Evaluating insurance needs Featured

8:00pm EDT March 26, 2007
Sometimes, executives are so busy pursuing the American dream that they forget to protect the hard-earned assets they have accumulated along the way. Vacation homes, jewelry, boats and cars are frequently part of a burgeoning list of assets acquired by executives, while board-of-director roles, managerial assignments and international business travel are some of the responsibilities that accompany success. Each possession and professional activity needs to be evaluated by a broker for potential physical loss or liability exposure, and insured accordingly.

Approximately 70 percent of clients are underinsured, according to Michelle Baxter, personal lines broker with West-land Insurance Brokers. “It is more expensive to rebuild a home than to build it because of demolition and debris removal costs,” says Baxter. “Many homeowners fail to take those expenses into account when they calculate their home’s replacement cost, if they aren’t advised by a professional broker.”

Smart Business spoke with Baxter about how to close coverage gaps and reduce liability exposure with personal insurance.

How often should I meet with my broker?

Your broker should review your portfolio annually, including an evaluation of all of your assets and your lifestyle. The broker should ‘shop’ your coverage needs among several markets to determine the best value and insurance carrier for you. I say value as opposed to price because coverage should be placed with an A-rated carrier and certain markets cater to high-wealth individuals, so their policies contain clauses that provide protection for the kinds of exposures that executives frequently have. Saving on premiums in the short run often can cost you more in the long run.

What is my broker’s role in reducing my exposure to loss and managing my needs?

You should have one broker, who should place all of your coverage with one insurance company.

Primarily, this allows your broker to view your entire lifestyle and portfolio of assets for gaps in coverage and potential exposure. For example, if you purchase a vacation home and secure the insurance coverage through escrow at closing, that policy might have liability limits of $300,000. Meanwhile, your personal umbrella policy is with another carrier and it provides coverage for losses that exceed $500,000, resulting in a coverage gap of $200,000, which could be avoided by having one broker who oversees all of your needs. Hiring occasional or full-time workers, such as a nanny or housekeeper, can also increase your exposure, as does renting out a vacation home, so all of this must be taken into consideration.

Also, placing all of your coverage with one carrier is generally more cost-effective because it allows for premium credits and elimination of costly redundant coverage.

Finally, your broker should be the first person you call in the event of a loss. When you report a potential claim to a carrier, all insurance companies are notified regardless if the claim gets paid. In some cases, especially where the claim may be below your deductible, it might be best not to report it at all. Your broker will know what the right answer will be for each situation.

What are examples of personal lines protection that executives should consider?

Your broker should suggest a personal articles floater if you own jewelry, rare wines, collectables, musical instruments or fine art, and all items should be appraised. This will cover the items at full value against loss or mysterious disappearance without a deductible. If you own a condo as a primary residence or as a rental property, you have personal liability exposure that extends beyond the master policy written on the condominium association. For example, if a fire starts in your unit and damages other units, you might have financial responsibility to others.

Extended replacement cost coverage for homeowners is another recommendation. It provides additional protection in the event you discover that you are underinsured after a loss. For example, if you have purchased $500,000 in replacement cost coverage for your home, and after a fire you find that it will actually take $550,000 to replace it, the endoresement clause will provide for $550,000 in replacement coverage automatically; you need only pay the additional premium. Also, you don’t have to settle for coverage limits provided by the California Earthquake Authority. A professional broker has access to other markets that provide broader coverage for reasonable rates.

What are the other benefits of working with a professional broker?

Brokers can assist executives with busy lifestyles by recommending appraisal firms, companies that will scan valuable documents or videotape your belongings, so you have a catalog of your assets. They can also assist in calculating accurate replacement cost values for your properties. As your wealth builds, so does your exposure to loss and your need for professional guidance. It takes years to build the American dream; it only takes a few minutes to lose it.

MICHELLE BAXTER is a personal lines broker with Westland Insurance Brokers with 20 years insurance experience. Reach her at mbaxter@westlandib.com or (619) 641-3255.