Risk management is an important part of a comprehensive financial plan. Insurance is one of the best and most common ways to protect the assets you have against hazards and third-party liability claims. Lately we have had several clients come to us with questions about their home and auto policies. Having spent several years as a licensed property and liability broker, I wanted to provide some insight and education to help readers become more informed buyers. In a future blog, I’ll dig deeper and go through some common mistakes and coverage gaps and how to fix them.
Agent vs. Broker – A good starting point when it comes to insurance is to consider who is selling it to you. While the names are often used incorrectly as synonyms, there is a key difference between an agent and a broker. An agent, represents the insurance company and can legally bind coverage. While some agents represent more than one company, most are captive agents employed by a single insurance company to sell their product. Common captive agency companies are State Farm, All State and Farmers Insurance. A broker is employed by a third-party company and is licensed to sell insurance on behalf of several different insurance companies. More importantly, a broker is the representative of the insurance buyer or consumer, not the insurance company. Most brokers are legally obligated to act in the best interest of the insured.
Policy Term & Renewal Process – Most insurance policies are written on annual terms. At the end of the term the policy is generally re-underwritten and renewed. Many renewals happen automatically, but usually companies will send notice of renewal terms a month or two in advance of the renewal date. It’s not necessary to get quotes or “market” your insurance each year. Usually accepting the renewal terms is the easiest and best choice for the insured. However, it’s a good idea to shop around every 3-5 years to protect yourself against price gauging and rising rates. If you decide to shop around, be sure to obtain quotes from several companies and compare terms and pricing against your renewal. Be careful of a company or agent reducing coverage to provide an attractive price. As with most everything, you get what you pay for. Insurance is a commodity, so if a quote comes back significantly cheaper than others it’s a red flag that the coverage terms are not as strong.
It’s also worth noting that there is value in having a long-term relationship with the insurance company. If a claim falls in a grey area, as many do, then a long-term client is looked at more favorably. This is especially true with business policies. If there are no service issues, I would not recommend changing insurance companies on a frequent basis, or for anything under 15-20% savings.
Policy Declarations – Your policy declarations, which come in advance of renewal or with any new quote, show all the important information for you to consider. You should review these at least once a year to make sure all the key details are accurate. Here are few things to confirm.
- Is your address correct?
- Are all vehicles listed with the correct year/make/model?
- Are all drivers in your household listed?
- Do the limits of insurance look appropriate?
- What endorsements are included?
- Are there any discounts listed that are not applied?
- Are there coverages listed that you don’t need?
- Did you experience any material changes to your property, or buy something expensive? Renovation? New furniture? Boat? ATV? Art?
The Insurance Company – The company your policy is underwritten by is ultimately one of the most important parts of your insurance plan. If the company doesn’t have the financial ability to pay claims, or has a reputation for making that process difficult, then it defeats the purpose of the insurance. Laws exists to protect consumers in this area, but it’s still a good idea to be insured by a reputable company. Most auto and home policies are straight forward and commoditized, terms are mostly consistent from one to the next including the premiums. However, there are some nuances for properties valued at $500k and higher where it becomes more important to make sure the coverage and exposure are aligned. Some companies specialize insuring risks that come with these higher value homes. These companies include (in no particular order) – Cincinnati Insurance, Travelers Insurance, Chubb, Nationwide Private Client and Liberty Mutual.
Claims Philosophy – The intent of insurance is to make you financially whole in the event of a loss to your insured assets, and/or to provide liquidity when you’re held liable for damages to a third-party. It is not the nature of insurance for the insured to come out ahead following a claim. When the insurance company pays a claim, they almost always increase your future rates. In reality, insurance is just a form of financing your potential losses over a long period of time. The benefit is that you aren’t forced to come up with a large sum of money quickly when something happens. With the above in mind, it’s not a good idea to file a claim for a small loss. A small claim will cost you a lot more in the future than it would to just pay the damages and keep the claim off your insurance record.
While this post focuses on personal home and auto insurance most of the comments apply to commercial property and liability policies as well. If you are a business owner, it’s important to pay attention and review your commercial property and casualty insurance on a regular basis. The potential savings are greater, and the risk of missing something is much higher. If you’d like a review of your personal or business policies, please feel free to share them with your TAAG advisor. We’re happy to provide our thoughts and/or get you in touch with a professional broker who can help address any issues.