Stop Overpaying and Underinsuring
Successful Americans are paying too much for insurance yet don’t have enough cover-age. Those are the findings of a recent survey from ACE Pri-vate Risk Services. The problem actually is worse than the 2010 survey.
It’s easy to see how the situation developed. Most successful people didn’t start that way. In their young adult years they did the responsible thing and bought the insurance they needed. The purchases generally were made through mass market insurers and agents. The trouble is the insurers and brokers didn’t grow in the same direction as the clients.
Now, the clients are successful professionals and business owners with significant investable assets, homes, and businesses. Their needs aren’t being met by mass market insurers and agents. That’s why these clients are paying too much yet are underinsured.
Insurers and brokers experienced in dealing with successful people often can reduce costs while improving coverage across the board, according to the ACE survey. A majority of brokers surveyed said they typically reduce a new client’s premiums by 5%.
Here are the actions typically overlooked by successful people who haven’t had an experienced advisor comprehensively review their coverage in recent years.
Increase deductibles. Raising deductibles reduces premiums. Low deductibles make some sense in the early adult years when cash is tight and there isn’t a cushion of savings. But later in life many people can handle a higher deductible when there is a covered incident. Unless you’re very accident prone, you’ll save more money long-term by raising deductibles to reduce premiums.
Safety discounts. Many people have loss prevention or safety devices that qualify for insurance discounts, or they easily could obtain the devices. Burglar alarms and leak detection systems are two common examples of features in the homes of many successful people but that they don’t think to notify the insurer about. An insurer or broker who is used to dealing with this group will first go through a checklist of such devices to ask which ones the client has, and then will advise which additional features would be cost-effective to obtain.
Consolidation. Discounts are available when a person or household purchases more than one policy from the same insurer. Some insurers that specialize in one type of coverage will form a partnership with insurers in other specialties to offer consolidation discounts. When you’re using more than one insurer, research the discounts available for consolidating coverage at one of them.
Umbrella liability. Most people don’t have enough liability coverage. Their only coverage is the standard limit in the homeowner’s insurance. As a successful person, you’re a target for lawsuits based on actions taken by you and your family. Even inaction can result in a lawsuit that you negligently failed to remove a hazard or take other action. Umbrella liability insurance is relatively cheap and will protect the assets accumulated over your lifetime. Some professions are more vulnerable to lawsuits than others. The more activities you engage in, the more likely you are to be sued for something.
Home coverage limits. Agents report that most people have inadequate coverage for when a home is fully or substantially destroyed. It likely will cost more to rebuild your home than the home’s market value, especially if it is older and would need to be brought into compliance with current building codes.
Personal property coverage. Standard homeowner’s policies have limited coverage for the contents of a home. The standard coverage formula is fine for young adults with few personal possessions to replace. But the cost of replacing the contents of your home is far more than its current value and probably much more than the standard policy limit would cover.
Protection from the uninsured. You or a family member could be harmed by a person without insurance or assets to pay for the damages. Be sure your auto policy in particular has adequate uninsured motorist’s coverage.
It’s easy to fix these shortcomings. Meet with an insurance agent who is experienced working with well-off people. If you’re like most people, you’re likely to end up with more complete coverage at a lower cost.
RW May 2013
