Insurance Basics: Property and Casualty

Contributed by: Nick Defenthaler, CFP® Nick Defenthaler

Over the last several months, I have touched on the various forms of insurance that are typically most important within a well-rounded financial plan. As we wrap up with my 5 part blog series on insurance basics, I’d like to discuss property and casualty (P&C) insurance and discuss some items that should be on your radar when reviewing your coverage. 

Auto Insurance

Living in Michigan (one of the most expensive states in America for car insurance) we are all aware of how pricey coverage can get, especially if you have younger drivers in your household. As such, many of us (myself included) are solely focused on getting our premiums as low as possible and we often times don’t realize what we are sacrificing by doing so. There are several components to your auto policy and liability protection is critical. As a rule of thumb, we like to see clients maintain a minimum of $250,000 in bodily injury coverage per person and $500,000 per occurrence. This level of coverage could be more, however, based on your income. In most cases, coverage amounts are not at this level. One way to potentially increase coverage but maintain affordability of coverage would be to increase your policy’s deductible. 

Homeowners Insurance

If you have a mortgage on your home, homeowners insurance is required by the lender. If you own your home free and clear, however, you technically aren’t required to carry insurance, but going without coverage is something we would never recommend. On average, the annual premium for a typical home in Michigan will run approximately $700 – $1,000, and similar to auto, the lowest cost coverage should not be your main focus.

Here are some items you want to consider on your own policy:

Liability Coverage

  • Typically we recommend at minimum $350,000 in protection, ideally closer to $500,000.
  • This coverage will protect you from lawsuits from things like a dog bite or having someone trip and fall on your property.

Flood Back-Up

  • Will provide coverage under certain circumstances if you have water in your home.

Jewelry, Art, Collectible, etc. Endorsements

  • This will provide coverage on items like wedding rings, even if they are lost, stolen, or they fall down that dreaded bathroom sink!

Umbrella Insurance

As financial planners, one of our primary roles is helping you accumulate assets. Helping you protect those assets, however, is equally important in our opinion. An umbrella policy is designed to provide additional liability coverage above and beyond the limits of your homeowners and auto insurance policies in situations such as:

  • Injuries on your property
  • Damage to property
  • Liability coverage on rental units
  • Certain lawsuits, slander, libel, false arrest, malicious prosecution and other personal liability situations

Unfortunately, we live in an extremely litigious society, so employing the proper protection for your assets is crucial. For approximately $150/year, one can purchase a $1M umbrella liability policy, which is often a sufficient back-stop of liability coverage at a very reasonable cost.  

Like most of us, you probably only speak to your P&C agent once every few years (if that) and, as mentioned previously, chances are the main focus is on cost as opposed to the liability protection the insurance provides. We encourage clients to reach out to their agent at least once a year to check rates and make sure the proper coverage and protection is in place for their given situation – especially if you’re a small business owner or own rental properties. We realize this is an area that is many times over looked. To help navigate through this we have decided to host a small, in-office seminar to discuss this extremely important topic in greater detail. Click here for more details and to register – we hope to see you there!

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc. Nick is a member of The Center’s financial planning department and also works closely with Center clients. In addition, Nick is a frequent contributor to the firm’s blogs.

This information does not purport to be a complete description of the Property and Casualty Insurance products referred to in this material. This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Opinions expressed are those of Nick Defenthaler and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Insurance guarantees are based on the claims paying ability of the insurance company.