I am a big fan of utilizing a team of professionals. Some obvious professionals to think about are doctors, lawyers, accountants and financial planners but it should also include anyone who has an expertise which you do not and one that will benefit your wellbeing. That being the case the following is a question and answer with Pat Schumacher who owns Nationwide Insurance here in Lodi, CA and is an expert in property and casualty, personal lines of insurance.
Recently, my wife and I were helping her parents with renewing their personal policies and found that the homeowner policy inadequately covered replacement costs. They also live in a high fire danger area and experienced a mandatory evacuation last summer. What do people need to consider regarding replacement and homeowner policies? With all the wildfires we have experienced in the state over the last few years this is a critical issue. Most do not realize that insurance carriers use tools which are updated on a regular basis to obtain accurate numbers for replacement costs. These tools are specific to location which means we know what those costs might be from one area to another. For example, it may surprise you to know that rural areas have a higher cost than one might think due to logistics of getting materials brought in and the scarcity of labor in a rural area compared with that a larger metro location. We typically look at covering replacement cost at 125% to 150% of current value. You should also note that many recent fire claims have been challenged for various reasons so it would behoove people to periodically review policies to ensure accuracy.
There are many people who rent. What do they need to understand about renter’s insurance and should everyone who rents carry this type of coverage? A renter’s policy covers an insureds personal property for example; furniture, electronics and any other property the renter has on the premise. It also covers personal liability in case of an injury. Something that people may not realize is that property stolen from your vehicle is covered by a renters or homeowners’ policies. I do want to note that specialty items such high valued art or coin collections will need to be appraised and specifically covered stated as a rider.
Regarding auto insurance what can people do to reduce the costs of their policies? One of the first things is to increase deductibles reducing premiums however, this is a balancing act. You do not want your deductible to create a financial hardship just to save on the premium. Make sure you have enough savings on hand to cover a deductible if needed. In California mileage is tracked to confirm miles driven and lower miles means lower premiums. Another consideration is for autos over ten years old it likely makes sense to drop comprehensive and collision. It is also important to understand what issues have been contributing to increases in auto insurance rates such as; higher medical costs when injuries are involved, vehicle repair cost increases, increased commutes leading to increased miles driven.
The heavy travel season has begun so we can’t talk about auto insurance without asking about car rentals. What do people need to consider when renting cars? Most reputable insurance carriers will extend your limits to a rental contract for both liability and deductibles. If you are only carrying liability, then you may want to consider adding rental coverage for possible physical damage which is normally about ten dollars a day.
What does umbrella coverage protect and when is it important to have in pace? This is essentially excess liability for larger claims and lawsuits. An example would be in the case of a liability exceeding your auto policy’s’ personal liability limits. This would not be hard to do with the high costs of medical services. Once that policy limit is exhausted then the umbrella policy would begin coverage. These policies are purchased in million-dollar increments and are used to protect assets and future income. The more assets you have the more need you may have for an umbrella policy.
How often should someone review insurance coverage? This should be reviewed annually or whenever there is a major life change that may affect protection needs. Newly married, divorced, death in a family, relocation, are all examples of reasons for a review.
Thank you, Pat for sharing your expertise with the readers of the Money Talk column. As always consult with your team of professionals and until we talk again, be well.