Insurance is a normalized part of the modern world today, especially when it comes to all property & casualty (P&C) insurance. Even still, updating your homeowners or auto insurance often feels more like pulling teeth than financial planning. Regardless, making sure your P&C insurance works for you instead of against you could be life-altering if a major loss occurred.
Key Takeaways
- Property & casualty Insurance breaks into two parts: 1) Assets to insure, such as a home, vehicle, boat, RV, etc., and 2) liability protection in and around those assets.
- Knowing your insurance gaps helps you build your savings to cover out-of-pocket expenses.
- As part of your financial planning, build your wealth and assets so that you can cover larger expenses and raise your deductibles; therefore, you’re paying less overall to insure your assets.
What is Property & Casualty Insurance
Property & casualty insurance breaks into two parts. First are the assets to insure, such as a home, vehicle, boat, RV, etc. Second is liability protection in and around those assets, such as being sued after a car wreck or someone being injured on your property.
Both parts are lumped together in one policy to cover both the property and the liability side. Your homeowner’s policy most likely includes both dwelling coverage (the value to rebuild your home) and personal liability insurance (if you get sued). So, for each P&C policy you have, it is important to understand how protected you are on both sides, not just one.
P&C insurance can also be either individual or commercial policies. Many people have both types of policies. Business owners will have homeowners’ insurance on primary residences, as well as general business insurance, or rental/business properties, and other commercial lines.
Types of Property & Casualty Insurance
Homeowners- For many, covering their home is the same as covering their largest asset. These policies generally cover the house itself (dwelling), other structures on the property, personal property, etc. The personal liability side generally covers injuries or damages that you are legally responsible for.
Renters & Condo- Both help protect the person living in the residence. Condo insurance generally covers inside the 4 walls of the condo, while renters’ insurance covers personal property within the rental house. Similar to homeowners, both offer liability insurance as well for individuals.
Auto- Covers the loss of the car/truck itself, as well as liability for any at-fault accidents. Most are separated into collision and comprehensive coverage, where the former pays for car damage from a crash, and the latter covers non-driving incidents like theft or fire.
Recreation Vehicles- Similar to auto insurance, but covers boats, RVs, motorcycles, and others. The liability portion of these policies can help cover injuries to others, as well as damage caused by others to the vehicle.
Umbrella- Liability insurance that sits on top of all the other insurance. These policies protect people from disaster events that may max out your other liability insurance. If you are liable for $500,000 in damages and your homeowner’s liability protection is only $300,000, you may need to come out of pocket for the rest.
Business- Commercial policies that protect general liability, workers’ comp, professional liability, errors & omissions, cyber security, commercial buildings, or company cars, and so on. The list is long here, and the coverage varies, so double-check these for your business.
3 Simple Strategies to Improve Your Policies
The first strategy is the simplest: know your gaps. Read each policy you have and figure out where your insurance covers you, and where it does not. There may be many words and terms that may not make sense, but there will be a decent amount that do. For example, do you know how much your deductible is for your homeowner’s insurance? The difference between $2,500 and $15,000 could change the amount of cash you should have in savings. Look up all the deductibles for your insurance plans, and that will give you a good sense of your out-of-pocket exposure “before” you start to figure out if certain events are covered under insurance.
Speaking of deductibles, the second strategy is to work on raising your deductibles over time. This will be very specific to each person, but as your wealth and your assets grow, there should be more savings to cover larger expenses that may not need to turn into insurance claims. From a short-term perspective, doing so would also reduce the premiums you pay, which is generally preferred. From a longer-term perspective, this strategy also allows you to move towards self-insuring your family and business.
The last strategy, in tandem with moving towards self-insuring, is to max out the coverage available on each policy. Insurance should help protect you against catastrophic events. If your child gets into a serious wreck with a doctor, or your dog bites a neighbor, or your house burns down, you want to be covered completely. More coverage generally means a higher premium, however, so make sure to balance the cost of each policy with the risks you are protecting.
The Most Personal Insurance P&C insurance is one of the most personal types of insurance because it is so prevalent. Most states require auto insurance, most mortgage companies require homeowners insurance, and so on. Even if we all have a rough idea of how these policies work, understanding where (and how much) your coverage lacks can be a worthwhile effort. Don’t let one accident derail decades of wealth-building because your insurance coverage wasn’t reviewed regularly. If it feels too difficult to figure out, ask someone you trust to explain it to you.
TC Falkner 