My Personal Finance Blog

About every two or three years we meet with our insurance agent and make sure our homeowners and auto coverage are appropriate for our needs. Personally I think it’s a way for our agent to try and sell us some more coverage, and it usually works out for him, but I can’t really say anything he’s suggested has been something I hadn’t considered.

Last Saturday was our latest meeting. A was busy trying to hunt down an overnight shipment that somehow got marked for Monday delivery (it was perishable horse breeding material too so it would have been ruined) so I agreed to take care of the insurance chore myself. I drove down to our agent’s office and we got down to business.

He started off making some notes about what had changed in our lives, I mentioned A’s being layed off, my significant increase in salary and our general financial condition. He dutifully noted all of these details down and made suggestions along the way. In no particular order they were:

• Increase our homeowners deductible from $500 to $1,000. - I hadn’t realized it wasn’t that high already… This will save us approximately $120 a year on our homeowners insurance. We have replacement coverage on everything as well as $1,000,000 in liability coverage. We feel this is important, especially with 1,500 pound animals out back that, while they don’t have a malicious bone in their bodies can seriously injure or kill someone purely by accident.
• Purchase a rider for a failed sump pump. - Cost of $60 per year. I passed on this, our house is built on a sand hill and while the sump does run when it rains hard, it is cheaper to just replace the pump every five years or so. In fact, we have a spare on hand, just haven’t installed it.
• Purchase additional coverage for the 2nd horse we are boarding for another. - Cost, $50 per year. Kind of a no-brainer really, and we’re realizing much more than this in income from boarding the horse. We already had coverage for one boarded horse. Although Michigan law is fairly protective with regards to injuries arising out of equine activities there is still risk of being sued.
• Increase our auto collision deductible from $500 to $1,000. - For the savings I’ll take the additional $500 risk. We have broad coverage which means if we’re not at fault our deductible is waived in any case. This action saved us around $120 per year as well.
• Increased our automotive liability coverage from $500,000 to $1,000,000. - This change will spend most of the deductible savings above, but in the litigious world we live in I feel it is a very good idea to be insured for well beyond your net worth. More on this in a minute.
• Purchase a $1,000,000 umbrella liability policy. - Cost of around $120 per year. This adds an additional $1,000,000 in liability coverage for both our autos and homeowners policies. While I haven’t bought this yet, I am considering it. The benefit of having a large amount of coverage is two-fold. First, the insurance company will absorb that much more liability for you. Second, and probably more important to me, is that if there is a claim which involves a lawsuit, the insurance company is much more likely to put forth a strong legal defense on your behalf. For instance, say you have $250,000 in liability coverage and are involved in an accident. You’ll very likely be sued (unless you have no assets to speak of), likely for an amount which will make you feel sick to your stomach and very likely to exceed the $250,000 you’re insured for. Opposing council will have a very good idea of exactly how much you have and will price the suit accordingly. The cost of defense of any decent suit will easily be in the 100’s of thousands. The insurance company will do this analysis and decide that it is cheaper for them to simply pay out the $250k and walk away rather than mounting a defense and still having to pay. You, as the liable party will still be sued and now your assets are in jeopardy. Additionally you may have very little coverage left after paying for your defense. With a large amount of coverage however ($2MM in our case), the insurance company has a much bigger incentive to vigorously defend against the suit with both their own attorneys as well as being able to cover a much better set of your own. Having some piece of mind is worth it to me. We’ve worked too hard to lose everything (including future income) because of a lawsuit that may or may not be valid in the first place.
• Lastly, we talked about term-life insurance for both A and myself. My original idea of carrying the insurance ourselves still holds true, just haven’t done anything about it yet. The quotes for this came in higher than I expected. Around $50 per month for a $500,000 policy with a 20 year term. I’ll need to research why. I haven’t pulled the trigger yet, need to lose 20 pounds to get better rates…

All in all, I like my insurance guy. I didn’t feel pressured to buy anything, but he did clearly explain things to me and those that made sense (which were most of his suggestions) I bought. All in all it will likely cost us an additional $150 per year (aside from the term-life) which is not a huge amount.

I recommend that you review your policies, both auto and homeowners or renters, every year or two and make sure your coverage is up to date. It would be far worse to find out you’re not adequately covered when you need the insurance… You may also find that you can save yourself some money by taking on some of the risk yourself (i.e. raising your deductible) or making sure you’re getting discounts for your alarm system or air bags or even your good credit rating.