In our last post we discussed how to protect your credit and your identity, this post will focus on protecting you and your family should something happen.
Most people only get advice about insurance from someone trying to sell it to them or they don’t get any advice at all. It is important to understand all the different types of coverage as well as what is really covered in your current policies.
Since most of us do not have the time or desire to review our insurance details, I will provide a brief summary of the most common policies and key things to be aware of when reviewing your overall protecting plan. Note: it is always best to talk to your trusted advisors before making any insurance decisions as policies and coverage are always changing.
Personal Auto Insurance
Who is Covered?
The car insurance follows the car, basically whoever is driving your vehicle is covered under the auto insurance policy; as long as they are immediate family or have your permission to drive the car.
Specifics About Your Coverage
LIABILITY LIMITS (MOST IMPORTANT)
- Covers bodily injury and property damage, usually noted in split limits such as 100,000/ 300,000/ 50,000.
- $100,000 is the maximum amount that will be paid to any one person for bodily injury
- $300,000 is the aggregate that will be paid for all bodily injury
- $50,000 refers to the aggregate property damage claims
- Rule of thumb is to have liability limits 1 to 2 times your net worth
- Coverage for damage to your car due to impact with another vehicle or object. Basically, it is how much your insurance company will pay if you hit a tree or are in a fender bender.
COMPREHENSIVE or OTHER COLLISION
- Coverage for car damage other than collisions, such as glass breakage, falling objects, fire, hail, water, and vandalism.
- If the value of your car is low, comprehensive insurance may not be needed.
MEDICAL PAYMENTS (MED-PAY)
- Coverage for reasonable and necessary medical expenses of an insured as a results of an auto accident.
- Only covers expenses rendered within 3 years of the date of the accident
UNINSURED MOTORIST COVERAGE (UM)
- If you are in auto accident and the other drive as at fault but not insured. Your insurance company will pay for you and your passengers medical expenses, lost wages pain, suffering and car damage.
- Applies when the other driver does not carry insurance or is a hit-and-run driver.
- Many states require drivers to carry UM insurance due to the high number of uninsured drivers on the road.
UNDERINSURED MOTORIST COVERAGE
- Coverage for damage differences, in the case the other driver (who is at-fault) has insurance but the limits are not enough to cover the liability (auto and bodily damage).
- Your insurance company will make up the difference for you and your passengers so you do not have to pay out of pocket.
- Can save you from paying for an accident you did not cause, but can be costly if you live in a state with many uninsured drivers.
Home Owners Coverage
Who is covered?
The homeowners and their family living within the house.
What is covered?
Standard homeowner insurance covers damage to both the structures and personal property caused by the following:
Fire, extreme weather (lightening, hurricane, tornado, hail etc) explosion, riot, civil commotion, theft or vandalism, major household system failure (heating & air conditioning)
What is not covered?
Floods and earthquakes
Specifics About Your Coverage
- Coverage includes any structure ATTACHED to the house such as garage, fences, and decks.
- Structures not attached are covered in the “other structures” category.
- Your home should be covered at least 80% of the replacement cost to rebuild.
- Covers the items inside your house should they get damaged by a fire or stolen.
- Most policies may only cover $1000 worth of jewelry, if you own valuable items such as furs, jewelry, silverware you will need an additional floater policy.
- Most policies are set at 50% of your dwelling coverage.
LOSS OF USE
- Coverage for additional living expenses arising from damage to your home
- Coverage provides protection for damages when an insured (home owner) is legally liable for bodily injury or property damage.
- For example, if someone trips on your broken deck and you are found at fault, the insurance company will help pay for the legal fees and medical bills for the visitor.
Personal Umbrella Policy (PUP)
What it is?
Coverage, which protects you when your “regular” insurance (home and auto) is not enough.
- Example: if you are at fault in an auto accident hitting causing the other driver to miss work for 6 months. Little did you know the driver was a high paid surgeon where missing 6 months of work will result in a huge loss of wages. Your insurance will coverage damages up to $250,000 but the surgeon is suing you for $1 million. If you have an umbrella policy it will cover the gap.
- It’s worth the cost, for an additional $1 million in coverage, you may only need to pay an additional $200 in premiums each year.
- You are protected no matter where you are in the world
- Policies usually sold in million dollar increments and range from $1 million to $10 million.
In summary, make sure you are protected and know the details of your policy. Our next post will focus on disability insurance, life insurance, and professional insurance/malpractice.
Personal Finance Series
This is the fourth post of a 10-part series. Links to the first three available below:
1. Financial Organization
2. Personal Spending Habits
3. Identity Protection
4. Protection Planning and Insurance Coverage
5. Tax Planning
6. Portfolio Net Worth
7. Stock Options
8. Estate Planning
9. Retirement and Education
10. Dream Planning
11. Career Opportunity
By Elizabeth Cumby, MBA - Finance Expert and Entrepreneur