Advice, Take it or Leave it

Back in the day, and by this I mean up until this year, I worked in the Financial Services industry as a Financial Advisor and Insurance Agent. 

Then the recession occurred.  And I decided that, instead of foregoing any kind of work/life balance to keep my struggling business afloat, I would cut my losses and pursue another track, taking a position with a company that will provide tuition for a Master’s program. 

But through my experiences, I learned a great deal and am pleased to provide insights and thoughts regarding money and insurance. 

Please note, that these are OPINIONS and before acting on any of the tips described here, you should always consult your financial services and insurance agents.  The information discussed here is not to be taken as an offer to sell or provide any sort of financial advise or products.  I’m just offering my $0.02 worth.

We will start with an article that I wrote for Associated Content:

Insurance Tips from an Insurance Professional

Things to Know when Shopping Around

Insurance is a robust subject, with many caveats.  This is the reason that insurance professionals must take continuing education classes to acquire credits to renew their insurance licenses each year.

As such, I did not expect clients to know all the ins and outs of their insurance policies.  As an agent, I worked as an insurance advisor and it was my job, my responsibility to guide the clients in the right direction.

I noticed that many people do not really know or understand insurance policies or what to look for when buying insurance.  In an effort to educate, I would like to share a few thoughts about insurance policies and the needs that facilitate said protection.

Do not be cheap when it comes to reconstruction cost

According to Marshall Swift/Boeckh, a building cost data provider, 58% of American homes are underinsured by an average of 21%.  Just because the value of your house has decreased the past few years by 30%-40% does not mean that it will be any cheaper to rebuild. Reconstruction cost is more expensive per square foot than new construction.

Increase those deductibles

High deductibles can save hundreds of dollars per year.  I recommended that affluent individuals consider $5,000 to $10,000 on homeowner policies and $1,000 to $2,500 on auto policies.  The reason is that low deductibles raise the premiums by substantial amounts, and given the likelihood of a claim on any certain day, those low deductibles are most likely a waste of money if one can afford to pay the higher deductible.  Raise the deductibles and put the savings into a cash reserve.  That way, in the event of a claim, you’ve got the cash on hand to pay the deductible.  After you’ve got enough in the reserve to pay the deductible, put the savings toward your long-term financial goals.

Many people over insure for the small losses and under insure for the large losses

Stop doing it.  Consider the following situation: You’re driving your white Chrysler minivan during the winter and slide through an intersection just as someone is stepping off the curb.  I’m sorry, but the state minimum liability limits that make your car legal are not going to cut it.

Let’s look at liability limits.  The state minimums in Missouri are 25/50/10.  The first number (25) stands for $25,000. This is the maximum amount the insurance company will pay per person in the other party (the person stepping off the curb).  The second number (50) stands for $50,000 and is the maximum the insurance company will pay per accident TOTAL.  (So if you hit a car containing two people, each person in the car would get no more than $25,000, and no more than $50,000 would be paid out for the accident).  The third number (10) stands for $10,000 and is the maximum amount the insurance company will pay for property damage.

Now think about the possible worth of an individual.  How much are you worth?  If you were the one who stepped off the curb and got creamed, for how much would you expect your loved ones to sue?  And if you didn’t die, could you continue in your line of work?  How would you pay for medical bills if the maximum amount you received was $25,000?

As one can see, carrying the minimum limits on an auto policy is not only short-sighted, but, I would argue, rude.

So, is 100/300/100 enough?  Probably not.  I  always recommended to carry 500/500/100.  The reason is this: you’ve increased your deducible from $250 or $500 to $1000 or more.  This has saved you money.  Take a portion of the money you’ve saved and increase your liability limits to 500/500/500.  You’ll still be saving money, you can worry less about a big loss and you’ll no longer be rude.  It’s a win/win/win situation.

There is one more step, and it is called “excess liability” or “umbrella” coverage.  Get an umbrella policy.  The amount you should have varies upon the area in which you live and how much you stand to lose in the event of a judgment against you.  Your net worth is a STARTING POINT for thinking about large losses.  For example, if you are worth $1 million, a $1 million umbrella is probably not going to protect you from a $2 million legal judgment, since it would still be worth the attorney’s time to attach all of your personal assets.  In my book, millionaires should have umbrellas STARTING AT $3 million.

Endorse your policy

If you’ve got a home-based business or high value items or collections, make sure you’ve got riders and endorsements on your policy.  If your $10,000 fur coat, $30,000 diamond ring, or $120,000 wine collection is damaged, the value will not be covered on your policy unless you have an endorsement on said policy.  You might spend an extra $20-$100 per year, but you can sleep well knowing that your precious items are insured for their full value.

Find a good agent

The value a good agent can provide you is invaluable.  I realize that in this day and age, it is simple to acquire insurance without ever talking to a live individual. It might save you money.  But look at what you lose.  In the event of a total loss on your home or a judgment against you due to a car accident, that close relationship that only a 1-800-number provides probably will not help to ease your burden like an agent can.  It cannot give you advice on your insurance coverage, and it certainly will not be there for you on a personal level if a catastrophe occurs.

Do a needs analysis for your life insurance policy

Do you have life insurance through your work?  Most people who work for large companies do. What happens if you become disabled? Will the employee life insurance still be in effect? What if you leave this job and take a new one without life insurance coverage? Can you move your policy? How much life insurance do you have?  There are a number of ways to determine the correct amount of life insurance, and all of them should include a fifteen minute needs analysis.  Did you do needs analysis when signing up for the $50,000 life policy you obtained through work? Probably not, which means you do not know if you have too little life insurance or (rarely) too much.

Many agents start at ten times the annual salary of their clients.  This is a good starting off point, but there are other questions that will play a role in determining the correct amount of coverage (What is the goal of the life policy?  Will it pay for college for the kids or just cover the funeral expenses?).

What type of life insurance you should have also plays a role in the needs analysis.  For instance, a Term policy will typically go away after a stated amount of years, whereas a permanent policy will last throughout your whole life.  Do you need the life insurance to cover a temporary need or a permanent one?

I hope that these thoughts have made the reader think about their current insurance coverage.  When was the last time you sat down with an agent and thoroughly discussed your insurance?  You’ll spend more on insurance throughout your life than you will on anything else.  Does it not make sense to review it to make sure no changes should be made?

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