Harrison Lazarus Advisors: Top Ten Financial® - Chapter 7

Three years ago, several things happened that changed my life. Within one month, our cat passed away unexpectedly, followed by our dog, and then our garage was looted while we were gone. We couldn't replace our cat or dog, but we did have insurance to replace the property that was stolen.

The main purpose of property insurance is to protect you from a financial catastrophe, from having to replace your property if you have a loss. In addition, insurance can protect you from a lawsuit if someone is injured on or near your property.

Whatever insurance you are considering, it is important to focus on these areas:

Insure against potential big exposures,
Take the highest deductible with the broadest coverage.
Shop around and buy directly from the best.
Document what you're insuring.
Be persistent when filing a claim.

Insure Against Potential Big Exposures

Insurance is something you need, not something you want. If you keep that in mind, you will get the right amount for the right price. You need insurance to avoid a financial catastrophe, because if your home burns down, it will be extremely costly and financially burdensome to rebuild your home and replace the floors, walls, roofs, and everything inside. Similarly, if you damage someone else's car, it can be extremely costly and financially burdensome to reimburse them for their loss.

Since you are insuring big-ticket items, you can pass on insurance for the smaller items. These are extras that sales people want to sell you or that you may think you should have. Examples include credit card protection and extended warranties. These are generally unnecessary expenses with little additional value to you.

Take the Highest Affordable Deductible and the Broadest Coverage

Taking the highest affordable deductible will save you annual premiums and the hassles of filing small claims. Usually, around 15 to 20% of the cost of your policy is for lesser-valued items or small concerns. So, if your annual home insurance premiums are $1,000 per year with a $250 deductible, and you increase the deductible to $1,000, you could save around $200 per year.

The other benefit of taking the highest affordable deductible is that it will save you the hassle of filing a small claim (say for $300). It will also reduce the likelihood of the insurance company raising your premiums because of filing a number of small claims. If you've ever filed a claim, you know what a headache it can be!

Shop Around and Buy Direct from the Best

Just like anything else, the more you look around, the more you will get a sense of what the market value is and what is reasonable to pay. Understandably, getting two or three quotes is time consuming, but it is worth your effort. Here are a few places to start:

http://www.esurance.com
http://www.insurance.com
http://www.aaa.com/scripts/WebObjects.dll/ZipCode.woa/wa/route
Other reputable companies – State Farm, Liberty Mutual, GEICO, Allstate, Mercury (CA) and USAA (military).

Coverage to Include:

Rebuilding Coverage – Ensure that your policy includes guaranteed full replacement cost so if your home is destroyed, the insurance company will pay to have your home rebuilt at current prices. In this instance, it is also wise to confirm your coverage includes payments for code upgrades to cover the cost of rebuilding your home so it complies with current building codes, which may be more stringent than when the property was built.
A couple resources to help you determine the right amount of rebuilding coverage are:
1. http://accucoverage.com/
2. http://knowyourstuff.org/
Personal Property Coverage – For homeowners, coverage for personal property is usually 50% or more of the rebuilding coverage. This percentage is more than sufficient for your needs. For renters, you need to list and add up the amount of property. You can skip the extra rider for computers, furs, jewelry and other expensive items. Although the loss of some of these items may be upsetting, it won't be a financial catastrophe. Similar to the rebuilding coverage, ensure that your policy includes full replacement cost guarantees so that you will be fully reimbursed to replace any lost items, otherwise you may get the used item replacement cost.
Liability Coverage – This is usually thrown in with the policy to protect you against lawsuits that arise from injuries or mishaps that occur on your property. Make sure the amount of liability coverage you purchase is one to two times your financial assets so in case you are sued and lose, you won't concede all your assets. If you've reached the maximum liability protection already available on your home and car policies, obtain umbrella insurance from the same home or car insurer. Since homeowner and car insurance policies cap out at about $500,000 each, umbrella policies take up the slack where those policies leave off
Extra Insurance - If your property is in an area that is subject to flood and/or earthquakes, then you should get insurance to cover these risks. For example, if you live in California and an earthquake knocks over your $1 million home, it will cost you roughly a $1 million to rebuild it. If you had earthquake insurance with a 5% deductible, you would only need to pay $50 thousand to rebuild it. That's a huge difference!
Discounts – Ask for these if they're not offered to you. You can get discounts for such things as having a security system in your home, being a good driver, a good student, even being over 50 and these discounts will reduce your annual premiums.
Riders – Eliminate towing, rental car reimbursement, medical payments and other small dollar or duplicate coverage. These are extra expenses that are unnecessary small dollar items not worth insuring.

Documentation

In case you have a loss and need to file an insurance claim, it is helpful to have a record of what you lost. This can be done with videos, photos and/or lists. A combination of these methods is recommended. In addition, keep these documents away from the property insured (e.g., out of the house in case it burns down). More about this is in Chapter 6 – Emergency Strategies.

Be Persistent When Filing a Claim

If you've done all four steps:

Insured yourself against potential big exposures.
Taken the highest deductible with the broadest coverage.
Shopped around and bought direct from the best.
Documented what you're insuring.

Then, filing a claim will be a lot easier. It may require that you be persistent. Why? Because even though insurers are happy to take your money in premiums, they are generally reluctant to pay your claims. That's how they make their money, and many do it very, very well.

Just keep in mind; this is why you bought insurance, to cover losses. So be persistent, negotiate if you have to, and get help from the agent's supervisors and management until you are compensated appropriately. It's another reason why taking the highest deductible with the broadest coverage will limit your costs, claims, and insurance hassles.

Insuring your possessions is important, even more important is insuring your health and life. More about that in Chapter 8 – Life Insurance.

One Last Related Area - Unclaimed Property

Be careful. Someone might take your money right out of your bank -- and it would be perfectly legal.

Every state has what's known as an "escheatment" or unclaimed property law, which requires businesses to hand over abandoned financial assets, including safe deposit boxes, savings accounts, stocks, and un-cashed payroll checks, to the government. The property qualifies as abandoned after a pre-specified period of inactivity, which varies by state.

We don't want this to happen to you. On a regular basis, say annually, look for your unclaimed property at: www.unclaimed.org

Chapter 7