Personal Insurance Protection Principles Based on Dave Ramsey’s Financial Peace University A consumer guide on how to fully protect your financial “nest egg” when the unthinkable occurs as a vital part of a total financial plan. Phil Oliver, Managing Partner, CIG Central Valley Insurance Agency 6/1/2010
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Personal Insurance Protection Principles How to Fully Protect Your Financial “Nest Egg” When the Unthinkable Occurs Based on Dave Ramsey’s Financial Peace University Like hundreds of thousands of Americans across the United States have found, Dave Ramsey‘s ideas contained in Financial Peace University are a great source of information to help families manage their finances in these difficult times. Whether you found him on cable TV, radio, the internet, or have attended one of his FPU programs at a local church, Dave makes sense in these turbulent times we live in today. Our insurance agency , CIG Central Valley Insurance Agency, and our advisors who work with our policy clients, have all studied his program and are in full agreement with the concepts he so capably presents. When we discovered his Endorsed Local Provider program, we felt it was a good fit for us, so we applied and were immediately accepted by Dave and his staff. By the way, we’re told that not every insurance agency can qualify to become an ELP. There is a long application and many hurdles are presented to become an ELP. Mainly you have to believe in the FPU concepts and agree to conduct business by the highest standards in the industry.
Our Agency Beliefs and How We Work Our agency has always believed in the Dave Ramsey concepts, and the procedures we follow forge a pattern of high standards in dealings with prospects and clients. In this whitepaper, I’ll explain the principles and concepts we believe concerning “Personal Lines Property and Casualty Insurance” (auto, home, renters, umbrella liability, boat, and other insurance products to protect your personal valuables and assets). I’ll also reveal how we can work with you so it becomes clear what your needs and wants are for personal insurance protection, and then help design a program of protection that will give you the protection you need at a price you can afford. By the way, if you decide you want to work with us, there is no charge for our planning services. We will collect the information we need from you in a way that’s most convenient. Then we’ll put together a plan that is designed to fully protect the things most important to you, hopefully at a price you can afford. Then you’ll have an opportunity to look it over and make sure it fits. No high pressure, just good advice. Of course, you make all final decisions. Our only request is this. If what we present to you makes sense and is an improvement over what you have now, we ask that you reward us with your business (auto/home insurance, etc.). If it doesn’t make sense and isn’t an improvement, you should feel good knowing you got a second opinion on your insurance program from one of our advisors and are in good shape. We’ll part good friends knowing we provided a valuable service and you feel better about your personal insurance program. www.CentralValleyIns.com
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The Problem with Insurance “Quotes” I’ll bet I know what some of you are thinking right now. “Why don’t you just give me a quote on my car/home insurance? What’s all this talk about information gathering, planning, needs/wants, etc. Most insurance agencies and companies I see advertise just want to give me a quote. Well, here’s the difference. A quote means to me you tell an insurance sales person the coverage’s you have on your car and/or home insurance now, and they give you a price on the those same coverage’s to see if they can give you a price lower than you have now. If the price is lower they hope they can get your business. If the price is higher, well, in most cases, you’ll just stay with what you have now. Pretty simple. But this process is only appropriate when selling “commodities” (like “pork bellies” and gas for the car). Insurance is not a commodity. You get this wrong and it’s possible to lose big‐time. Just ask someone who lost their home in a southern California wildfire and can’t rebuild because they’re short on coverage in their homeowner’s policy. The insurance commissioner estimated that up to 40% of the fire victims were in this situation. You don’t want to get caught in this type of situation. And the practice of “quoting” insurance leads to this type of underinsurance. This “quoting ritual” has become so prevalent in our business, but is contrary to what Dave Ramsey teaches. As an insurance advisor, if I give you a quote on what you have now, how do I know the insurance coverage’s you have now are adequate for your needs? Well, I don’t, and that’s why it’s important to ask a lot of questions to find out what your needs are exactly.
Personal Insurance Protection as Part of Financial Planning Process Dave Ramsey is a big believer that adequate personal insurance protection is a vital part of the financial planning process. Further, the purpose of insurance is to transfer the risk of loss to the insurance company. This allows personal assets, savings and investments to be protected from legal judgments and catastrophic events. The amount of insurance protection one should purchase is different for each person based on their individual circumstances. www.CentralValleyIns.com
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For example, if I were a multi‐millionaire, my need for liability protection is much greater than if I’m just getting started building my financial nest egg. My need for liability protection is relative to my net worth and annual income. That’s why it’s important to ask many questions in the planning process. One size does not fit all. So, the design of personal insurance protection is a vital element of a comprehensive financial plan. And just getting a “quote” is often a mistake… unless you fully understand exactly what your protection needs are. And in my 30+ years in this business, I find most people would prefer some advice on this matter. Insurance can be complicated. This is what our agency and our advisors specialize in... Advice on how to design a customized program of personal insurance to protect assets and investments from a catastrophic event that could destroy in a heart‐beat what takes a lifetime to build. One can compare this to the feudal days of old when rich landowners would display their wealth by building an ostentatious castle on a hilltop. To protect the castle from the “Huns” who wanted to plunder and pillage, they surrounded the castle with a moat. The purpose of the moat was to protect the castle from invasion and destruction. This is what your personal insurance protection is for you… A moat that surrounds your castle (savings, assets, future income and investments).
Other Dave Ramsey Personal Insurance Principles Here are some other principles Dave teaches in FPU concerning personal insurance. To avoid a major loss of assets and possible bankruptcy, be sure to obtain adequate limits on your auto and home insurance policies.
This seems to be a fairly simple concept, but you’d be surprised at the high percentage of people who are underinsured when we first meet with them. The first mistake I often see is in the amount of dwelling coverage on their homeowner’s policy. I wrote earlier that the insurance commissioner estimated that fully 40% of homeowners were underinsured in the recent CA wildfires. Many could not afford to rebuild their homes after the fire without having to downsize or relocate.
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What a shame!
So, how did these unfortunate homeowners get into this position? Well, there is more than one reason for this. The most prevalent reason we see is the home is insured for “Market Value” rather than “Replacement Cost”.
We are now seeing this “underinsurance” problem more often now in California because of the depressed home prices in many areas. The house that was purchased for $400,000 three years ago may only appraise at $250,000 today because of the depressed market. But it may cost almost as much to build new because building costs have not decreased significantly. Because of these market conditions, there is tendency to insure the house for market value rather than the higher replacement cost amount. Why? Because the premium is a little lower and some believe they can build it back for the market value coverage they have.
Be sure to insure your home for replacement cost, not market value. Here’s why this is vitally important to you as a homeowner and why it’s critical you understand exactly how your homeowners policy will cover in a total loss: It is more expensive to build after a total loss (for example a fire) than to build a new home on an empty lot. And this can often be much more expensive, especially if it is a catastrophe where many homes are affected at the same time. The law of supply and demand forces building costs to go up dramatically. All homeowner’s policies are not created the same. This is especially true when it comes to a benefit called “guaranteed extra protection”. If your policy includes this coverage (not all do), it will provide additional coverage for the dwelling beyond the limits declared in the policy. Some policies provide no extra coverage at all, while others will pay a percentage above the policy limits for extra protection. The most common amount I see is 25% extra coverage. This means if the house burns down and dwelling coverage is exhausted, the extra coverage would pay an additional 25% to continue rebuilding.
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There are a handful of companies who issue homeowner policies in the California market that will double the amount of coverage on the home, if it is needed to rebuild the house. So, if the dwelling coverage is $400,000, an additional $400,000 would be provided if needed to rebuild the dwelling after a total loss. So, make sure your homeowner’s policy covers your dwelling for the full replacement cost. Your agent will often use a “replacement cost calculator” to help you determine this amount. I also advise you to seek out policies that will pay up to 100% extra to rebuild your dwelling if you need it in a total loss. These policies typically don’t cost any more than other policies with less coverage. Be sure your liability limits are enough to protect your assets and future income if you’re sued. The other area where I see people making mistakes is in the area of limits for their auto and home liability coverage’s. Here’s the problem. Many people are carrying liability limits too low to fully protect their income and assets now and into the future if they were to get drawn into a major lawsuit as a result of an accident of some kind. Let me give you an example of how this could happen. In the Central Valley of California where I live and work, we get a lot of fog in the winter. Sometimes you can barely see the road it gets so thick at times. And yet many of us still have to commute to work in these conditions. At least once each year (and sometimes several times) we read of 25 car pileups on Highway 99, with several serious injuries (and even deaths) and hundreds of thousands of dollars of property damage. What if you were the cause of one of these 25 car pileups? Let’s just suppose I’m driving to work one morning in the fog and I reach down for my thermos of coffee and slam into the rear end of the car in front of me. My inattention and driving too fast for the conditions then causes 23 cars to pileup behind me. After I make it home that day (if I’m not in the hospital), I might be inclined to pull out my auto insurance policy to check my auto insurance coverage’s. If I were a typical person we often meet in our first planning appointment, I might see these limits of liability in the policy… $100,000/300,000/50,000. What does this mean to me? Let me explain. It means in the event I am negligent in a car accident and cause injury or damage to other people or their property, my insurance company will come to my aid to defend me if I get sued. So far, so good. www.CentralValleyIns.com
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Here’s the potential problem. Once the insurance company has paid out $100,000 for one person in the other car for their injuries (medical bills, lost wages, pain and suffering, etc., etc.), $300,000 for all persons injured, and $50,000 for the property I damage or am responsible for damaging by my negligence, the insurance company will stop defending me and stop paying for my negligent actions. I am now on my own and the law suit may not be over! Ouch! Could this be a problem for me? You bet… it can be a serious problem. If you’re deemed to be at fault in this accident and your insurance is exhausted, you have just exposed your personal assets and future income to the claims of dozens of victims and their insurance carriers who are trying to collect for their losses. And for just a few extra dollars each month I could have had the limits of liability protection that would have fully protected me and allowed me to get the sleep I really needed after all the commotion and worry of the accident. So, you stop and ask yourself, “How did I end up with these limits”. Then you recall you changed your car insurance from “abc agency” to “xyz company” because you saw their cute ad on TV and called their 800# for a “quote”. The nice lady on the other end of the phone asked you what coverage’s you have now and then gave you a “quote” based on the same. You remember thinking how quick and painless it was to get a quote on your car insurance. And they were able to save you 15%... so you went ahead and made the change. The problem with this scenario is that you may have been carrying these same limits of liability on your cars for the past 15 years! Fifteen years ago, it may have been adequate. Medical costs were 1/3 as much then and $15,000 would buy a very nice new car. But inflation has made these limits inadequate for you today. And, if you’ve been attempting to build your nest egg for retirement and your income has increased in your career, this also calls for higher limits of liability. So, one of Dave’s primary principles is to get those liability limits high enough to protect yourself in the event of a major law suit. Just one such event without enough protection can completely destroy your financial house. Consider a Personal Liability Umbrella Policy One of Dave’s persistent recommendations is to consider a Personal Liability Umbrella Policy. Many of you have heard of this type of insurance policy, but in case you haven’t, let me describe it to you. 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 www.CentralValleyIns.com
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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. Some people may 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. A little later I’ll share how you may be able to secure your umbrella policy without any extra out of pocket expense. 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.” The advisors at our agency and Dave Ramsey would agree with the conclusions of this article. If you give us the opportunity to work with you, we’ll try to find a way you can get this valuable protection and fit it inside your budget. Thinking back to the “25 car pileup accident” scenario, if I had an umbrella on top of my existing auto insurance policy, my worries would probably be over. I’d have $1,000,000 (on top of my car insurance limits) of additional liability protection to keep my financial house protected. My moat prevented the destruction of my castle! How to Find the Money to Pay for Extra Liability Protection and Umbrella At this point I know what some of you may be thinking… “Where am I going to get the money to pay for this extra protection you say I need?” And you’re right to be thinking this way as we all have limited budgets. Let’s be sure why Dave Ramsey and our advisors are so insistent on high limits and possibly an umbrella. It’s for this reason: You can get rid of all your debt and save up a large nest egg for the future. But if you’re underinsured in any of your liability protection areas (auto, home, etc.), you could lose it all in an instant through an unfortunate accident. So, where do you find the money to purchase this additional liability shield? Here are some practical tips for you: Raise your deductibles. Many times the entire savings can be found right here to both increase liability limits and get an umbrella policy. For some of you, anything www.CentralValleyIns.com
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less than a $1,000 deductible is probably a waste of premium anyway. I like to call this, “spending your insurance dollar effectively”… Where it’s needed most. Don’t insure older cars for physical damage coverage’s (comprehensive and collision). If you have an older car that’s not worth much (say $3,000 or less… you decide the amount), take off the comp and collision coverage and lower the premium. Keep your driving record clean of tickets and accidents. You probably already know they can increase your rates, so strive for a clean MVR to help reduce auto insurance rates. Insure your cars with the same company that insures your home. This can save you up to 25% on premiums. Be reluctant to submit small property claims. This goes along with higher deductibles. Keep your insurance history in good shape so you’re eligible for the most competitive rates with the most preferred insurance carriers in the market. Over the years this can make a big difference. Review your insurance with your agent/agency on at least an annual basis. This will help you get rid of any gaps in your coverage’s and help you discover additional discounts you may be eligible for.
The bottom line of our discussion is you don’t necessarily have to pay much more to have really good insurance protection. In fact, I have seen where we can raise liability limits, get an umbrella policy… and lower combined premiums paid all at the same time. In fact, our agency does this quite often for people and they are amazed by it. But it does require a little time on your part and the willingness to work with a professional advisor that understands how to pull this all together. So in summary, Dave Ramsey would have these recommendations for your personal insurance protection program: 1. Get your home insured to its full replacement cost value to avoid a huge loss in a catastrophic event. 2. Protect your nest egg and future by increasing your liability limits on auto and home to appropriate limits for your individual needs. 3. Consider the purchase of a Personal Liability Umbrella Policy for the best protection and security. www.CentralValleyIns.com
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4. Don’t spend insurance dollars protecting exposures you should self‐insure (especially consider higher deductibles to reduce premiums). By doing these simple things you’ll have the best insurance protection possible and not waste precious dollars better utilized in other areas of your financial plan. You’ll also have the peace of mind that comes from knowing if that major loss or lawsuit comes your way, you’ll have the protection you need to keep your financial house in good shape.
Meet the “Protection Team” at CIG CVIA
Scott Bosler, Personal Lines Coverage Specialist (PLCS) A partner at CIG CVIA, Scott is a former Lead Pastor of a church and a huge fan of Dave Ramsey. With the “heart of a teacher”, his objective in working with clients is to help them achieve maximum protection with the least out‐of‐pocket cost. You can email Scott at ScottB@CentralValleyIns.com. Lic #0G24420
Mark Jennings, Chartered Financial Consultant (ChFC) A partner at CIG CVIA, Mark has 25+ successful years of financial services experience assisting clients with a wide array of services. His passion for excellent customer service forges close relationships with his clients. You can email Mark at MarkJ@CentralValleyIns.com . Lic #0736522
Dee Dean, Personal Lines Agent With more than 20 years experience in the insurance business, Dee works closely with her clients to help them achieve the protection they need at a price they can afford. Her attention to detail and customer service “wows” her clients consistently. Email Dee at DeeD@CentralValleyIns.com. Lic #0B05804
Phil Oliver, LUTCF, Managing Partner With more than 30 years of insurance agency experience as an agency owner, advisor, and manager and trainer, Phil’s vision for CIG CVIA is to create an agency focused on client needs and service. He is the author of this whitepaper. You can email him at PhilO@CentralValleyIns.com. Lic #0548322
Contact Information for CIG Central Valley Insurance Agency: Phone: (559) 802‐4094 Email: info@CentralValleyIns.com Website: www.CentralValleyIns.com
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Our Clients Say it Best “Mark, I just want to thank you for the great services you have provided to Joe and I all these years… We are indeed fortunate to have found you as our financial advisor. We shall always recommend you to anyone looking for a great financial advisor!” Rachel Munoz, Visalia “I would recommend Scott Bosler and CIG CVIA. Scott I believe could be competitive with any insurance company on price, but for me it’s the price, but also the “lost art” of customer service.”
Diane Owensby, Visalia
“I was pleasantly surprised to find that through CIG CVIA and Scott Bosler 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 “Scott explained the complete services you offer and why it’s necessary to have each type of service all under one company. I needed this explanation in a way to understand all the benefits. I have already referred my daughter to Scott for her insurance.” Glenda Conner, Visalia “Central Valley Insurance treats me like a friend… not just another client. My questions and concerns are addressed immediately and if Mark is not sure of the information, he does call you back! Thank the lord someone in this business does call you back when they say they will. Going the extra mile does not even begin to describe how CIG CVIA works. Thank you so much for everything.” Marilyn Thomas, Visalia “Everyone in your office is very efficient, helpful, considerate, and very professional!” Vera Bergoon, Visalia
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More Kind Words from our Clients “CIG was very helpful in looking at our needs and matching exactly what we needed, no more, no less. They gave us better coverage at a lower annual rate. And now we even have an umbrella policy.”
Jay Irvine, Visalia
“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 law suit from a serious car accident. Also, your office was a pleasure to work with in getting all this done. Thanks!”
Matt Morgan, Tulare
Dave Ramsey Referrals’ Comments about CIG CVIA (names not revealed) "CIG was a no brainer for my wife and I when it came to getting new car insurance. Mark walked us through all of our questions and made suggestions based off of what Dave teaches in FPU. Now thanks to ELP and CIG not only do I have better coverage and a helpful staff but a cheaper rate on our insurance! Thanks Dave for the ELP service"! "Very helpful in helping us make a change from a long time insurance provider. And, kept to Daves standards. Thank you Very Much!" "We had a wonderful experience with Scott Bosler. He was very professional and friendly. He explained everything to us in detail and we learned alot about insurance that we were not aware of prior to this experience. We feel confident that we are covered in the event of an accident and the prices were not much more than the other policies with much less coverage and service. Thank you Dave for recommending Scott. And thank you Scott for our excellent service!" "Scott Bosler is exactly what I was looking for... he was a perfect fit for my situation and will use him in the future for all my insurance protection needs." "Scott was very helpful and kind. His heart was very much in tune with God. Very kind and helpful with a listening ear. Felt very comfortable talking. Felt that God was in the midst of our conversation." "Scott was very friendly, encouraging and professional. I highly recommend him as an ELP. Thanks!"
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