How Big is Your Umbrella?

by Andrea Bulen

One of the occupational hazards of being a financial advisor is that we think of almost everything we know in terms of how it may affect our family or friends. We then feel compelled to share these concerns with everyone we know, which may lead our family and friends regretting that they actually are our family and friends.

For instance, this morning I ran into a family friend who has a pool with a slide AND a wood burning stove. I told him I was thinking about him the day before; and that I was worried about his insurance coverage. He was unable to control an immediate eye roll. Here is how the conversation went:

Me: “Do you have an umbrella policy?”

Joe: “What’s an umbrella policy?”

Me: “It is an insurance policy that adds liability protection above and beyond
your home and auto limits. It’s usually very affordable and a great way to reduce risk for your family.”

Joe: “I think so.”

Me: “Is it big enough? You should insure close to your total net worth and maybe more if you have high risk items, like the pool and the slide. How about the wood burning stove you put in last year? Does your insurance company know about that? If not, they could decline a claim caused by that stove or even any claim if you didn’t disclose the stove.”

When I started to ask him if they were sheltering enough of the profits of their rapidly growing company with a retirement plan (retirement assets are protected from litigation), he quickly got in his truck because he had somewhere to be. I yelled, “Don’t forget to call your insurance agent!” as he sped away.

Boring or not, insurance is a must-have for all of us. Because we think it is so important, insurance was the topic of our workshop last week. We brought in insurance experts, Mark Lindow, President of American Advantage Insurance, to speak about property and casualty insurance, and Mike Smith, President of CPS Horizon Financial, to go over life, disability and LTC insurance. As Kevin said at the workshop, insurance is one of the best financial products ever created. The basic premise of insurance is paying a small premium to receive sizeable coverage in the event of a future loss. It’s what helps us sleep at night. For those of you who missed it, we thought it may be helpful to summarize what we learned.

What I learned? My kids’ dream of having a 90′ zip line, complete with a trampoline at the end, in our backyard is a NO GO! Who knew that a simple zip line purchased online for $179.99 can make your insurance company cancel your coverage faster than you can make it down that zip line?

Here are a few of the important topics we covered in our workshop:

Leading Causes of Fires

1. Careless use of candles.
2. Not regularly cleaning lint out of clothes dryer vent and tubing (now on my to-do list for this weekend).
3. Not cleaning fireplace/woodburning stove and chimney annually.
4. Grilling on decks or inside your garage.
5. Unattended kitchen stove on “clean” mode.

Liability Exposure

1. Dog bites (insurance company will cover first bite, but drop coverage after a second bite). Some companies will not provide coverage if you have certain breeds of dogs (Q. Who doesn’t love a cute little Pitbull, Doberman, German Shepherd or Rottweiler? A. Most insurance companies).
   
2. Swimming pools, diving boards, slides (Sorry, Joe).
3. Trampolines without netting.
4. Skateboards/bicycle jumping ramps, especially if the neighbor kids get hurt.
5. Dead and dying trees. If your dead tree damages a neighbor’s property or injures someone, you are legally liable. Taking down those dying trees just moved up on the priority list.

Home and Contents Coverage

1. Make sure your replacement value or guaranteed replacement value is appropriate. If you took out your policy years ago, make sure it is updated to reflect home improvements and increases in property values.
2. If you live in a condo, confirm what is covered by the building vs your coverage.
3. Ask your insurance agent to complete a “loss assessment.”
4. Make sure all important personal items are specifically insured.

Automobile Risks

1. Mobile phone use is now the leading contributing factor of young drivers’ auto accidents. You must have a thorough discussion regarding texting and phoning while driving. Be sure to follow your own advice and put down the phone while you drive.
2. Students away at school with car. Do they let other people drive it? Whose assets are exposed every time that happens?
3. Do you rent a car? Ask your insurance company how your coverage compares to the rental car company’s offer of insurance? Who should/should not drive the rental car?

Umbrella Liability Coverage

1. The purpose of the umbrella is to protect your assets from being seized by a legal process resulting from you being found legally liable in causing injury or property damage. An umbrella gives you a higher limit of Liability coverage over and above your base limits.
2. Umbrellas are available in limits of 1 million (mm), 2 mm, 3 mm, etc. The amount you choose to carry will usually depend on your asset values, your exposures and your comfort level of a certain amount of coverage.
3. Review your umbrella every year, especially if you have several exposures, like boats, jet skis, ATVs, snowmobiles, camper, a second home, etc. Having multiple insurance companies covering home, auto and umbrella is usually not good diversification, as they can each claim the other is supposed to cover a specific loss.

How much attention do you give your home, auto, and umbrella coverage? For most of us, it is probably not more involved than making sure we pay our annual premium. Good companies should contact you each year to ask you what may have changed that would affect your coverage. Ultimately, the responsibility to stay current on your insurance falls with YOU! Be proactive and review your insurance coverage each year.

My husband tells me it is a real buzz kill when I ask at dinner parties, “How big is your umbrella coverage?” Life of the party. I know. But this stuff is important. That’s why we provide this type of education for our clients.

Our workshops are an integral part of our service offering. We bring in experts in different areas of financial planning to ensure you are protected. See your insurance agent for a full review of your coverage and/or ask us if you need a referral.

Best to prepare for rain and pack a large umbrella (and other P&C coverage)!