Broker Check

Property and Casualty Insurance Review

April 18, 2019

Property and Casualty insurance (home, auto, and liability insurance) is one of those things that most people don’t spend much time thinking about. The renewal notice comes in every six months or year, we pay it, and ignore it until the next notice comes in. But that all changes when an event occurs that should be covered by insurance and a claim must be filed. Then property and casualty insurance becomes very important as coverage limits, exclusions, and deductibles can be a major source of financial stress.

There have been a number of disasters in the news in recent years. There have been wildfires in California, flooding in the Midwest, extreme sub-zero temperatures that impacted whole regions of the country, and hurricanes that have hit the South and East Coast. Often after one of these disasters strike there are multiple news articles about people who found that their insurance limits were not what they thought they were leaving them on the hook for a large portion of financial loss. For this reason, it is important to review property casualty coverage every few years to make sure the coverage limits are in-line with the cost that may be incurred should a disaster strike.

One important area to review is the property coverage limits. For example, many homeowners’ policies increase the amount of dwelling coverage each year using an inflation factor. However, at times construction costs in a given area may increase at a faster rate than inflation. If this persists for many years the coverage limit for the dwelling may fall well behind the actual replacement cost leaving the homeowner under-insured. Should a disaster strike, the homeowner may have to make up the difference out of their own pocket to rebuild.

It is also important to regularly review liability insurance limits. Liability coverage typically includes three different policy limits. There is the liability limit that is attached to the homeowners’ policy, the liability limit on the auto policy, and the liability limit on an excess liability or umbrella policy. When people shop for insurance based on price the liability limits are often lowered to decrease the cost of the policy. However, if there is a claim the liability coverage limits become very important as it will determine if the policy owner’s personal assets will be as risk or if any settlement will be covered by the insurance company, less the deductible.

Liability coverage limits should be in-line with the insured’s net worth and income to make sure that their personal assets and income are sufficiently covered. So as an individual’s or household’s net worth and income increases over time it is prudent to update the policy limits or add additional coverage to make sure that it is in-line with the changes in the financial situation of the policy holder(s).

Many insurance companies have tools that can be used to determine the appropriate coverage for a dwelling or auto and the liability limits that conform to the insured’s financial situation. Often a 30-minute discussion with an insurance agent is sufficient to update insurance coverages. This investment of just 30 minutes every two or three years can pay large returns should there be an insurance claim in the future.

It is important to avoid shopping for insurance purely on price. It is important to weigh the rating of the insurance company, the coverage limits, the scope of coverage, the risk that the policy may be cancelled in the future, the claims paying process and reputation of the claims adjusters, and whether discounts for bundling coverages are beneficial. Only then can the cost/benefit analysis of the coverage be weighed effectively.