We’ve already talked about some of the most common types of personal insurance coverage, like health and disability coverage. But now that you and your family are all set, what about the stuff around you? You rely on your home and car every day, and in the event of an accident, you could be left in a seriously sticky situation — especially if someone gets hurt in the process. Property and liability insurance can help you steer clear of those scary what-ifs and keep you afloat if something does, heaven forbid, happen.
What Coverage Do You Need?
First things first, let’s define our terms a bit. What exactly is property insurance and liability insurance, and which types of coverage do you need to have?
“Property insurance” is actually a catch-all term for products like auto and homeowners insurance — in other words, it’s insurance that covers your property. (Creative name, right?)
Homeowners and auto insurance both include some liability protection, but you can also purchase additional liability coverage, sometimes known as an umbrella insurance, to increase the amount your insurer would pay out on your behalf if you were sued after an accident.
As far as whether or not you need it, well, in most states, the law requires basic auto insurance coverage on all registered vehicles — and if you’re financing your house through a traditional mortgage provider, like a bank, chances are you’ll have to have homeowners insurance in order to get the loan. The specifics will vary depending on where you live, which provider you choose, and what kind of property you’re covering, but in all likelihood, you’re going to have to have both of these types of policies.
If you’re a high earner with high-value property to match, property insurance policies become even more important, since, of course, you have more at risk to lose.
So what should you look out for when you’re searching for your perfect insurer, and what tips and tricks can help you get the most bang for your buck?
Glad you asked.
Common Issues with Property and Liability Insurance — and How to Fix Them
From figuring out how much your car is actually worth to adding umbrella coverage to your policy, here’s what you need to know about your property and liability insurance plans.
1. You may not actually need comprehensive and collision insurance.
Car insurance actually breaks down into several subcategories: liability insurance, personal injury protection, uninsured motorist protection, and comprehensive and collision insurance, sometimes known as “C&C” coverage. While many states require liability, personal, and uninsured motorist minimums, comprehensive and collision tends to be less regulated, because the only person it affects is you. (It’s the part of the plan that pays for repairs to your car in the case of an auto accident or some other unexpected catastrophe, like weather damage.)
If you’re taking our advice and practicing modest living by driving a used car, you might be able to skip this portion of the policy… because frankly, the car might not be worth very much. Of course, if you’re driving a brand-new Ferrari, you’ll probably want to keep C&C on your policy. And if you’re financing your car, your lender may require this kind of coverage since it’s technically still their vehicle while you’re using it.
2. A high deductible might be better than higher premiums.
If you do carry comprehensive and insurance coverage, we suggest you go for a higher deductible — which will drive your premiums lower, and allow you to apply what you’re paying toward higher liability limits. In addition, this strategy can eliminate the temptation to file a claim for smaller issues or “fender benders,” which practice can drive up your overall insurance cost over time. Keep the coverage, but reserve it for when you actually need it… and meanwhile, pay less on a month-to-month basis.
The same goes for your home, by the way. Remember: the purpose of insurance is to protect you against catastrophic events, not to pay for everyday repairs and maintenance. That’s what emergency savings are for!
3. Liability insurance is actually the important part — so make sure you’re covered.
Nobody wants to be without a vehicle or stuck shelling out for massive home repairs. But make no mistake about it: the most important part of your property coverage is actually your liability insurance, because you stand to lose a whole lot more in a lawsuit than you do in actual property damages.
If you harm someone in an accident and that person is rendered unable to work, you could find yourself owing her money for the rest of your life. Even totalling the fanciest car or flooding the poshest house is unlikely to cause that kind of financial devastation!
Ideally, you’ll want to increase your liability limits with your existing provider, and consider adding in an umbrella policy which kicks in when those limits are exhausted. Umbrella insurance is surprisingly cheap, even when the policy accounts for substantial coverage, because the events they cover are unlikely — which is the whole point of insurance in the first place.
Protecting your assets is a critical part of creating and maintaining a sustainable financial plan. For more information and a personal evaluation of your own insurance needs, be sure to reach out to us directly! We’re here to help, no matter what your circumstances require.