30 Day Financial Transition Challenge Day 10: P&C Insurance Policies

Welcome to Day Ten of the 30 Day Financial Transition Challenge.  Today’s article focuses on your property & casualty (P&C) insurance coverages.

Bottom Line Up Front (BLUF)

Your P&C insurance coverage is one of the most important, and overlooked, financial aspects of your life.  This includes your home, automobile, personal property, and others…basically anything that can get damaged or cause damage.  We’re going to look at these various coverages to ensure you’re:

  1. Adequately covered for the material risks they have
  2. Covered at a fair and reasonable price

Why? 

Over the course of your military career, you accumulate stuff:  houses, vehicles, valuables, and other assets.  These assets can either be stolen or damaged.  They can also present a liability if you’re in an accident where someone else gets hurt.

However, most people trudge from duty station to duty station while almost completely disregarding anything but the bare minimums:  changing auto policies & homeowner/renter policies when they move.  There are two risks in not regularly updating your policies

  • You are either leaving money on the table, or
  • You’re not adequately insured for the risks that you may have (or that you don’t even know about them in the first place)

Goal

Your goal should be to figure out:

  • Whether you’re adequately covered for all of your property & casualty (P&C) related risks.
  • If you have an opportunity to shop your coverage around to get a more affordable premium with other insurance companies.
  • Whether you need to sit down with a professional, such as your installation’s financial counselor or a fee-only financial planner, to go over your insurance needs in more depth.

What you need

All of your P&C insurance policies.  This includes homeowners’/renter’s policies, automobile, recreational vehicle, and umbrella policies, as well as any valuable property or other riders.

How-to

This exercise consists of a simple checklist of questions to help frame your approach to each type of policy.

Homeowner’s Insurance

With homeowner’s insurance, you’re going to want to make sure you’ve got a good company that is able to handle claims.  Don’t worry about broken windows, or minor things.  Worry about hail damage forcing you to replace your roof.  Worry about replacing your house?

  • Do you know what type of homeowner’s policy you have? An HO-5 policy is more comprehensive than an HO-3 or HO-2 policy
  • When did you last check your policy? Do you have the right amount of coverage?  If you haven’t had an appraisal in the past 5 years, odds are you’re not.
  • Do you have insurance for replacement value costs? You should have coverage for the amount it would cost to rebuild your house…this might be different from what your house is currently worth.  If replacement value is higher than your appraised value, you’ll want to insure for the higher number.
  • Many insurance companies will not allow replacement coverage for older homes, particularly if they are part of a historical district.  Make sure you know if this situation applies to you.
  • Updated information (address, alarms/security systems, etc.)
  • Discounts: Ask your company what type of discounts they offer for upgrades, security systems, etc.
  • Deductible–higher deductible, lower premium. Ensure you have the right deductible available.  Ask your company what types of deductibles are available.
  • When’s the last time you competed insurance coverage?
  • Are you protected against location-specific threats (i.e. floods & sinkholes in Florida, earth movement in California, etc.)? You might have to find a separate policy for items not normally covered under your homeowner’s policy.
  • Do you have a valuables rider? If so, when did you last update it?  Do you have records?  Do you keep the records and required serial numbers in a secure location?
  • What does your liability coverage look like?
  • What about your rental properties?

Renter’s Insurance

If you’re a renter, you might have a renter’s policy.  Renter’s policies, usually known as HO-4 policies, cover personal property loss, as well as living expenses in the case you need to relocate.  You can usually add liability protection inexpensively, which I highly recommend.

  • When is the last time you checked your policy? Do you have coverage for the right amount?
  • Do you have a valuables rider? If so, when did you update your valuables rider?  Do you have records?  Do you keep the records and required serial numbers in a secure location?
  • Deductible–higher deductible, lower premium. Ensure you have the right deductible available.
  • When’s the last time you competed insurance coverage?

Automotive

As long as you have a relatively clean driving record, you should have no problem shopping around for a decent policy at solid, low prices.  However, as you PCS, change cars, (et cetera), you might be paying for coverage that you no longer need, overpaying for coverage, or be completely uncovered for the things you do need.

  • When is the last time you checked your policy? Are you insured for the right amount?
  • Updated information (address, vehicle registration, annual mileage, teen drivers, etc.)
  • Deductible–higher deductible, lower premium. Ensure you have the right deductible available.
  • When’s the last time you competed insurance coverage?

Recreational Vehicle/Motorcycle

Recreational vehicles, boats, four-wheelers, and motorcycles all fall under different types of coverage than what is provided for in your auto policy.  You need to take some time to account for each of these things (if you have them), and address them accordingly.

Business Liability

Do you plan to own a business?  Depending on the type of business you have, you might need business liability insurance.  Common types of business liability insurance include:

  • Malpractice insurance (for medical professionals)
  • Errors and ommissions insurance (for financial planners & lawyers)
  • Commercial auto insurance (for businesses involved in vehicle conveyance)
  • Workman’s compensation (for businesses who hire outside the immediate family)

If you plan to establish a business, you need to take some time to research common types of insurance for your particular industry.  You’ll want to get to know industry standards and have enough time to compete coverage amongst several providers.

Inland Marine Insurance

You’ve probably never heard of inland marine insurance.  That’s because it covers personal property during household goods moves, which the military already does for you.  However, even though you are entitled to a final duty station/home of record PCS, you might not be done moving.  What if you find a new job or relocate a couple of years after you depart the pattern?  Unless your life is simple enough that boxes of pizza and a couple cases of beer (or soda) can still do the job, you’ll want to know about inland marine insurance.  This will help you secure your valuables in the case you have to make an unexpected move.

Umbrella Insurance

I put umbrella insurance last, because it provides extended coverage on a combination of the above types of insurance.  As you acquire more assets, your life becomes more complicated.  If you’ve acquired a decent amount of wealth (or even if you haven’t), people might look at you as a target.  What if your auto liability coverage isn’t high enough?  If someone falls off your porch and tries to sue you..will your policy cover you?  What if someone falls off your boat and drowns?

Umbrella insurance allows you to provide a higher amount of liability coverage against a variety of risks.  An umbrella policy could increase liability coverage on your house, rental property auto, recreational vehicles, and business.   However, you do need to have basic, underlying liability coverage for each of these areas.  If you already have coverage, an umbrella policy can extend it much more inexpensively than raising the limits on each individual policy.

If you have three or more insurable risks (like a couple of cars, house, rental property), or if you plan to start a business, you’ll want to check out umbrella insurance.  It’s smart for everyone to have, but almost essential for anyone with a business.  For several hundred dollars per year, an umbrella policy can help you protect the assets that you work so hard to accumulate over your career.

At the end of this exercise, you should have a pretty long to-do list.  That’s okay.  You don’t need to make all the changes today, but you should at least update your current auto & home/renters policies within the next week or two.

Keep in mind that your situation will probably change as you transition.  This is especially true if your transition involves a PCS.  In that case, you’ll be revisiting this frequently to make sure you have the proper coverage in place.

Conclusion

To wrap up, today you’re going to:

  • Evaluate all your current policies, to see if you need to make changes or shop for new (similar) coverage.
  • Take a look at insurance that might make sense in your situation (i.e. umbrella insurance, business liability insurance, or inland marine transportation)
  • Incorporate these ‘to-do’s into your overall checklist.

Tomorrow, we’ll discuss your retirement accounts.  It’s important to know where you currently stand.  It’s just as important to consider where you think you’ll be going over the next year or two so that your retirement accounts are there for you down the road.

 

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About Forrest Baumhover

I'm a career naval officer, and a fee-only financial planner. Half-way through my career, I discovered that I had a passion for financial planning, and have pursued this as my second career. My specialty is working with military professionals who are looking to separate or retire from the service, and who feel they need some professional guidance to make sure they're on track.
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