#91 – Protect yourself from the unexpected.
Imagine if you were in a car accident and didn’t have insurance. You could be on the hook for hundreds of thousands of dollars!
That’s why home and auto insurance is so important – it can help you protect yourself from a financial disaster.
In this episode, Jeremy Keil speaks with Toby Hartman, partner at MM Insurance Associates, Inc. Toby sheds light on the various nuances of getting home/auto insurance and key things you need to keep in mind before purchasing a policy.
- The benefits of working with independent agents
- How to identify the ideal policy limits for coverage and deductibles
- What people often miss while buying home/auto insurance
- The difference between Uninsured Motorists (UM) and Underinsured Motorists (UIM)
- And more
5 Things To Know Before Buying Home or Auto Insurance
1) Choosing Between Independent and Captive Agents
You can get your home/auto insurance from either independent agents or captive agents.
Independent agents work for you, not the insurance company. They can offer you several different policies as they don’t represent a particular company. They are not incentivized to prioritize one policy over another.
On the other hand, captive agents might show you limited policy options because they represent a specific company.
Working with an independent agent is the way to go if you want to explore more options and shop around with several companies before purchasing a policy.
2) Buy More Personal Liability Coverage
Everybody should have personal liability coverage. If you cause damage to someone else’s property (or bodily injury to someone), you might be liable to pay hundreds of thousands of dollars!
Rear-ending someone with your car, getting someone injured on your property premises, incurring damage on your home… life happens. But all of these can lead to massive expenses.
That’s when auto/home insurance comes into play. Auto insurance might cover car accidents, while home insurance might cover your property-related liabilities.
But how much coverage do you need?
Toby Hartman recommends a minimum coverage of $500,000 for both home and auto insurance. You can also opt for greater coverage — a million, $10 million, or even $20 million. The difference in premiums might not be much, but getting a higher coverage can make a world of difference.
After you’ve maxed out what your home/auto coverage will allow you to have, you’ll want to get umbrella liability coverage.
Here’s a general rule of thumb you can follow: Your umbrella liability should be roughly equal to your net worth. For example, if you are worth $3M, and your home/auto coverage is at $1M you would likely want to buy a $2M umbrella liability policy.
3) Don’t Overpay for Low Deductibles
As Toby calls it, deductibles are your “threshold for pain in the event of a claim.”
He suggests having a separate bucket of emergency fund money set aside for deductibles. By doing so, when you’re faced with an unexpected liability, you’ll have the funds for deductibles ready to go.
We understand that you might not like paying expenses out of your own pocket. But having extremely low deductible limits can also be harmful.
Imagine your car needs minor repairing worth $500. Would you pay it out-of-pocket? Or would you file for an insurance claim and risk having increased premiums forever? Probably the first one, right?
If you pay it out-of-pocket, then it doesn’t matter if your deductible is $0, $250 or $500.
So, why should you pay greater premiums to receive extremely low deductibles? You likely want a deductible of $1,000 or more to discourage you from filing claims that you could pay out of pocket.
Remember Toby’s maxim, “deductibles are your ‘threshold for pain in the event of a claim.’”
4) Home Value Replacement Cost
You might have purchased your home for $500,000 years ago. But it’s possible that the value of your home has appreciated to $750,000 in today’s market.
If you’re only covered for the original purchase price i.e., $500,000 and something unfortunate happens, you’ll end up having to cover the remaining $250,000 on your own.
Remember, while insuring your home, get coverage based on your home’s recent market value.
On a side note, also check for water backup / sump pump failure coverage on your home insurance. It is typically optional in home insurance policies despite water backup being a huge issue for many people. If you want that coverage, you need to pay for it!
5) Uninsured Motorists (UM) vs. Underinsured Motorists (UIM)
Before you get auto insurance, it’s important to understand the distinction between Uninsured Motorists (UM) and Underinsured Motorists (UIM).
If the person causing damage to your car is uninsured, your expenses can still be covered under the Uninsured Motorists (UM) coverage. If it’s a case of hit and run and you’re unable to track down the offender, you’ll still be covered under the UM policy.
Underinsured Motorists (UIM) coverage applies to drivers with insurance, but their limits are too low to cover all of your expenses. For example, if someone causes damage worth $200,000 but their policy only covers $50,000, the uncovered gap of $150,000 will be picked up by the UIM policy.
If you want to learn more about financial planning, check out the resources below!
If you have any questions, feel free to contact us or our guest Toby Hartman using the contact information provided below!
- Free Retirement Planning Video Course: 5stepretirementplan.com
- 3 Things You Should Know Before Choosing A Financial Advisor
- 6 Questions Retirees Aren’t Asking But Should Be
- Subscribe to Retirement Revealed on Google Podcasts
- Subscribe to Retirement Revealed on Apple Podcasts
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