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In financial planning, we spend a lot of time thinking about, talking about and working toward long-term goals that are integral to attaining the life we want to live. An important aspect that sometimes gets overlooked is protecting your assets - and all that you’ve worked for - from unexpected events. That’s where insurance comes in. Life insurance is a major part of that, but we’ll save that for another day. In this article, we’re going to focus on auto, home and umbrella policies.
In the state of Indiana, as in most states, automobile insurance is required. Basic coverage includes liability, medical payments and uninsured or underinsured motorist coverage. Liability protects you against claims of property damage or bodily injury to a third party that you accidentally cause while driving your car. This coverage applies if you are responsible for the accident.
Medical payments, as the name implies, pay the medical bills of the occupants of your car, regardless of who caused the accident.
Uninsured motorist coverage pays for property damage and bodily injury if you're in an accident caused by an uninsured driver. This coverage usually applies in hit-and-run cases as well. Underinsured motorist coverage applies when the other driver is at fault but doesn’t have enough insurance to cover your injuries.
If you want to protect your own vehicle in cases where you're at fault, you can carry collision and comprehensive coverage. Collision covers damage caused by impact with another car or object. Comprehensive covers damage that isn't caused by a collision, such as broken glass, falling objects, fire, theft, windstorm, hail, water and vandalism. Other optional coverages include towing, roadside assistance and rental reimbursement.
Homeowners insurance is like auto insurance in that it protects both your property and you from liability. Dwelling coverage protects your actual home. Other coverage protects buildings that aren't part of the main house, like a detached garage, gazebo or shed. Personal property coverage helps replace items like clothing, furniture and appliances that are damaged. Loss of use coverage pays for temporary housing and related expenses if you experience a major loss. This can include meals and laundry while your home is being repaired or replaced.
The personal liability portion of your homeowner’s insurance provides coverage for bodily injury or property damage for which you're legally responsible. For example, if a guest falls on your steps, or your son throws a ball through the neighbor’s window. Policies define which perils are covered and usually include events like fire, lightning, windstorm, hail, explosion, vehicle damage, riot or civil unrest, smoke, theft and vandalism. Some policies also cover falling objects, the weight of ice and snow, plumbing freeze and accidental discharge of water from plumbing. However, homeowner’s policies typically do not cover floods; flood insurance must be purchased separately.
Other commonly excluded perils include earthquakes, mudslides, war or intentional damage.
Both auto and home insurance usually include a deductible, which is the amount you must pay before your insurance begins to cover costs. A higher deductible usually means lower premiums, but it also results in more out-of-pocket expenses if you file a claim.
In addition to auto and home insurance, you may want to consider an umbrella policy. Umbrella policies provide additional liability coverage beyond your existing policies. For example, say you caused a car accident, and the injured party won a $4 million judgment. If your auto policy covers only $300,000, you'd be responsible for the remaining $3.7 million. An umbrella policy would cover that excess amount. Umbrella policies aren’t just for the wealthy. They’re often quite affordable. Without one, you could lose your assets.
The purpose of insurance is to protect against financial loss. It won’t prevent a car accident or a house fire, but it can help limit the financial impact of those unexpected events. Insurance should absolutely be considered a key part of your financial plan.
Important Disclosure: Alan Alderfer is a Partner, Managing Director at Beacon Pointe Advisors, LLC. The information contained in this article is for general informational purposes only. Opinions referenced are as of the publication date and may be modified due to changes in the market or economic conditions and may not necessarily come to pass. Past performance is not a guarantee of future results. Beacon Pointe has exercised all reasonable professional care in preparing this information. The information has been obtained from sources we believe to be reliable; however, Beacon Pointe has not independently verified or attested to the accuracy or authenticity of the information.
The discussions, outlook, and viewpoints featured are not intended to be investment advice and do not consider specific investment objectives or risk tolerance you may have. All investments involve risks, including the loss of principal. Consult your financial professional for guidance specific to your circumstances.
