Forbes - 01/22/14
By Ashlea Ebelling
There’s more to rightsizing your insurance coverage than picking a deductible and paying the annual premium.
“When it comes to personal risk management, it’s so much more than just the purchase of an insurance policy,” says Brian Flood, author of Wealth Exposed, an insurance planning guide for high net worth individuals and their advisors (Wiley, 2013). “You really have to understand your clients’ lifestyle and ask them the right questions.”
Flood and his brother Terry, run The Flood Group, a third generation independent insurance agency in Floral Park, N.Y. They place clients with high-end carriers; the five big players are ACE, AIG, Chubb, Fireman’s Fund and PURE. You’ll pay more in annual premiums going this route than getting a direct quote from Geico or a quote from a State Farm or Allstate agent who only sells his own product. But you’re getting a different type of coverage, and if you pick a good independent agent, you’ll also get handholding in continually reassessing your exposures and finding the best solutions even after you’ve bought your policy.
Example: A client called Flood to say he was hosting a $200,000-plus wedding at his East Hampton house and had hired a trendy restaurant to cater it. So Flood asked the restaurant to send over its insurance policy for review and discovered that it prohibited off-premise catering. A quick call to the restaurant’s insurer to amend the policy to include the wedding as a special event gave the host needed protection.
Another client was moving a valuable art collection from New York City to his retirement home in the Carolinas. To make sure the items were handled and insured properly during transit, Flood introduced him to a company that specializes in the transportation of artwork. The contract reflected the understanding that what they were moving wasn’t just regular household stuff insured on a per pound basis.
So how do you know if you’re at risk? In his book, Flood created a composite couple, Francesca and John, with common risks and problems he’s seen across the years. The book covers much more: protecting your intellectual property, identity theft, international coverage, and aviation and yacht policies (Terry who consulted on the book is a licensed pilot and captain and has made insurance issues relating to planes and boats his specialty).
One of the top insurance mistakes is having a hodge-podge of insurance policies bought from multiple agents, say one for you primary residence, another for a vacation home, and yet a third for your cars. That can leave you with policies that aren’t coordinated, so you have coverage gaps. Here’s a summary of some of the biggest issues facing Flood’s composite couple; see if they ring close to home.
Home Sweet Home. If you have a high-value or historic home, you probably need specialized coverage. A guesstimate of the cost to rebuild only protects you part way. The insurer should send an appraiser to determine an estimated cost to rebuild. Look for uncapped extended replacement cost coverage where the insurer agrees to replace the dwelling even if the replacement cost exceeds the policy limit. And check that the policy would replace any special architectural and historical features if that’s important to you.
Vehicles. Consider increasing your deductible to $1,000 or more, and use the premium savings to increase your uninsured/underinsured motorist coverage (that’s payable to you if you’re in an accident with an uninsured or underinsured driver who is at least partly at fault). Check how your insurer would value your car if you had a total loss: at market value or at an agreed value (you want the latter). If you have collector vehicles, consider antique vehicle coverage that includes unlimited mileage and unrestrictive use.
Collectibles. Often collectibles are woefully underinsured—if they are insured at all. If you have art, wine, or other valuable collectibles, you need a collectibles rider to your homeowner’s policy or a separate collectibles policy. The best policies will pay market value up to 50 percent higher than the scheduled amount of coverage in case of loss. Having an inventory system to keep track of your collection, and its fluctuating value, is key.
Weekend house (and toys). Instead of having separate personal liability coverage for a weekend home, you can add a second home to your primary residence’s personal liability coverage. That ensures there is no gap in coverage and eliminates questions of which insurance company might be on the hook to pay a claim. If you have horses, consider an equine policy. If you have ATVs or snowmobiles not covered by your homeowner’s policies, make sure they are covered by your personal umbrella liability policy.
Umbrella liability. Umbrella policies kick in on top of auto and home insurance, giving you extra liability coverage. How much do you need? Calculate your net worth. That’s a starting point for how much coverage you should have. Some policies include additional uninsured/underinsured motorist coverage and choice of defense counsel.
Hired help. Most states require that employers (that’s you if you hire household staff like a nanny) provide workers compensation and disability coverage (that could be for pregnancy) for employees. And before you hire a staffer, a pre-employment screening should include a criminal background check.
Charity work. If you’re on a board of directors for a non-profit, check out the non-profit’s liability coverage and determine if you need a separate non-profit directors and officers insurance add-on to your personal liability policy.