Don't Get Caught Short: 9 Tips on Getting the Right Property and Casualty Coverage

You've got it covered: Your home, auto, and possessions are covered by your property and casualty (P/C) insurance, so you're safe. But how safe are you really? The truth is that there may be other aspects of your P/C insurance that could be strengthened. In fact, when we start working with new clients, we can nearly always shore up this area, helping them save money and be better protected. 

Here are some tips to address the most common P/C coverage gaps:

1. Don't set your deductible too low.

In the event of a claim, you pay your out-of-pocket deductible, and insurance pays the rest. The higher the deductible, the lower the annual premium.

For example, if I select a $1000 deductible, my annual premium is $6901 a year. If I raise the deductible to $2500, the premium drops to $5475 — a $1426 reduction. The lower deductible of $1000 would make sense if I anticipated filing an auto insurance claim once a year, on average. I take my chances and go with the higher deductible and paying a lower premium.

Why is there such a gap in cost for a relatively small difference in deductible? It comes down to dollars and cents. Processing an insurance claim is time-consuming and expensive for the insurance company, so they don't want to bother with claims for small dollar amounts. Charging a high premium for a low deductible is their way of saying, "Don't bother us with small claims — pay out of pocket for the little stuff."

2. Cover yourself with umbrella insurance.

Umbrella insurance is personal liability insurance that covers claims in excess of the limit we typically see for homeowners, auto, or watercraft policy coverage. Rather than covering damage to the policy owner's possessions, umbrella coverage is for injury to others or damage to another person's property. 

For those with significant assets, umbrella coverage provides the policy owner and their household with a safety net above the typical $300,000-$500,000 limit — which is helpful in our litigious society, especially if you are perceived as a wealthy doctor. 

Fortunately, umbrella insurance is relatively inexpensive, in the range of $250 per year for the first $1 million. So how much umbrella coverage should you have? The general rule of thumb is getting coverage that is equal to your net worth.

3. Insure your home for replacement value, not market value.

A mistake we commonly see — especially with older and high-value homes — is a house being insured for market value instead of replacement cost. In other words, the cost to rebuild the house is not captured by the market value. 

One example of this is extended replacement cost. In this case, the insurance company will cap their payment at perhaps 130% of the insured value. So, if the home is insured for $500,000, the company will cover up to $650,000. However, if the raw materials and labor costs increase, the cost to rebuild may be above $650,000 — and the policy owner is on the hook for any amount beyond that. In older and high-value homes we often recommend guaranteed replacement coverage.

It's worth seeing what sort of coverage you have for your home to make sure that it's in line with what it would cost to replace your home, not its market value. 

4. Document, document, document.

Those who have ever filed a significant claim for damages to their home are well aware that it's the policy owner's responsibility to document the contents of their home — and ideally where and when you purchased the items. Doing this will go a long way in receiving fair compensation on your claim.

A good insurance broker will inventory the contents of insured dwellings with a video. If your agent doesn't provide this service, it's worth doing on your own.

5. Protect against the risk of uninsured and underinsured drivers.

An emerging risk for all drivers is protection against at-fault drivers who do not carry any or enough liability insurance to cover your damages. Many states require drivers to carry at least uninsured motorist coverage, if not both uninsured and underinsured motorist coverage. 

Check if your policy includes this type of coverage, and for how much. (We recommend including at least $1 million.)

6. Provide sufficient coverage of your valuables.

Most policies have a standard limit — typically $1500-$10,000 — for jewelry, art, furs, guns, wine, antiques, and other collectibles. If the value of these possessions exceeds these limits, consider separate scheduling of these items for an additional cost.

7. Look for sewer and water backup coverage.

Are you covered for standing sewage in your bathtub, toilet, basement, or anywhere else in your house? Some home insurance policies don't include this type of coverage. Other carriers cap payments for this type of claim at a level too low to cover actual repair, cleaning, and replacement costs for damaged furniture and carpeting. We've seen clients with policies capped at $5000, which is usually an inadequate amount, even for an unfinished basement. Just imagine the cost to strip it down to the studs, clean and dry, rebuild, and refurnish a finished basement. 

As you review your policy, make sure your sewer/water backup coverage limit reasonably matches the cost to redo your basement in the event of this type of claim. If it doesn't, you can often increase the coverage for an additional premium, or you may choose to change to a company that does a better job of insuring you against this not uncommon occurrence. 

8. Consider the difference between insurance brokers and insurance agents.

Our firm works with insurance brokers, not insurance agents. Why? Insurance agents that work for one company may be limited to selling just that company's products, which may not meet your needs. For example, a client of modest means and a $400,000 house needs very different coverage from a wealthier client with multiple expensive residences, expensive jewelry, an art collection, and other possessions. 

Most insurance companies design products for a specific target market, and their products may not be suitable for your circumstances. That's why our firm prefers to work with insurance brokers who usually represent 10-20 companies across the home-value spectrum. 

9. Beware of annual renewals.

We see clients who bought their P/C coverage from an agent years ago, often with automatic renewals and periodic rate increases along the way. Sometimes the agent hasn't revisited your policy since the initial purchase — although you may have done home renovation, added teenage drivers, or bought a new car that they neglected to add to your policy. This situation can spell trouble.

If your P/C agent has not been contacting you annually about your exposures — and periodically shopping the market for coverage that may better suit your changed circumstances — they are not earning the commission built into your premium that you pay them every year.

Don't get caught short.

If you've always thought that P/C insurance is limited to your home and auto insurance, think again. You can save yourself money and headaches by addressing other potential exposures, like those above, which your property and casualty insurance policy can cover.

The above article is intended for informational purposes only. Please consult a legal or tax professional regarding your situation.

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Any views expressed above are the author's own and do not necessarily reflect the views of WebMD or Medscape.

Cite this: Joel S. Greenwald. Don't Get Caught Short: 9 Tips on Getting the Right Property and Casualty Coverage - Medscape - Jan 24, 2022.