Archive for the ‘Income’ Category

Protection 101

Tuesday, February 15th, 2011

Today marks the first day of a new job duty for me, blogging. (In my wildest imagination never did I think I would become a blogger). Naturally, my first challenge was to decide what to write about. When it comes to basic financial planning, what has the most impact on most people?

The answer is property insurance. Glamorous, it’s not, but protection of our automobiles, homes (whether personal residence, seasonally lived in, or rented out), boats, recreational vehicles, and additional liability policies, such as umbrella policies, is a core element in having a financially secure foundation.

Premium vs. Protection When I review property protection policies with clients, it is acutely evident that most people have no idea what exactly is or is not covered by their policies. My observations are that people typically know their premium and deductible and that’s about it. While having a good grip on expense is good thing, a lack of understanding for proper coverage can actually put your financial future at risk for a couple of dollars in saved premium.

But here’s the good news, in many cases, rearranging where the premium dollars are allocated, can ensure more appropriate coverage for no additional premium outlay. This is why it is so important to  discuss what the best options are for you, your business and/or your family with a licensed professional. Steer clear of  do-it-yourself online issue and toll free numbers to save a buck; they are void of the personalization needed to get the best coverage at the best price.

Auto Liability Some of the most common misunderstood concepts relating to auto insurance are the liability amounts. What people should have to be well covered and what is mandated by the government are two drastically different amounts. The State of Illinois mandates minimum bodily injury liability coverage of $20,000 per person and $40,000 per accident, and $15,000 for property damage – this is where the problem starts.

Unfortunately, government mandated amounts such as these, won’t go very far in the real world. How many people have you known who were hospitalized that left with a bill of less than $20,000? How often do you think that totaled cars would be worth more than $15,000? Both of these situations illustrate why it is so important to really understand the coverage you pay for before you need it.

Consider further, what happens if you get into an at fault accident without proper liability coverage. The other party can come after you for the amount over and above the covered amount. If you don’t have the ability to pay, they can seize your home, other assets and/or have your wages garnished. Is this the type of exposure you really want to put yourself or your family through to save a few bucks?

Water Claims A common item neglected in the Chicago area has to do with homeowners insurance; specifically, water claims. There is a difference between flood insurance and water backup insurance. Flood insurance covers damage relating to a body of water leaving its banks and causing damage to your property. This is a separate policy that would be available for purchase if you live in a floodplain. Typically, if you have a mortgage and live in a floodplain, the mortgage company will require this coverage be in place.

In contrast, water backup coverage describes a claim arising from water backing up through the plumbing system in your home. This coverage typically comes in the form of a rider that can be added to an existing homeowner’s policy for an additional fee. In the absence of this optional rider, there is no coverage on a typical homeowner’s policy for any water claim. The exception to this statement is if the homeowner has purchased an all perils policy.

Premium costs, auto liability and water claims are just a couple examples of how underestimating and misunderstanding property coverage can send you into financial peril. Reviewing and weighing all the options available for each type of insurance you may need is imperative in choosing what coverage is appropriate for you and yours.

Kurt Rusch CLU, ChFC