Financial Boot Camp Series: Why You Need to Ensure That Your Property is Properly Insured

To start the year, our focus has been on insurance-related articles, including the basics of life insurance and why life insurance policies are typically not an effective savings vehicle. This month, we explore property and casualty insurance basics, key planning considerations, and understanding coverage details.

The property and casualty industry traces its roots to the late Middle Ages when maritime merchants worried about damage to their ships and cargo. While the industry has evolved significantly since then, modern-day property and casualty policies still provide financial protection from unforeseen or unexpected events.

Property and casualty policies incorporate a wide variety of insurance, with all policies providing one of two forms of coverage – personal property coverage or liability protection.

Personal property coverage protects your items should they be damaged or destroyed, whereas liability insurance provides protection should one be legally responsible for an accident resulting in damages.

While beyond the scope of this article, understanding the nuances of your property and casualty coverage, specifically what items/events are covered and not covered, are critical. Given the potential complexity to these policies, it is important to have a trusted insurance advisor that understands policy details, coverage specifics, and any unique individual planning considerations when thinking through your property and casualty coverages.

Most individuals will have a variety of property and casualty policies, including:

• Homeowner’s Insurance – provides financial protection if a covered event causes damage to one’s home, property, or personal items. While homeowner’s insurance is not required by law, if you have a mortgage, the lender will require insurance to protect its investment.Almost 66% of Americans are homeowners according to the Census Bureau, and for most individuals, their home is one of, if not their largest, assets. A few of the key coverage areas of a homeowner’s policy include dwelling, personal property, liability, and medical payments. For a more in-depth look into homeowner’s insurance coverage and types of insurance, see this article by NerdWallet.
• Auto / Boat / Motorcycle / RV / Camper Insurance – coverage on these vehicles could include bodily injury, uninsured and underinsured motorist, collision equipment, guest coverage, etc. While these vehicles provide excitement and thrills, you want to understand levels of coverage to avoid any unexpected insurance chills.  
• Personal Umbrella Policy – this additional insurance provides protection beyond existing policy limits and coverages. An umbrella policy may provide additional insurance coverage when your other property and casualty policies (i.e. homeowner’s, auto, boat, etc.) have been exhausted. In addition, umbrella policies also provide coverage for insurance claims that may be excluded by other policies.          

As we have discussed throughout this quarter’s insurance articles, when thinking about life or property and casualty insurance from a financial planning perspective, putting a plan in place may limit the financial downside for loved ones or oneself.

As you can see in these hypothetical scenarios presented by Nationwide insurance, there are almost an infinite amount of potential liability situations, highlighting the importance of understanding one’s homeowner’s policy in advance of any unforeseen events.

These hypothetical liability scenarios also illustrate why we often advocate for individuals to have additional personal umbrella coverage.

Personal umbrella polices can provide additional liability protection beyond existing policy limits and coverages in order to limit the potential financial downside of a worst-case liability scenario, typically, in a very cost-effective manner. According to Insurance Information Institute, an umbrella policy with $1M of coverage costs roughly $150 to $300 per year, a cost most individuals are happy to bear for the additional peace of mind an umbrella policy can provide. For further details on umbrella insurance, see this Geico article about how umbrella policies work and what typical coverage looks like.  

We recognize that life or property and casualty insurance is unlikely at the top of mind for individuals. However, given the potentially grim financial ramifications of inadequate coverage, it is critical that individuals and families either understand their policies or work with trusted advisors to ensure they are appropriately covered.

Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.