Many families think of insurance as a necessary evil and push the thought of an insurance review to the low end of the priority list. However, personal insurance—i.e., homeowners, auto, valuable collections, and umbrella liability insurance—are an important part of an efficient financial plan. Neglecting your insurance coverage can lead to unintended levels of risk.
A good place to start is to evaluate your current level of liability coverage. A recent survey of independent insurance advisors revealed that high-net-worth families are most likely to be underinsured for liability insurance. Court settlements can often run millions of dollars, yet many wealthy families carry $2 million or less in liability coverage. Having the right amount of liability coverage is just as important as having the right types of liability coverage. Serving on the board of a charitable organization exposes you to lawsuits that would not be covered by basic liability coverage in an auto, home, and umbrella policies.
Your insurance review should also consider whether higher deductibles would be worth the reduced premium costs. Premiums are higher for a $500 deductible homeowner or auto insurance policy than for a $2,500 deductible. Many people don’t even file a claim when a minor accident occurs because they don’t want their premiums to go up. If you can afford to pay the entire cost of repairing the damage anyway, you should consider a higher deductible amount to achieve substantial savings on your premiums. Increasing the deductible from $500 to $2,500 on a million-dollar home could save nearly $1,000 each year. You would only need to go two years without a claim to break even and statistically, homeowner claims happen only once every 9 years.
Reviewing your insurance coverage should be part of everyone’s annual financial checkup. Don’t neglect this important area of your financial wellbeing.