CENTRAL VALLEY INSURANCE AGENCY
Six Costly Mistakes People Make With Their Personal Insurance And… Steps You Can Take to be Sure You’re Properly Protected… Affordably Written by: Scott Bosler, PLCS, Sales Partner, Central Valley Insurance Agency
If you’re concerned about making sure you have the right kind and amount of personal insurance protection (car, home, umbrella, etc.)… read this article. Many people are making major mistakes with their personal insurance program. This article reveals tips and strategies that will allow you to maximize your personal insurance protection with the least possible out of pocket cost.
If you asked most people to give the details of their personal insurance program (home, auto, umbrella, etc.), many would be hard-pressed to do so. In fact it’s not unusual to get a blank stare and a shrugging of the shoulders. After all, most people rely on their insurance agent to take care of this for them and assume that all is well and that their agent is looking after their best interests. And yet in these days of global warming and extreme weather patterns we’re seeing across the nation, catastrophic events are on the rise. Hurricanes in the south, tornadoes in the mid-west (and even the west), floods throughout the nation, wildfires in the west and even Florida, and earthquakes are threatening the US and other parts of the world. To bring it closer to home, let’s consider the wildfires in California. The last few years we’ve seen an increasing trend of large wildfires burning massive areas throughout our great state. But here’s the alarming fact. The California insurance commissioner reports that as many as 40% of homes burned in these wildfires were underinsured… meaning there’s not enough coverage in the homeowners policy to rebuild the house. How can this be? If the insurance agents are doing their job (and consumers are allowing them to do their job) 40% of the homes would not be underinsured! So, here’s a word of advice for you… if you want to be assured you are fully protected in a catastrophic event (like a wildfire or severe car accident) take control of your personal insurance and get informed. Otherwise you too may be the victim of an out of control wildfire or flood… without the proper protection. Here are some costly mistakes you can avoid to better protect yourself.
Costly Mistake #1: Selecting the wrong insurance agent. Most people would say their insurance agent is a nice guy (or gal). In fact, many people select their agent based on personality… or low price. And yet when the catastrophe comes, you won’t care for a minute that your insurance agent could tell a good joke… or that you paid $100 less for that “bargain basement” policy. So, what are some indications that an insurance agent is competent and has your best interests at heart. Here are a few indicators to look for:
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When you first meet with the agent, does he/she have a process for determining your needs before recommending coverage? It will take some time to do the job right and many questions will be asked. A quote (proposal) should only be given when they fully understand your needs. If the agent does not ask many questions and only quotes off the policy you have now… run, don’t walk, for the exit. Ask the agent if he/she has a formal review process at renewal of the policy (or at least once a year) to make sure your coverage keeps up to date for your needs. Things change over time and your coverage may need to change as well. Does your agent work with competent staff and is the office organized properly? If not, this may be a problem for you in the future. The insurance business is partly about managing the details for clients. And lack of systems and organization is a major shortcoming for many agencies. Can the agent/agency deal with you in your preferred style of communication? For example, I like to do business electronically and over the internet with many of my service providers. But when I have a problem, I appreciate being able to pick up the phone or drive to a local office for a personal visit. In my opinion, a good insurance agency should be able to provide service to you in your preferred format… whether by phone, in person, or electronically. Is your agent “value driven”? By value, I mean a combination of service, coverage and price. Let’s face it, to get the best protection from the devastation of a catastrophic event you may have to invest a little more on the policy. But it doesn’t have to be a lot more. And in some cases it may even cost less provided you’re shopping in the right place. Does your agent/agency make the effort to fully explain your policies so you can understand? You are bottom line responsible for your insurance protection. So you need to understand it.
Selecting a good, professional insurance agent/agency is the starting point for getting the protection you need for you and your family. You should have a feeling of trust that they are looking out for your best interests. And you should fully understand how you will be covered in the event of a catastrophe of any kind.
Costly Mistake #2: Uncoordinated Coverage Causing Gaps in Protection. I quite often see situations where folks have bought insurance policies that are not properly coordinated. For example, they have purchased their homeowners policy from a local agency in town and have gone online to buy their car insurance from someone
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like GEICO. Now, one may think they’ve made a good purchasing decision and saved some money, but here are some problems than can develop when you do this:
The coverage in your homeowners and your auto policies need to be properly coordinated. For example, if you’re on vacation in your car and your car gets broken into and your luggage is stolen… what part is covered by your car policy and what part is covered by your homeowners policy? If you have a fire in your home and your car and boat burn in your garage, which policy covers what? These kinds of issues need coordination and having your home and auto insurance with the same agent and company simplifies this! You have one phone number to call and hopefully you have the right kind of coverage in place to take care of you. Having multiple agents and/or companies to handle the various parts of your personal insurance program can result in unnecessary complexity. This complexity can cost you more time and money… and many times results in gaps in your protection. With one agent and one company you have a better chance to simplify your insurance program and avoid gaps in coverage.
By having just one professional agent handle all your personal lines insurance, you can also develop a better relationship with him/her and the agency. The agent can then do a better job of making sure your coverage remains adequate and up to date… and in most cases you’ll get better service.
Costly Mistake #3: Low Limits on Auto Liability and Home Dwelling Coverage. In my career in personal lines, the most frequent mistake I see people make is having auto liability and home dwelling limits that are too low. What do I mean by “too low limits”: 1. Auto Liability Limits: Typically the limits are expressed in three numbers, like 100/300/50. What this means is that if you are “at fault” in a car accident and you injure other people or damage their property, the maximum your policy will pay is: $100,000 for the injuries caused to one person (in the other car… or even your car if you’re at fault). $300,000 for the injuries you cause to all persons (if more than one person is injured). $50,000 for the damage to other people’s property. 4
Now, some people think that $100,000 is a lot of money to pay for medical bills and injuries. But in reality, it is not a lot of money when you consider the outrageous costs of hospitals, lost wages, pain and suffering, and all the other things that go along with a lawsuit. Just a few days in the hospital can go through $100,000 like a hot knife through warm butter. Also, when you consider the possibility of running into an $80,000 Mercedes Benz, the $50,000 of property damage can be inadequate as well. In the area where I live (the central valley of California) we get heavy fog in the winter time. It’s not unusual to see 20+ car pileups on the freeway in heavy fog. Just imagine for a minute that you were the cause of a 20 car chain reaction accident in heavy fog… and your property damage liability protection is limited to $50,000. You could possibly end up losing everything you’ve spent a lifetime accumulating… plus future income may be open to garnishment as well. And, it is inexpensive to get higher limits to protect you and your loved ones. Just a few extra dollars of premium can buy a lot of extra protection. And, if you opt for higher deductibles on physical damage coverage to your car you may even save money. 2. Homeowner Dwelling Limits: This is one area where a large percentage of homeowners fall short in the case of a total loss… especially in catastrophic situations like the wildfires that have been occurring in California. The Insurance Commissioner in California has estimated that as many as 40% of homeowners are underinsured in these situations. Here are some reasons why this happens: It is more expensive to rebuild a house after a total loss (like a fire) than it is to build a new home on bare lot. All homes that are rebuilt after a total loss are “fully custom” and therefore often more expensive to build. So if you initially only insure the home for the amount it cost to build new on the bare lot, you begin by being underinsured. When several homes are destroyed at the same time in an area (like in the case of wildfires, tornadoes, or hurricanes), the law of “supply and demand” dictates that the cost of building (labor and materials) will go up. So, a house that may initially cost $200 per square foot to build can often cost $250-$400 per square foot after a catastrophe. This becomes a major problem for people in catastrophes. So, what is a homeowner to do to make sure that he has full protection in the event of a total loss? Here are some tips for you:
Work with a professional agent/agency that understands this issue and carefully calculates the replacement cost of your home… after a total loss. Keep in mind, replacement cost is not the same as market value. You 5
may get a bargain when you buy a house, but if it burns down you’ll have to replace it new at today’s building costs. Shop for homeowners insurance policies that provide extra protection (above the policy limits) in the event of a total loss. Some policies provide no extra protection, while some other policies may provide 25%, 50%, or even in a few cases, 100% extra protection. For example, there is a short list of companies that provide an extra 100% of protection. So, if you had a policy with a declared replacement cost value of $400,000 on the dwelling, if your house burned down it would provide up to $800,000 of coverage to replace your dwelling if that is what it actually cost to replace your home after a total loss. Especially in California, this is the type of protection I would highly recommend.
Costly Mistake #4: No Annual Reviews of your Personal Insurance. If there is one important thing you should be doing regarding your personal insurance it is this… review your insurance with your agent at least on an annual basis. Some agents/agencies may offer this service to you and contact you for the appointment. If not, I would suggest either of these two actions on your part: 1. Find an agent/agency that will offer this service and move your insurance there, or… 2. Call your agent/agency to schedule the appointment on your own. If they don’t or won’t do a good job of this… move your insurance to someone who will. It is that important to you! Here are some reasons why these annual reviews are so important:
Things change in your household over the course of the year and you need to make sure your insurance program is keeping up with your changes… like new cars, new drivers, new expensive personal property purchases, additions to the house (or remodels), etc. You need to make sure your limits of auto liability and coverage on your dwelling are adequate for your changing needs and the market place (building repair and replacement costs). For example, if you keep the same liability limits on your car insurance, each year those limits provide less real protection to you. This is because inflation and the growth of your net worth require that you increase your coverage (limits) to maintain the same amount of relative protection. 6
In some cases, you’ll be able to improve your protection and at the same time pay less in premium. You can make sure you’re getting all the discounts you deserve and possibly increase deductibles and remove physical damage coverage (comp and collision) on older vehicles. Without regular reviews this may never get done.
The person who is bottom-line responsible for your insurance protection is YOU! And if you don’t take the time to review it at least once a year and have a claim that is not covered because you forgot to report to the agency some new information (like a new car purchase)… you could end losing big time. So, take those annual reviews seriously and get them done!
Costly Mistake #5: Uncovered Perils Not Included in Your Policies (What? I don’t have coverage for that?). Here is a statement of fact… Insurance policies do not cover everything! While both auto and home insurance policies do provide broad coverage, there are some perils that are not covered that you need to be aware of. Let me give a couple of examples from the homeowner policy.
Earthquake is an excluded peril in the basic homeowners policy. Now, you can buy earthquake protection by either adding it by endorsement to your homeowners policy or buying a separate policy. Now, might this be important to you if you live in California? I certainly think it is worth investigating what earthquake coverage will cost you and what it will cover if an earthquake occurs. You can then make a decision for yourself. If and when the earthquake comes you won’t be surprised with the protection you have (or don’t have). Flood is excluded under a homeowners policy. This means if water enters your house from the ground outside your home, the damage it does is not covered. Now, some people live in “designated flood zones” where they must carry flood insurance if they have a mortgage. But statistics reveal that fully 25% of flood victims live in areas that are not designated as flood zones. You can buy flood insurance… and it is relatively affordable. My suggestion is to get a proposal for flood insurance and decide for yourself if it is worth your while. If you are operating a business from your home and have not purchased additional protection, you may not be covered for certain kinds of losses. For example, if someone comes to your house for business purposes and gets injured on your property and brings a lawsuit… you will probably not be covered. Why? Because business exposures are not covered in a homeowners policy. So, if you are operating some kind of business from your home, discuss this with your agent and he/she may be able to provide some 7
affordable protection for you by endorsing the policy to extend the policy to cover your home business. If you are dealing with a professional insurance agent/agency and completing your annual reviews… the above issues will have been discussed and you will know exactly where you stand.
Costly Mistake #6: No Umbrella Liability Policy. (What? You mean that’s all the liability protection I have?). Let’s face it, we live in a litigious society today… especially if you reside in California. Lawsuits are on the increase and the average settlement is growing each year. Have you ever stopped to wonder how it might be on the wrong end of a personal injury lawsuit? Any of us who drive our car down the road each day are exposed to the possibility of a serious car accident where we may be at fault. And, if you are at fault, are you certain you have enough liability protection to fully protect your assets and future net worth and income? If you’re not sure, or feel you may not have enough protection, then you should consider a personal umbrella liability policy. An umbrella liability policy is so dubbed because it acts like an umbrella, poised above a person’s auto and home liability insurance policies to provide additional protection when needed in a lawsuit. It kicks in when the underlying insurance limits are reached, paying for judgments and attorney’s fees up to the limit you choose. The typical amount of protection in an umbrella policy is $1,000,000 (above your auto and homeowners policies). Of course you can get higher limits if you need them. Many people feel they can’t afford an umbrella policy. Yet, they are relatively inexpensive for most people. The average cost for umbrella policies is around $200 per year for a family with one home and a couple cars. In some cases, the cost for the umbrella can be absorbed by just raising deductibles on your home and auto policies. An article in the Wall Street Journal, August 3, 2008, edition had this to say about umbrella policies: “Umbrella policies used to be viewed as something needed only by the wealthy. But with changing economics and the fact we’ve become a very litigious society, it makes sense for all homeowners to now have some umbrella coverage.”
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I completely agree with this assessment. If you’re a homeowner and concerned about your financial future and security, a personal liability umbrella policy is an absolute necessity. And if you coordinate your insurance program intelligently, it can end up costing you next to nothing. A good, professional agent can help you do this. Let me conclude by summarizing what you can do as a consumer to make sure you’re not making costly mistakes with your personal insurance program. And this time, I’ll couch it in a positive light: 1. Make sure you’re working with a professional insurance agent/agency. 2. Coordinate your personal protection to remove any gaps in coverage. 3. Make sure the limits on your auto liability and home are adequate. 4. Review your personal insurance with your agent/agency on at least an annual basis. 5. Consider the perils (like flood, earthquake, and home business exposures) that are not typically covered under a basic policy and make a decision on whether you need to buy additional coverage. 6. Consider the purchase of a personal liability umbrella policy to protect your assets, income and future security. By doing these things you’ll end up with better protection… and a more secure future for you and your loved ones.
Scott Bosler, PLCS, CA License #0G24420 Scott Bosler is the Sales Partner at Central Valley Insurance Agency. He is a Personal Lines Coverage Specialist (PLCS), a designation from National Underwriter awarded for advanced studies in personal lines insurance. Scott’s “Personal Risk Discovery Process” helps families identify the risks they face in their personal walk of life with the objective of providing maximum protection with the least out of pocket cost. Scott can be reached at (559) 802-4094 or scottb@centralvalleyins.com.
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Comments from some of CVIA’s happy clients:
“I want to thank you folks at CIG Central Valley Insurance for your excellent work with my insurance program. After working with Scott, I now feel I’ve got the kind of protection I need for both my car and home insurance. And with the umbrella policy, I almost feel “bullet-proof” against a lawsuit from a serious car accident. Also, your office was a pleasure to work with in getting all this done. Thanks!” Matt Morgan, Tulare
“I was pleasantly surprised to find that through CIG and Scott Bosler at Central Valley Insurance we were able to get much better protection than we had before and save money as well. Just as important, we feel secure knowing that if we have a claim in the future we’ll be taken care of by CIG. Thanks for your help, Scott!” Chris Keck, Visalia
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