insurance plans

Identifying Your Property/Casualty Insurance Gaps

Standard insurance policies cannot adequately address complex needs. Here are 5 key questions that can reveal critical coverage gaps.

Key Takeaways:

  • Standard insurance policies may not adequately address your complex needs.

  • Disconnected polices from multiple companies are potentially dangerous.

  • If you have a custom home, an active lifestyle, luxurious possessions, domestic help, a public profile and young drivers in your family, get your comprehensive personal insurance reviewed on a regular basis.

From a consumer's vantage point, insurance is typically viewed as a necessary evil. Because standard insurance carriers commoditize their offerings through their advertising campaigns, it’s tempting to think that the simple act of buying insurance equates to being adequately protected—a belief that can prove perilous.

Much like seeking out a specialist for a particular medical issue, you should consult an independent insurance agent who focuses exclusively on successful professionals, business owners and other affluent people. If you’re not sure where to find a great agent, or not sure if your longtime agent has all the expertise that you need, ask your wealth advisor for assistance.

A good insurance pro should be asking you "trigger" questions that point to potential vulnerabilities in your insurance coverage. Here are five of the most useful:

1. Do you have enough personal excess liability insurance?
If a lawsuit puts your personal assets at risk, the last thing anyone wants to worry about is running out of insurance. Most standard excess liability (umbrella) policies cap out at $5 million, a figure that might not be sufficient considering your net worth. Don’t worry. It can be surprisingly affordable to obtain higher coverage limits, but this sort of solution can be accessed only through the independent specialist channel. Limits of up to $100 million are available on a single policy to address allegations of property damage or bodily injury.

2. Are your insurance programs complicated and disorganized?
You acquire assets over many years, so it's not uncommon to insure them in different ways. A summer residence, for example, may be insured with a different agent and carrier than a home in the suburbs. Fine art may be insured independently from cars. Whatever the combination, the end result is fragmented. This can create dangerous insurance gaps and makes coverage more difficult and expensive to manage. Don't wait until claim time to find out what is—and is not—protected!

3. Is your home properly insured and protected?
If you had to rebuild your home(s) in today's market, would you have enough homeowners' insurance to cover the expense sufficiently? Many properties are insured based on values that are vastly underestimated, especially those that have undergone extensive home improvements and renovations. For those living in wildfire- or hurricane-prone areas, value-added services also are available to maximize safety and preparedness.

4. Do you employ private staff?
It's not uncommon for nannies, housekeepers, private assistants, gardeners and others to take their employers to court. Employment Practices Liability Insurance (EPLI) responds to allegations of sexual harassment, wrongful termination and discrimination. However, this coverage is not included in a standard excess liability policy. In addition to more precise coverage, carriers that specialize in safeguarding HNW people may offer services to proactively manage risk, such as complimentary background checks on prospective or existing private staff.

5. Are you involved with charities or foundations?
Not-for-profit organizations typically operate on tight budgets and carry a minimal amount of liability insurance for their board members. If you or your spouse sits on the boards of not-for-profit organizations, you should look for additional individual protection on top of existing board coverage. Again, this sort of coverage will not be included in a standard excess (umbrella) policy.


A good independent insurance advisor will conduct annual lifestyle reviews to identify circumstances that usually are excluded from standard policies. If you haven't had such a review within the last three years, now would be a very good time to do so.

Conclusion

Property/casualty insurance and personal risk exposure are complex areas for successful people who have more assets than the average American has--and therefore much more to lose. Because so many wealthy people are not receiving counsel about their insurance-buying choices, you can raise questions with your advisor to help them spot potential gaps in your coverage and give you significantly greater peace of mind.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

What Many Don’t Get About Insurance

Need is always predicated on thoroughly understanding your objectives

Key Takeaways

  • The cost of funding estate taxes, without insurance, is substantial.

  • Insurance cash values are similar to owning a long-term bond portfolio with no mark-to-market risk.

  • The “invest the difference” argument holds up only if you are young.



I recently sat down with a very successful professional who finally acknowledged that he needed life insurance to protect the value of his company for his family. He is under 50 and recently bought some term insurance. He was now willing to discuss funding a larger permanent plan that would pay out if he lives to his life expectancy or beyond.

My client had the usual objections I hear from HNW clients and prospective clients. His first objection was typical of someone who is contemplating a large policy:

1. “Do I really need it?

2. “How should I pay for it?

3. “Why shouldn’t I just stick with term, since it is so much less expensive?”

 

These mental hurdles come up frequently, and any top insurance advisor is able to delineate the issues and help you through the maze of confusion that shrouds this decision. What is the best solution? Let’s look at the first big consideration--need. Some of you don’t care that much about what happens after you die. Others of you want every nickel to go to your family. Still others don’t mind paying some tax, but you want to preserve your best assets and heirlooms for your family. If your goal in estate planning is to preserve your estate for the benefit of your heirs, keep in mind that the cost of paying the taxes and fees from cash flow or liquidity is a form of self-insurance. You not only lose the use of your funds, but you also lose the future earnings.

The cost of funding estate taxes, without insurance, is substantial. Who is going to finance the tax if you don’t have the liquidity? What is it going to cost your family to get liquid? The cost of insurance is a mere percentage of the true cost of the tax. But if you are self-insured, you not only pay the full cost of the tax, but you also pay “taxes on the tax” as well as an interest cost. Self-insurance is not cheap. This is something you have to understand and believe. Do the math. The “invest the difference” argument holds up only if you die young.

 

You set the rules


Buying term and investing the difference is like trying to compare incomparable asset class returns. This is like saying, “My stock portfolio will beat your bond portfolio.” If we go by historic returns, then this is a true statement most of the time. But there have been a few times when bond returns did beat stocks, even with mark to market risks.

Just think this through carefully. When you invest this difference, where will you invest that sum of money? Will you invest it in fixed return assets, with little or no downside risk, or will you invest it in risky assets that are illiquid and have the potential for total loss? Are you going to buy growth stocks and hope the long-term bull market never pulls another 2008 nosedive?” To make this discussion academic, we need to compare similar asset classes with similar risks. Insurance cash values are similar to owning a long-term bond portfolio with no mark to market risk.

Conclusion

Ask yourself, “Are all your assets deployed in high-risk, low-liquidity investments, or do you own any liquid, low-return assets?” If it’s the latter, then ask yourself if you would rather own the bonds in a tax-free wrapper that provides long-term discounted dollars, or in a taxable world where you can lose 10 to 20 percent of the value if interest rates rise?

If you or someone close to you has concerns about their life insurance coverage, please contact us any time. We’d be happy to help.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

’Tis the Season… For Accidents, Burglaries and Other Mishaps

How to manage holiday-related risk

Key Takeaways:

  • Insurance claim experience has shown that increased social activities and travel throughout the holiday season lead to a corresponding rise in accidents and property damage.

  • You can lessen your exposure by anticipating the frequent causes of mishaps and taking proactive steps to mitigate them.

  • The holiday season also is an ideal time to revisit the insurance coverage that is currently in place, to make sure that protection will be adequate in the unfortunate event of a claim.



The holidays are a time for family gatherings, entertaining friends, gift-giving and travel. It’s also a time when homeowners and their guests have increased exposure to accidents, property damage and theft.

Following is an overview of the most prevalent incidents as well as practical tips that can help you employ to maximize their protection at home and on the road.

1. Home entertaining

Common risks:

  • Hosting events at home increases the potential for accidents that can lead to personal liability lawsuits. Examples include guests slipping on a wet floor or an icy walkway, a car accident caused by an “over-served” attendee, sickness due to spoiled food, dog bites and more.

  • Possessions inside the home are subject to breakage or theft as a result of increased foot traffic. In addition, fires can stem from overloaded electrical outlets, neglected candles, unsecured decorations and cooking mishaps.

  • If outside help is hired, such as a catering company or a valet parking service, any actions or injuries sustained on the premises can be blamed on you, the homeowner.

What you can do:

  • Consider the weather conditions and how they will impact traffic inside and outside your home. Take precautions to address wet, slippery walkways or foyers. Notify guests to take extra care around areas that are particularly crowded or that you know to be potentially unsafe.

  • Be mindful of holiday décor. Could items on upper levels fall? Are there any obstructed areas that could pose a safety concern?

  • Move high-value items (particularly artwork, breakables and sculptures) away from high-traffic areas whenever possible.

  • Keep jewelry and other smaller valuables out of sight and locked in safes whenever possible. If you have a wine cellar inside your home, lock the entrance.

  • Have contact information handy for local taxi services in case guests cannot drive home safely.

  • Do not leave candles burning in unoccupied rooms. Unplug interior decorations before going to sleep, and unplug appliances not in use. Avoid using old plugs that don’t fit snugly into the outlet. In addition, replace devices or décor that has frayed wires.

  • If an outside vendor is helping with the party, request a certificate of liability insurance and proof of workers’ compensation insurance to ensure that their insurance will respond if there is an incident.

2. Leaving the house unoccupied

Common risks:

  • Weather events increase the chance of property damage. Freezing temperatures can lead to burst pipes; heavy rains, wind and ice can cause power outages and flooding.

  • A vacant home is a target for burglars.

  • Announcing vacation plans via online social networks can also increase your risk of being burglarized.

What you can do:

  • Occupancy is the best prevention. If you aren’t in a position to hire a caretaker, you can have a friend or neighbor check the property periodically—with their car clearly visible in the driveway if possible.

  • Look to technology. Low-temperature sensors and water shutoff devices can help identify problems before they get out of control. Set lights to turn on/off throughout the day—not just at night.

  • Conduct a professional security assessment to ensure that the existing alarm system provides optimal protection against burglary, fire and low temperatures.

  • Also consider behavior patterns that can elevate the risk of burglary. For example, if your family travels at the exact same time each year, it’s easier for a criminal to target the home.

  • Advise family members to use social media wisely. Don’t announce to a broad (and often unknown) audience that your home will be vacant.

3. Travel

Common risks:

  • Liability laws may vary from country to country, as does the climate for litigation.

  • Gifts and other items purchased abroad are often lost or damaged before making it home.

  • Valuables are left accidentally in hotel rooms or on planes.

  • If a family member gets sick or injured, nonrefundable tickets may be canceled or trips cut short. In a remote destination, top-quality medical care may not be within reach.

What you can do:

  • Consult with an insurance professional prior to your trip to gain a better understanding of local laws and their coverage, particularly if you are renting a car or recreational vehicle. When possible, choose an excess liability (umbrella) insurance policy that offers worldwide coverage.

  • Leave high-value jewelry at home, in a safe or safety deposit box. If you must travel with jewelry, keep it with you at all times; do not place it in checked luggage.

  • If larger or fragile items purchased on vacation (such as artwork or cases of wine) cannot travel home with you, then consult a specialized shipping company for assistance. Notify your insurance agent of any substantial new purchases to ensure coverage as soon as you become the owner of those items.

  • A homeowners’ policy may not be sufficient for jewelry, art and other high-value collectibles. A separate private collections policy offers more appropriate coverage.

  • Obtain travel insurance, which can provide coverage for medical evacuation as well as trip cancellation.

  • If a family member has a pre-existing medical condition, prior to departure identify local emergency contacts at their destination.

Conclusion

Insurance claims can be disruptive on many fronts. In addition to taking proactive steps to minimize your likelihood of damage, it is crucial to have adequate coverage limits in place if an incident cannot be avoided. You can benefit from annual reviews of your property and liability coverage needs. Consulting an independent insurance agent or broker who specializes in the high-net-worth niche is the best way to access the broadest range of product and service solutions designed for your lifestyle.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Starting Out: Begin Funding for Your Financial Security

Congratulations! You’ve graduated from school and landed a job. Your salary, however, is limited, and you don't have much money (if any) left at the end of the month. So where can you find money to save? And, once you find it, where should this cash go?

Here are some ways to help free up the money you need for current expenses, financial protection, and future investments -- all without pushing the panic button.

Get Out From Under

For most young adults, paying down debt is the first step toward freeing up cash for the financial protection they need. If you’re spending more than you make, think about areas where you can cut back. Don't rule out getting a less expensive apartment, roommates, or trading in a more expensive car for a secondhand model. Other expenses that could be trimmed include dining out, entertainment, and vacations.

If you owe balances on high-rate credit cards, look into obtaini ng a low-interest credit card or bank loan and transferring your existing balances. Then plan to pay as much as you can each month to reduce the total balance, and try to avoid adding new charges.

If you have student loans, there's also help to make paying them back easier. You may be eligible to reduce these payments if you qualify for the Federal Direct Consolidation Loan program. Though the program would lengthen the payment time somewhat, it could also free up extra cash each month to apply to your higher-interest consumer debt. The program can be reached at 800-557-7392.

What You Really Should Buy

How would you pay the bills if your paychecks suddenly stopped? That's when you turn to insurance and personal savings -- two items you should “buy” before considering future big-ticket purchases.

Health insurance is your first priority. Health care insurance is now also mandatory under the Affordable Care Act. If you're not covered under an employer plan, look into the new state or national health insurance exchanges, which offer a variety of coverage options and providers to choose from. You may also qualify for a subsidy if your taxable income is under 400% of the federal poverty level.

Life insurance is the next logical step, but may only be a concern if you have dependents.

Disability insurance should be another consideration. In fact, government statistics estimate that just over 25% of today's 20-year-olds will become disabled before they retire. 1  Disability insurance will replace a portion of your income if you can't work for an extended period due to illness or injury. If you can't get this through your employer, call individual insurance companies to compare rates.

Build a Cash Reserve

If you should ever become disabled or lose your job, you'll also need savings to fall back on until p aychecks start up again. Try to save at least three months' worth of living expenses in an easy-to- access "liquid" account, which includes a checking or savings account. Saving up emergency cash is easier if your financial institution has an automatic payroll savings plan. These plans automatically transfer a designated amount of your salary each pay period -- before you see your paycheck -- directly into your account.

To get the best rate on your liquid savings, look into putting part of this nest egg into money market funds. Money market funds invest in Treasury bills, short-term corporate loans, and other low-risk instruments that typically pay higher returns than savings accounts. These funds strive to maintain a stable $1 per share value, but unlike FDIC-insured bank accounts, can't guarantee they won't lose money. 2

Some money market funds may require a minimum initial investment of $1,000 or more. If so, you'll need to build some savings first. Once you do, you can get an idea of what the top-earning money market funds are paying by referring to iMoneyNet, which publishes current yields. Many newspapers also publish yields on a regular basis.

Credit card 2.png

Build Your Financial Future

Some long-term financial opportunities are too good to put off, even if you are still building a cache for current living expenses.

One of the best deals is an employer-sponsored retirement plan such as a 401(k) plan, if available. These tax-advantaged plans allow you to make pretax contributions, and taxes aren't owed on any earnings until they're withdrawn. What's more, new Roth-style plans allow for a fter-tax contributions and tax-free withdrawals in retirement, provided certain eligibility requirements are met. Another big plus is direct contributions from each paycheck so you won't miss the money as well as possible employer matches on a portion of your contributions.

Don't underestimate the potential power of tax savings. If you invested $100 per month into one of these accounts and it earned an 8% return compounded annually, you would have $146,815 in 30 years -- nearly $50,000 more than if the money were taxed annually at 25%. 3 Bear in mind, however, that you will have to pay taxes on the retirement plan savings when you take withdrawals. If you took a lump-sum withdrawal and paid a 25% tax rate, you'd have $110,111, which is still more than the balance you'd have in a taxable account.

If you're already participating, think about either increasing contributions now or with each raise and promotion.

If a 401(k) isn't available to you, shop aroun d for individual retirement accounts (IRAs), both traditional and Roth, at banks or mutual fund firms. In 2016, you can contribute up to $5,500 to traditional IRAs or Roth IRAs. Generally, contributions to and income earned on traditional IRAs are tax deferred until retirement; Roth IRA contributions are made after taxes, but earnings thereon can be withdrawn tax free upon retirement. Note that certain eligibility requirements apply and nonqualified taxable withdrawals made before age 59½ are subject to a 10% additional federal tax.

Stop Waiting for the Next Paycheck

Beginning your working life with good financial decisions doesn't call for complex moves. It does require discipline and a long-term outlook. This commitment can help get you out of debt and keep you from a paycheck-to- paycheck lifestyle.

Source(s):

1.  Social Security Administration, Fact Sheet, March 2014.

2.  An investment i n a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.

3.  This hypothetical example is for illustrative purposes only. It does not represent the performance of any actual investment.

Required Attribution

Because of the possibility of human or mechanical error by DST Systems, Inc. or its sources, neither DST Systems, Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall DST Systems, Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

© 2017 DST Systems, Inc. Reproduction in w hole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.