How does this happen? Failure to adjust policies upon increased wealth is a common cause. But there can also be holes in coverage, and a lack of consumer awareness around potential risks and the types of coverage needed. Additionally, many properties are significantly undervalued (on average by 26%3), and many individuals don’t think about reassessing policies until it’s too late.
Without sufficient coverage, you could be facing increased risk and costs. If you think you may be underinsured, it’s time to review your policy—it’s likely that you have outgrown it.
Identifying Potential Holes
Underinsurance can stem from gaps in policy coverage. A few areas where these gaps can occur include:
- Umbrella Coverage. Umbrella coverage is evaluated on an individual’s net worth, assets and activities/lifestyle. But sometimes smaller carriers can’t offer the higher limits needed to cover more assets.
- Liability. There are often liability risks that many individuals don’t realize aren’t covered—like liability around employment practices for domestic staff, and liability for not-for-profit directors and officers.
- Valuables. Many high-value items are undervalued or may not be covered under homeowner insurance policies. Typical policies often only cover $1,500-$3,000 worth of valuables.
- Home Construction. Home additions, updates, and custom-built or historic structures all increase rebuilding costs in the event of damage. But these factors are often not considered and covered by traditional policies.
- LLCs and Trusts. Residences are commonly transferred into an LLC or Trust for tax benefits and asset protection. Since the home is technically owned by the LLC or Trust, the policy would need to list it as such. But this detail is often overlooked or excluded.
Ways to Save
Despite these potential inefficiencies, there are many opportunities to save money. For example, you can place all your policies with a single carrier to take advantage of package discounts, or consider a high deductible plan. Additionally, you can install security systems, leak detectors, and other detection equipment to help with loss prevention, and carriers often give credits or discounts for taking these precautions.
Reviewing Your Policy(ies)
Before anything else, though, you need to review your policy. The first step? Assess your coverage—before the need to file a claim. When doing this, here are a few questions to ask:
- Do you own a secondary property? If so, is this property in the name of an LLC or Trust?
- Do you need higher umbrella limits that you are unable to get through your current carrier?
- Do you own high-value items, like art, jewelry or “toys,” that aren’t covered under your current policy?
- Do you have young or new drivers, or domestic staff, that bring in extra liability?
- Have you experienced a recent liquidity event?
A Partner You Can Count On
It’s important to review your policies at least once a year, or upon a life change, to help reduce underinsurance and overpayment. Reassessing your assets and consolidating the information on your policies is also a good practice.
Don’t worry, P&J can help. We understand your high-value coverage needs. And we always serve our clients’ best interests—not the carriers’.
Our wealth of knowledge and expertise means we know your market and have access to the best carriers. Let us help you reevaluate your coverage to uncover new ways to save, and give you the peace of mind you deserve. Contact P&J today to get started.