It’s that time of year. Decisions need to be made. In my last post, I wrote about health insurance (particularly for a self-employed person). Open enrollment is in full effect, so health insurance policy decisions need to be made quickly – before December 15, 2019.
I have other insurance policies that are up for renewal at the beginning of the year. Since I’m being particularly diligent about my finances, I think it important to re-evaluate each of these policies before they renew for 2020. If you’re doing the same thing that I’m doing, maybe this will be worthwhile information as you consider your options. Maybe not. In any case, I thought I’d share.
In addition to my health insurance, I have 6 other types of insurance:
- Auto Insurance Coverage
- Homeowners Insurance
- Umbrella Insurance
- Professional Liability Insurance
- Disability Insurance
- Life Insurance
My Insurance Philosophy
Given my financial situation, I think this is a lot of policies. Between me, personally, and the business, this presents a significant amount of money being spent on premiums.
Of course, I don’t want to spend any more money than I need to, but I want to make sure that I’m adequately covered in the event that something unexpected happens. As Chris Rock says, I need coverage “in case shit.” In other words, I feel like it would be imprudent of me to not have these coverages. For example, in my state an attorney doesn’t have to have professional liability insurance. But, like with any profession, mistakes happen. Do I really want to get slammed with some hefty payment unexpectedly? Not really. Though I’ve never had a claim (or even a complaint) filed against me, I don’t want to take the risk of not having any protection in the event that something goes wrong.
A foundational concern for me is undue surprise. I’m already dealing with random expenses that come up with respect to my home and business. I also only have a “baby” emergency fund of $1,000 in the bank. This means that I don’t have a bunch of money around to address some kind of big bill that needed to be paid quickly, were to come up. It is important for me to not increase the number of additional expenses that are likely to pop up on me. What I really don’t need are more high dollar unexpected expenses causing major speed bumps in my debt free journey. My insurance policies need to help protect me from liability, but also reduce the stress of me wondering if I would end up severely jammed up . . . in case shit.
Auto, Homeowners and Umbrella Insurance
I have a few insurance policies with Allstate – auto, homeowners and umbrella coverage. Out of all of the policies I listed above, these are the ones that are up for renewal at the beginning of 2020.
Auto Insurance
I pay my insurance on a monthly basis, but my total 6 month premium is $1,216.95. Here are my policy details:
- Automobile Liability Insurance
- Deductible: $0
- Bodily Injury: $250,000 each person; $500,000 each occurrence
- Property Damage: $100,000 each occurrence
- Uninsured Motorists
- Property Damage: $100,000 each accident
- Deductible: $250
- Auto Collision Insurance
- Limit: Actual cash value
- Deductible: $1,000
- Uninsured Motorist (added on to at fault liability limits bodily injury)
- Limit: $250,000 each person; $500,000 each accident
- Deductible: Not applicable
- Auto Comprehensive Insurance
- Limit: actual cash value
- Deductible: $1,000
- Automobile Medical Payments
- Limit: $2,000 each person
- Deductible: $0
- Rental Reimbursement: up to $40 per day for a 30-day maximum
- Towing and Labor Costs: $100 each disablement
- Deductible: $0
Because I really wanted to understand my coverage, I met with my insurance agent to discuss what I’ve got and why. Auto accidents happen all of the time. With the amount of accidents that happen “just because,” along with the number of drivers that are out here driving distracted, it is important to me to have strong coverage. Plus, working for myself is stressful enough; I don’t need any additional stress when I’m driving around. I’ve got the minimum coverage limits that are allowed in order for someone to have an umbrella coverage policy. More on that below.
I love the comprehensive insurance portion of my policy. It covers me if the car is stolen, vandalized, if I hit a deer, or if I hit something because I swerved to avoid hitting something or someone else. It also covers the windshield. I like that the deductible for this is $100. I also like that when my windshield gets chipped, and the chip is smaller than the size of a quarter, they’ll come and fix it for free, without me paying any deductible. I’ve utilized this service twice in less than 15 months.
I learned that my uninsured motorist insurance is really important because, without it, I’d be relying on the insurance (or lack thereof) of someone else. My liability coverage protects others (or their property) that I might injure or damage. The uninsured motorist portion protects me if I’m hit or damaged by someone else and they don’t have adequate coverage. My agent noted that it doesn’t make sense for me to have less coverage to protect myself than I would have to protect someone else.
Reducing Insurance Costs
I’m going to reduce my insurance expense by taking a defensive driving course online. By taking the course, I’ll get a discount. Another way I’ve been reducing my auto insurance cost is through the use of the Allstate Drivewise app. When I consistently keep my driving speed under 80 mph (not so easy for me) and refrain from hard braking, I end up receiving a little check. The most recent one I received was in the amount of $72.41, so . . . it counts.
Condominium (Homeowners) Insurance
A condominium is usually covered by 2 types of insurance – the master policy of the condominium association and a personal policy held by the condo owner. Generally, the master policy covers the building structure and common areas. The condo owner’s policy covers everything inside of the condo. Some master policies only cover up to and including the walls of an individual condo. Others cover not only up to the walls, but also the floors, countertops and built-in appliances within the condo unit.
My association’s policy is of the former type, but my coverages are still fairly low for my condominium insurance. I also do not have a lot of expensive belongings like high-end furniture, fur coats, diamonds and designer handbags and shoes. So, I just wouldn’t need as much money to replace my belongings as would others.
Here’s a detail of my coverage:
- Building Property Protection: $36,000 (for the replacement of fixtures, built-in appliances, flooring, etc.)
- Personal Property Protection: $40,000 (for the replacement of my clothing, computers, jewelry, etc.)
- Additional Living Expense: $8,000 (coverage in the event of temporary displacement)
(As I write this, I’m wondering if my amounts are a bit too low. I’ve reached out to my agent so that we can discuss this.)
Like my auto insurance, my condo insurance gets paid on a monthly basis. My premium for the year is $301.77.
Personal Liability Umbrella Insurance
An umbrella policy covers a person, as a whole, providing extra liability coverage beyond what is provided through their other policies (e.g., homeowner’s and auto insurance). This is coverage that protects your personal assets to the extent that your assets cannot be protected by the coverage provided through your other policies.
Let’s say, for example, you were to get into a car accident and injure someone. You have automobile liability coverage in the amount of $250,000 (like me). If the damages to that person go beyond the $250,000 available through your coverage (imagine if you were to injure a high-paid professional like a professional athlete or brain surgeon and that person couldn’t work for months), that person would be looking to you to cover any of their additional damages beyond the $250,000. If you had an umbrella policy, the additional coverage could come from there, instead of from your personal bank account or from your future wages (a state might garnish between 20% and 25% of your wages for your working life until the damages are covered).
That’s why I have an umbrella policy. Though I have a negative net worth today, I don’t intend to stay that way for too much longer. My aim is to increase my income in quantum leap fashion over the next few years and . . . in case shit . . . happens, and my main policies don’t provide adequate coverage, I don’t want my future income to be affected. In other words, I have an umbrella policy so that the money I earn in years to come won’t be garnished or my property liened against. As I previously mentioned, the limits I have for my other policies are the minimums required in order to have an umbrella policy.
Fun Fact: A little more than $475,000 of the $850,000 settlement that President Bill Clinton paid to Paula Jones in connection with the sexual misconduct lawsuit against him in the late 90s was covered by President Clinton’s personal umbrella policy.
What kind of insurance do you have? Did you cut out any insurance policies for the purpose of increasing your payments on your debt? Have you discovered any insurance solutions that have worked well for you?