and others that you transport in your car
  • Young drivers



Choosing an insurance agent/policy:

We recommend working with an independent agent who can offer you policy options from multiple insurance carriers at the same price as if you bought directly from the carrier. Some companies compete on price and some compete on service to high net worth families. Select the policy that best fits your needs, from a reputable company, even if the premiums are a little higher. As your assets grow, the cheapest policy is no longer appropriate. Be sure you know what your policies cover and that you have sufficient coverage. And remember to keep your agent up to date when your family or financial situation changes.



Crucial Times to Review Your Policies:

  • Before a remodel
  • When your net worth or assets have increased
  • If you have rental homes or properties rented thru VRBO/Airbnb
  • Vacant homes that are no longer occupied by you and or a renter
  • Children nearing driving age
  • When hiring a nanny or a family member is a nanny for someone else
  • When a Trust or LLC owns assets
  • When volunteering on a Board
  • When a business owns and insures a personal-use auto
  • If anyone in the family drives for Uber, Lyft, etc.



Your Paracle advisor can refer you to insurance professionals who can help you secure appropriate property and casualty coverage at a reasonable cost. We’d be happy to discuss your insurance needs and how to select a policy that fits your long-term financial plan.

We’d like to thank Sue Greer of Propel Insurance for contributing to this article.



Disclaimer: This article has been provided for informational purposes only and should not be considered as investment advice or as a recommendation. This material provides general information only. Paracle Advisors does not offer legal or tax advice. Only private legal counsel may recommend the application of this general information to any particular situation or prepare an instrument chosen to implement the design discussed herein. CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, this notice is to inform you that any tax advice included in this communication, including any attachments, is not intended or written to be used, and cannot be used, for the purpose of avoiding any federal tax penalty or promoting, marketing, or recommending to another party any transaction or matter.