6 Common Property Insurance Mistakes - You Could Lose Everything
Getting
the right property and casualty insurance coverage may not rank high on your
list of financial priorities. Compared with investment decisions and estate
planning issues, questions about the language in your homeowners policy, say,
may seem hardly worth considering. Yet the
more successful you become, the more complicated your asset-protection needs are likely to be—and the more you have to lose. Suppose, for example, that in addition to your primary residence—a historic home—you also own a house at the beach and a condo in the city. The properties are in three different states. The value of your collection of Abstract Expressionist paintings has grown rapidly. And you just volunteered to serve on the board of directors of a charitable organization.
more successful you become, the more complicated your asset-protection needs are likely to be—and the more you have to lose. Suppose, for example, that in addition to your primary residence—a historic home—you also own a house at the beach and a condo in the city. The properties are in three different states. The value of your collection of Abstract Expressionist paintings has grown rapidly. And you just volunteered to serve on the board of directors of a charitable organization.
Almost
every aspect of this situation could cost you dearly. Insurance laws may vary
widely from state to state, different kinds of property require specialized
coverage, and collections of art, antique cars, and other unique items may be
difficult to protect fully. Meanwhile, serving on a nonprofit's board could
subject you to additional personal liability.
Safeguarding
yourself and your family may mean buying additional coverage, but more
insurance isn’t necessarily the solution. Rather, it’s important to review all
of your needs, consider specialized policies or policy options, and coordinate
your coverage with other aspects of your financial situation. Here are 6
different shortcomings that could prove costly.
1.
Leaving gaps in homeowners coverage. Any homeowner needs to review
coverage regularly to keep up with rising replacement costs. But insuring
different kinds of homes in different locales poses extra challenges. If you
buy insurance from more than one carrier, you may face contrasting rules, limitations,
and policy renewal dates. For example, the liability limit on the policy for a
second home might fall below the minimum on an excess liability policy designed
to complement the insurance on your primary home. You could wind up responsible
for the difference.
2.
Ignoring properties unique characteristics. One perk of affluence is the
means to own exceptional homes; one drawback is that they may be difficult to
insure adequately. Standard homeowners coverage won’t pay for the materials and
craftsmanship needed to rebuild that 19th century showplace you’ve
painstakingly restored. Coastal homes may face hurricane damage, while a place
in the California mountains could be subject to earthquakes or wildfires.
Meanwhile, city co-ops or condos may need policies tailored to their buildings
or associations coverage.
3.
Under insuring art and collectibles. Standard homeowners policies limit
coverage for the losses of antiques, furs, and other valuables. And while you
could schedule additional coverage, insuring the real value of a collection of
contemporary art or vintage muscle cars likely will require a specialized
policy addressing several critical issues. How is the value of the collection
determined? (You’ll need a professional appraisal when the policy is designed,
with frequent updates as items appreciate.) Will a damaged or destroyed item be
paid for with cash, or will you be required to have it replaced or restored?
Will additions to your collection automatically be covered?
4.
Forgetting to insure household employees. When someone works for you or
your family, as a nanny, landscaper, personal assistant, or in another role,
you could be liable for medical expenses and lost wages if the worker is hurt
on the job. Several states require household employers to pay into a workers
compensation fund, while in other states it’s optional, but providing such
insurance may be mandatory for ensuring your financial well being. If an
employee drives your car, also make sure he or she is included on your policy.
5.
Neglecting your liability as a board member. Excess liability coverage
could help protect you if you’re sued as a director of a nonprofit's board. Or
for more comprehensive protection, you may want to consider special directors
and officers liability insurance.
6.
Failing to get frequent policy reviews and updates. Your financial life
isn’t static, and neither are your insurance needs. The value of a collection
may increase; extensive home renovations could mean a sharp rise in the value
of your property; and the re titling of assets as part of your estate plan—or
because of divorce, a death in the family, or the birth of a child—could
necessitate policy changes. Even lacking major events, you probably need a
comprehensive review of all your insurance coverage at least every two years.
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