Getting the right P&C insurance coverage may not be high on your list of financial priorities. When compared to investment decisions and estate planning issues, questions about the wording of your home insurance policy, for example, may not be worth considering. Yet the more successful you are, the more complicated your asset protection needs are likely to be and the more you have to lose. Suppose, for example, that in addition to your main residence, a historic house, you also own a house at the beach and a condo in town. The properties are in three different states. The value of your collection of abstract expressionist paintings has increased rapidly. And you just volunteered to serve on the board of a charity.
Almost any aspect of this situation could cost you dearly. Insurance laws can vary widely from state to state, different types of property require specialized coverage, and collections of art, vintage cars, and other unique items can be difficult to fully protect. Meanwhile, serving on the board of a nonprofit could expose you to additional personal liability.
Protecting yourself and your family may mean buying additional coverage, but more insurance isn't necessarily the answer. Rather, it's important to look at all of your needs, consider specialty policies or policy options, and coordinate your coverage with other aspects of your financial situation. Here are 6 different gaps that could prove costly.
1. Leaving gaps in homeowners coverage. Every owner should review their coverage regularly to keep up with rising replacement costs. But insuring different types of homes in different locations poses additional challenges. If you buy insurance from more than one insurer, you may face different rules, limitations and policy renewal dates. For example, the liability limit for a secondary residence policy may be lower than the minimum for an excess liability policy designed to supplement your primary residence insurance. You could end up responsible for the difference.
2. Ignore the unique characteristics of properties. One advantage of wealth is the means of owning exceptional houses; a disadvantage is that they can be difficult to insure adequately. Standard homeowners coverage won't pay for the materials and craftsmanship needed to rebuild that 19th-century display case you painstakingly restored. Coastal homes can be damaged by hurricanes, while a place in the California mountains can be prone to earthquakes or wildfires. Meanwhile, city co-ops or condos may need policies tailored to cover their buildings or associations.
3. Under art and collectibles insurance. Standard homeowner policies limit coverage for loss of antiques, furs, and other valuables. And while you can provide additional coverage, ensuring the true value of a collection of contemporary art or vintage muscle cars will likely require a specialist policy that addresses several critical issues. How is the value of the collection determined? (You will need a professional appraisal when designing the policy, with frequent updates as items appreciate.) Will a damaged or destroyed item be paid for in cash, or will you need to have it replaced or restored? Will additions to your collection be automatically covered?
4. Forgetting to insure domestic workers. When someone works for you or your family, as a nanny, landscaper, personal assistant or in another role, you could be responsible for medical expenses and lost wages if the worker is injured on the job. Several states require family employers to contribute to a workers' compensation fund, while in other states it is optional, but providing such insurance may be mandatory to ensure your financial well-being. If an employee is driving your car, make sure they're included in your policy as well.
5. Neglecting your liability as a board member. Excess liability coverage could help protect you if you're sued as a director of a nonprofit's board. Or for more comprehensive protection, you may want to consider special directors and officers liability insurance.
6. Failing to get frequent policy reviews and updates. Your financial life isn't static, and neither are your insurance needs. The value of a collection may increase; extensive home renovations could mean a sharp rise in the value of your property; and the re titling of assets as part of your estate plan—or because of divorce, a death in the family, or the birth of a child—could necessitate policy changes. Even lacking major events, you probably need a comprehensive review of all your insurance coverage at least every two years.
