Introduction to Property and Casualty Insurance
It’s Brian Preston, the Money Guy. When I say “Property and Casualty,” that’s a fancy way of saying ensuring your home, cars, boats, motorcycles, and all the toys. How do you cover the house, the toys, and all the other things? You don’t hear a lot of people talk about Property and Casualty, so there’s a lot of hunger for information. Let’s dive in.
Understanding Homeowners Insurance
The first major asset for most people is their home. It makes sense to understand your homeowners insurance beyond just paying for it. When you go to get homeowners insurance, it’s easy to assume you’re covered, but are you really? If something bad happens—like a fire or a flood—do you know how much you’ll be reimbursed? The language in your policy matters.
Different Types of Coverage
You need to understand terms like “Actual Cash Value,” which refers to the maximum amount your insurance will pay to replace your home. Then there’s “Replacement Cost Value,” which is based on an analysis of what it would cost to replace your house. The best option is usually “Extended Replacement Cost,” which gives you an extra 20–25% cushion above what the expert estimates it will cost to rebuild.
Why Extended Replacement is Ideal
Why should you consider going above the expert’s estimate? Well, during a major disaster, like a hurricane or fire, multiple homes may be damaged at once. This leads to scarcity in resources, causing the cost of rebuilding to rise. Having that 20–25% cushion is a good idea to account for that increase in costs. Plus, if you’re upgrading your house (say, replacing old appliances with granite countertops or stainless steel), that’s also going to cost more than the original estimate.
Ways to Save on Homeowners Insurance
One way to save money is by excluding land from your coverage. Land doesn’t get damaged in a disaster, so you don’t need to insure it. If your home costs $300,000 but $50,000 of that is land, you only need to insure the house itself, reducing your premiums.
Umbrella Insurance
Many people, including wealthy ones, often don’t have what’s called umbrella insurance. This insurance sits on top of all your other policies—home, auto, boats, and personal liability. It protects your current assets and future earning potential. It covers incidents that exceed the liability limits of your primary policies.
What Does Umbrella Insurance Cover?
For example, umbrella insurance covered all the medical expenses and liability in a case where a child threw a rock at a school bus and injured another child. Umbrella insurance also covers household members, including children, even when they are away at college. You can typically get $1 million in umbrella insurance for less than $300 a year, which is a great value considering the protection it offers.
Additional Protection for Your Belongings
Another important aspect of homeowners insurance is covering your belongings. Create a visual record by filming your house with your phone. This record can serve as evidence for your insurance company if you need to claim losses. This simple step can help you document valuable items like TVs, appliances, and furniture.
Insuring Unique Collections
If you own valuable items like jewelry, artwork, or collectibles, make sure they’re covered under your policy. Sometimes, you may need to purchase additional protection or a rider to cover these items properly.
Buying Insurance: Broker vs. Captive Agent
When purchasing insurance, consider whether to buy from a broker or a captive agent. Captive agents typically represent one insurance company, while brokers offer a variety of products from multiple companies. Brokers often have access to more options, but that doesn’t mean you can’t get a good deal from a captive agent.
Choosing the Right Deductible
Choosing the right deductible is crucial. Some people prefer higher deductibles to save on premiums, but if you’re the type to file a claim for minor damage, a higher deductible might not make sense. Consider the cost-benefit of different deductible options before deciding what works best for you.
Flood Insurance: Why You Might Need It
Lastly, consider flood insurance. Even if you don’t live near a creek or river, melting snow or an above-ground pool could cause flooding. Many people don’t realize that typical homeowners insurance doesn’t cover flood damage. You can assess your flood risk using resources like Flood Tools or FEMA’s National Flood Insurance Program. Flood insurance premiums are regulated by the government, and you can often get basic coverage for under $500 a year.
Conclusion
Understanding the ins and outs of Property and Casualty insurance, including homeowners, umbrella, and flood insurance, is essential for protecting yourself and your assets. By being proactive and understanding your coverage, you can ensure that you’re adequately protected without paying for unnecessary extras.
