I know what you are thinking, “Really Shawn?!?! Do I really need more insurance?!?! Geeze!! I am paying out of the nose for what I got!!” I know!! Insurance rates are high, and if you live in Louisiana, they are astronomical!! However, that doesn’t mean you still aren’t insured properly. One of the biggest things I have learned over the last couple of years in this business, is that we all (myself included) try our best to pay the least amount we can for insurance, while wanting the most insurance possible.
It’s a horrible game we play, trying to get “Cadillac” coverage at Walmart prices. It doesn’t work, and we end up hurting ourselves and paying more than we would have if we would have just gotten the right coverage to begin with. The old saying is true, especially in the insurance business: “You get what you pay for.”
That is why I wanted to share with you a few areas of insurance where you are probably underinsured. However, I am not trying to scare you, or upsell you. My goal for all my clients is to see that they are properly protected with the right amount of insurance coverage, at a price they can afford, and doesn’t break the bank. I hate seeing people pay for things they don’t need, or shouldn’t have, and insurance agents are notorious for over selling just to “get the deal.”
I won’t do that and I don’t do that.
I take great pride in helping my clients to the best of my ability, and to the best of theirs.
So, with that said, here are:
3 Areas of Insurance Where You Are Probably Underinsured
1.) Life Insurance
For the most part, most people aren’t over paying for life insurance. Sure, there are some who think they are, but that is probably because they have major health issues (high risk), or they are older (also high risk). However, I am willing to bet that 6 out of 10 of my clients with whom I write or review their life insurance, are usually underinsured. How? Because most don’t understand the purpose of life insurance. Most treat it as a kind of quasi pay off the house/bury me kind of deal.
Life insurance is much more than that!!
Sure, life insurance is for making sure you get buried (average cost of a funeral is between $10,000-$25,000 depending on where you live and what you want done), but is also about making sure that the family you leave behind is properly taken care of and not left destitute. The key here is making sure you have that right amount of coverage.
Factors that should be considered when determining life insurance face amounts include:
- Mortgage payoff
- College Funds for Children
- Current Lifestyle Costs
These four areas are often overlooked, or only a few are considered.
In my professional opinion I believe ALL should be considered when determining the right amount of life insurance coverage. Here’s why:
Debt: No one wants to leave their loved ones racked with debt after their death. Especially if the surviving spouse doesn’t make as much money as the one who has passed. Often times debt can be the one factor that leads to financial ruin after a death and it could easily be avoided by having a life insurance amount that pays off debt at the time of death.
Mortgage payoff: Not only are your loved ones going through the process of grieving, but they are also trying to figure out how they are going to keep paying the mortgage, light bill, etc. They shouldn’t have too. Having the right amount of life insurance can lead to paying off a mortgage and freeing up monthly cash that could be needed elsewhere in the coming days, weeks, and months for those surviving after a death.
College Fund for Children: Working potential college funding into your life insurance face amount is a wise financial decision. Here’s why: If the main bread winner of the family dies before their children are in college, it could the determining factor of whether or not that child gets to go to college. This also takes the pressure off the surviving parent to be the sole provider for college education funds for the children.
Current Lifestyle Cost: Most people don’t think about it, but if your family is used to a $40,000, $60,000, $75,000, $100,00 lifestyle now, they will want to maintain than in the event of the main bread winners death. It is vitally important to make sure that current lifestyle costs are factored into the life insurance amount you choose for yourself and your spouse.
How to Determine Life Insurance Amounts: Most financial experts I have listened too recommend 8-10 times your annual income when it comes to choosing the amount of life insurance to purchase. So, if your annual income is $100,000, you should have a minimum of $800,000 in coverage. I recommend at least 10 times your annual income to play it safe.
2.) Auto Insurance
You think I am crazy.
How could I possibly suggest that you are underinsured when it comes to your auto insurance, especially if you live in Louisiana, who has historically had high auto insurance rates (thanks trial lawyers). But, give me a second and hear me out. Often times when working with a customer, and reviewing their insurance needs I find that they either have state minimum limits, or not enough coverage for the needs that they have.
What do I mean?
Well, take for example: I have a client who make a considerable income on a monthly basis(five plus figures), when I first started reviewing their insurance needs I discovered that one of their children, whom they had on their insurance, only had state minimum limits. This client made a great income, has a beautiful home, a boat, several vehicles, etc. and yet had one of their children with the lowest coverage possible.
Why is that an issue?
Because if that child were to be in an accident, and they maxed out their coverage limits and still owed because of a lawsuit or judgement, the parents would be on the hook for it.
What that means is this: State Auto Insurance Minimums in Louisiana are $15,000 per person, $30,000 per accident, and $25,000 for property damage. So, say you had an accident where you hit another person and they had costs of $50,000 in injuries (very common). If your coverage limits are $15,000 per person and $30,000 per accident, than your insurance company is going to pay the maximum cap, which is $30,000 because there is only one person injured.
However, you personally are still on the hook for the $20,000 remaining in injury costs.
Here’s another example: Say, you hit someone and you have state minimum auto limits and there are three people injured:
Person A: $20,000
Person B: $5,000
Person C: $16,000
Your insurance company would pay $15,000 for Person A, $5,000 for Person B, and $10,000 for Person C. Leaving a remaining balance of $11,000 you would be on the hook for.
That is why I think state auto insurance minimums are BAD!!
While I understand the need for people to have insurance, and even have affordable insurance, the true cost isn’t in your monthly premium, but in what the risk you are taking. If you cannot come up with the difference in the coverage you carry, it would be a wise financial move to up your coverage.
I cannot tell you how many normal everyday people are underinsured when it comes to their auto insurance. Even if they don’t have state minimums, many people have lower limits than they should. I recommend coverages beginning with $50,000-$100,000 in coverage and going for there.
3.) Collectables Insurance
Whether it’s jewelry, art, guns, comic books, baseball cards, or other collectables, I am willing to bet you probably think you are covered because you have home owners insurance. The truth is you’re not as covered as you think. Homeowners insurance only covers things like guns, art, jewelry, etc. very minimally. Unless your homeowners insurance policy is endorsed to add additional coverage for your collectables you may be underinsured by thousands of dollars.
The key to protecting yourself is making sure that your insurance agent knows you are a collector. If you have a cache of weapons and want to make sure they are insured, tell your agent and be willing to pay for the additional cost. If you have thousands of dollars in family heirloom jewelry, art, or even baseball cards, make sure your insurance agent knows so they can properly protect you.
I cannot tell you how often I have heard of collectors coming up on the losing end of the insurance stick because they thought they were properly protected when it came to their collectables. Just remember, your homeowners insurance only covers a very small amount.
When it comes down to it, the best way to make sure you are covered properly is to sit down with your local insurance agent (or me), and review your current insurance, and any needs or changes you have had since you put the policy in place or your last review. Doing this on a 6 month/year rotation will ensure that your agent knows your coverages are up to date and accurate, and you have the peace of mind knowing your are properly protected.
If you have questions or would like a insurance policy review, shoot me an email at firstname.lastname@example.org
Until next time.