An Excess Liability policy, sometimes referred to as Umbrella Liability, provides additional liability protection for your assets and income in the event of a lawsuit. There are differences between an Excess policy and an Umbrella policy, but that is a subject for another article. For this article, we will call it an Excess Liability policy. These policies require you to keep a specific limit of liability on your home, auto or watercraft policy. Think of this required underlying limit as the deductible on your Excess Liability policy. If a lawsuit exceeds the required liability limit of your home, auto or watercraft policy, your Excess Liability policy will come into play. These policies are purchased in million-dollar increments. Keep in mind, if you are using different insurance agents or companies, all your policies must meet the requirements of your Excess Liability policy, so you do not have a liability gap between policies.

What increases my need for higher Excess Liability limits?

• Cars
• Pool
• Watercraft
• Having a dog
• Entertaining at home
• Children of driving age
• Social Stature (known in the community)
• Being on a not-for-profit or charitable board
• Ownership of vacant land or rental properties
• Appearance of wealth (occupation, income, home, cars driven, etc.)

If you checked any or some of the above items, your possibility of being involved in a lawsuit is increased.

Are any of my assets protected from lawsuits?

In general, employer-sponsored retirement accounts (401(k), 403(b)), IRA’s (up to $1 million), your primary home (up to a limit), annuities and irrevocable trusts have some protection. With today’s litigious society, nothing is guaranteed. Eventually you will take distributions from those protected accounts or sell the home. At that point, the distributions could be attached.

How much coverage should your family have?

There is no exact formula to answer this question. We sometimes call this sleep at night insurance. I ask you to consider a simple question. Think about your net worth and your current/future income; How much of that would you like to protect from a lawsuit? That answer will give you a starting point on how much excess liability you should look at. Did you know that you can buy a million dollars of excess liability for between $150 and $300 per year and $10 million could be less than 2,000 per year? Have more assets, need higher limits? Companies like Chubb, PURE and AIG can provide limits of $100,000,000 or more. The premium will depend on the number of cars, locations (home, condo, apartment, rental property, land, etc.) and watercrafts you have.

Even if you are early in your career and do not have large assets or a big income, you should purchase an Excess Liability policy to protect your future income. This is particularly important for young doctors and lawyers who generally have a lot of debt and little to no assets. Your occupation makes you a target for a lawsuit with a judgement against future income.

Other items to consider

• Make sure the cost of defense will not reduce the amount available to pay damages
• If you are on a not-for-profit or charitable board, make sure your home liability and excess liability policy provide Directors & Officers liability coverage, not all do.
• Consider adding Uninsured/Underinsured Motorist coverage to your Excess Liability Policy. This provides additional payment to you above your Uninsured/Underinsured auto policy limits in the event you are in a car accident where the other person is at fault and you are badly injured, and they have less insurance than you.
• Remember, business exposures will not be covered on this policy
• Do you have domestic employees (housekeeper, childcare, driver)? Specialized coverage can be added on for Employment Practice Liability Insurance.

Excess Liability is an inexpensive way to protect your income, wealth and estate plan. What good are estate protecting trusts and LLCs, perfect asset allocation, correctly structured life insurance and even a plan for “asset protection”; if an uncovered liability claim can wipe out several million dollars of assets under management? 

For more information on fee based risk management of personal property and casualty policies, email BBoak@BOAKS.com

Brian P. Boak, Private Client Risk Manager, P&C

Accredited Estate Planner®, Chartered Private Risk and Insurance Advisor, CLU®, LUTCF

BOAKS Advisors Analyze – Advise – Protect

973-570-6381 BBoak@BOAKS.com www.BOAKS.com

The post What is an Excess Liability Policy and do I need more? appeared first on BOAKS Advisors.

• Everyone lives in a Flood Zone
• 25% of all flood damage occurs outside of high risk areas
• Homeowners Insurance excludes claims for flood damage

Flood is defined as rising ground water on normally dry land (Not a broken pipe in the house). This could come from heavy rain, overflow of stream, lake, river or ocean, tidal surge, water main break, blocked drainage ditch, swimming pool collapse or other causes. Most homes outside of high risk flood zones do not have flood insurance as the bank does not require it, but 25% of the claims happen in these lower risk areas. Unfortunately most people find out too late that home insurance excludes coverage for flood damage.

NFIP Flood

Most people that buy flood insurance purchase a policy that is administered through FEMA (Federal Emergency Management Agency). This program was set up under the National Flood Insurance Act of 1968. The NFIP (National Flood Insurance Program) provides limited coverage in the event of flood damage. Coverage and cost depends on if the home is your primary home (you live there 80% or more) or a secondary home (you live there less than 80%), your Flood Zone, where the lowest floor is in relation to the Base Flood Elevation, and several other factors. Families with multiple homes may have a problem reaching the 80% at any location. An NFIP policy will allow you to purchase up to $250,000 in coverage on the building and up to $100,000 in coverage for your personal property (contents). With almost 40% of the homes in the US valued at over $250,000, an NFIP flood policy may not protect your home in the event of a catastrophic flood. If you live in the home 80% or more (Primary home) the policy will provide Replacement Cost for the building. Your personal property is only covered for Actual Cash Value. This means the claim payment will be reduced based on the age of the item (depreciation). This can create a large gap between what it would cost to replace your personal property and what the policy will pay. If you live in the home less than 80% of the year, the building is also only covered for Actual Cash Value (depreciation). The next item you have to worry about is where will you live while the home is being repaired. If this is a secondary home you have options, but if this is your primary/only home you will need to rent a location. Unlike your home insurance policy which provides reimbursement for Additional Living Expenses if you need to live elsewhere during the repair of a covered claim, an NFIP policy does not include this coverage. In the event of flood damage, you are on your own to pay for additional housing (while you continue to pay your mortgage, taxes and insurance). In addition, if part of your home is below ground level the policy provides extremely limited or no coverage for personal property and building items (paint, flooring, cabinets, etc.). It may appear that you have flood insurance issued by your home insurance company. The NFIP allows insurance companies to put their name on the policy (“Private Label”), but it is still an NFIP policy with the same limitations. All claims are processed through the NFIP, not your insurance company. Also, if you have a guest house or a garage with living space, that building needs its own policy.

Private Flood

Your second option, Private Flood insurance is designed, written and administered by an insurance company. These policies provide broader coverage and higher limits. Most brokers either do not know about or do not have access to Private Flood Insurance options. That is why you do not hear about it. Since the start of the NFIP, the rates have been subsidized. The premiums for homes in high risk areas were kept artificially low while being subsidized by homes in low risk areas. The NFIP is about $25 billion in debt. As NFIP flood policy premiums increase, Private Flood is looking more attractive. NFIP Flood premiums for secondary homes are increasing at a greater rate than primary homes. This makes Private Flood even more attractive for secondary homes. With many secondary homes close to water, it is important to remember that an NFIP policy does not cover replacement cost on the building for a home that you live in less than 80%  of the time.

Key advantages of Private Flood

• Higher limits for Building and Contents coverage available
• The ability to have Replacement Cost on the Building and Contents
• Ability to purchase Loss of Use (expenses to live elsewhere during repairs) or Business Income (Rent reimbursement for Rental Property)
• Better coverage for Building and Contents for below ground and basement areas
• Reduced or no waiting period (NFIP has 30 day waiting period, unless a new loan is involved)
• Coverage for Other Structures (garage, shed) available without reducing primary building coverage
• The premiums could be lower since they do not have to accept all properties and use complex underwriting tools to set accurate premiums

Excess Flood

Your third option is Excess Flood Insurance. This policy would provide coverage after you have exhausted the benefits on either an NFIP or Private Flood policy. The policy would require you to have at least $250,000 in coverage for the building and $100,000 in coverage for contents. If a major loss occurred, many homes would require more than $250,000 to replace the building and $100,000 to replace contents. This is important coverage to ask about, specifically if you only have an NFIP policy. Excess Flood Insurance can provide coverage up to $50 million for a building, $2 million for contents and $500,000 for Additional Living Expenses or Business Interruption.

This article was not designed to make you a flood expert or answer all questions on flood insurance. There are just too many questions. It is designed to make you aware that there are options and to start the conversation. If you live near water, if you live in a valley or flat ground, start a discussion with your insurance advisor to discover the options. The more information you have, the better risk management decision you can make to financially protect yourself. Flood insurance may cost as little as a few hundred dollars a year.

For more information on fee based risk management of personal property and casualty policies, email BBoak@BOAKS.com

Brian P. Boak, Private Client Risk Manager, P&C Accredited Estate Planner®, Chartered Private Risk and Insurance Advisor, CLU®, LUTCF

BOAKS Advisors Analyze – Advise – Protect

973-570-6381 BBoak@BOAKS.com

The post Who knew there were three types of Flood Insurance? appeared first on BOAKS Advisors.

Types of deductibles

There are two types of deductibles. The most common is a Dollar Amount Deductible. With this type of deductible, you choose a dollar amount ($250, $500, $1,000, $2,500, etc.) that you are responsible for in the event of a claim. After that the insurance company will reimburse you for covered expenses associated with the claim. For example, a tree falls on your home and causes $4,000 in damage including the cost to remove the tree and repair the home. If you have a $1,000 deductible, the insurance company will reimburse you for the additional $3,000.

The second type of deductible is a Percentage Deductible. With this type of deductible, your deductible is equal to a percentage (1%, 2%, 5%) of the insured value of the home. If you home was insured for $400,000 and you had a 1% deductible you would have a $4,000 deductible. If we used the above example with $4,000 in damage, your policy would not provide any coverage as it did not exceed your deductible. With this type of deductible, as your home increases in insured value your deductible increases.

How to choose a deductible

As you can see from above, your deductible will determine when you can put a claim in for payment. Your choice of deductibles affects the cost of your policy. The higher the deductible the lower the cost of your insurance. On the flip side, the higher your deductible the more you must pay out of pocket in the event of a claim. How do you balance saving money and being stuck with a claim you cannot afford?

There are several theories of how to choose the correct deductible. You need to keep in mind 4 things

1. How much premium will I save if I increase my deductible?
2. How many years will it take me to save the increase in my deductible?
3. Can I afford to pay that deductible out of pocket at some unknown claim time?
4. At what dollar amount would I want/need to be reimbursed for a claim?

My theory is if you can save the increase in your deductible in three years or less, you should increase your deductible. If it takes between three and five years to save the increase in your deductible you should think about it. If it takes over five years to save the increase in your deductible it may not be worth it. All of these are also based on what you can financially afford to pay as a deductible at claim time. Keep in mind, on average there is a home claim every seven years. If you put in several claims over a short period of time the insurance company is likely to cancel your policy or increase your rates. Proper deductibles are an important part of risk management.

In this example we will use a home insurance premium of $2,000 and your current deductible is $500. You have a choice of going to a $1,000 deductible, $2,500 deductible, or a $5,000 deductible. If you increase your deductible to $1,000 (a $500 increase in your exposure) you save $250. If you go to a $2,500 deductible (a $2,000 increase in your exposure) you save $450. If you go to a $5,000 deductible (a $4,500 increase in your exposure) you save $700. Saving $700 sounds like a good option as you are saving 35% of the premium but let us do the math.

1. $1,000 deductible: You increase your deductible (exposure) by $500. You save $250 per year. It would take you 2 years to save the increase in your deductible in premium dollars spent. This would be a very good option. In four years, you have saved your entire new deductible.
2. $2,500 deductible: You increase your deductible (exposure) by $2,000. You save $450 per year. It would take you 4.4 years to save the increase in your deductible in premium dollars spent. This would be something to think about, depending on your finances. If you have a $2,500 deductible, when do you put a claim in? You would not put a $2,600 claim in to get $100 back and have a claim on your record. Would you put a claim in at $3,000 maybe $3,500? That is what you need to think about. Do you have that cash set aside for a claim at an unknown date?
3. $5,000 deductible: You increase your deductible (exposure) by $4,500. You save $700 per year. It would take you 6.4 years to save the increase in your deductible in premium dollars spent. This may not be in your best interest. If you have a $5,000 deductible, when do you put a claim in? You would not put a $5,100 claim in to get $100 back and have a claim on your record. Would you put a claim in at $6,000 maybe $6,500?

You need to have the cash at an unexpected claim time to be able to “afford” the higher deductible. When choosing an insurance policy, you do not want to focus just on the annual premium. You need to pay attention to how you are being covered. Two policies that are insuring the home for the same value may have completely different policy wording allowing one policy to provide much better coverage. Internal policy wording impacts if and how much you will be paid at claim time. We will discuss that in future articles.

Brian P Boak, AEP, CPRIA, CLU, LUTCF

Private Client Risk Advisor, P&C

BOAKS Advisors                   973-570-6381              www.BOAKS.com

The post What deductible should I have on my home insurance? appeared first on BOAKS Advisors.

1 – Do you have a Personal Excess (Umbrella) Liability Policy? If you look at your net worth and income, then look at your excess liability limit, are you comfortable with that relationship?

2 – Are any of your properties owned in an LLC, Trust, or Estate? Do you own any properties outside the US?

3 – Are any of your residences exposed to potential catastrophic loss? (i.e. Earthquake, Flood, Wildfire)

4 – Do you have any properties rented, vacant, or under construction/renovation?

5 – Do you employ domestic staff?

6 – Do you have any valuable collections? (i.e. Jewelry, Fine Art, Wine, Collector Cars, etc.)

7 – Do you own a watercraft, recreational vehicle or own/lease a private aircraft?

8 – Do you or a family member serve on a for profit or not for profit Board?

9 – Have you taken steps to protect yourself from cyber-crime and social media liability?

10 – Has your insurance agent engaged you in a lifestyle and risk analysis review in the last year?

Emerging Exposures

• Distracted Driving – uninsured/underinsured drivers
• Cyber fraud – social media liability

BOAKS Advisors Analyze – Advise – Protect

Brian P. Boak, Private Client Risk Manager, P&C; AEP®, CPRIA, CLU®, LUTCF

Phone: 973-570-6381

Email: BBoak@BOAKS.com

Website: www.BOAKS.com

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