Thirteen months ago, David Frisch received a powerful reminder of why property & casualty insurance is a critical piece of any comprehensive risk management strategy. That was when Hurricane Sandy struck the northeast, and many of Frisch’s neighbors experienced severe flooding in their basements.

“Many people thought they were covered under their homeowners policy—when in fact they weren’t covered—or at best covered only for the hot water heater and the furnace,” recalls Frisch, a fee-only planner with offices in New York City and Melville, N.Y., and Tampa, Fla. “Anything in terms of contents usually wasn’t covered.”

The irony, he says, was that there were better, more comprehensive policies available that didn’t necessarily cost more, or perhaps only modestly more, than the bare bones policies. “There were some carriers that covered basement contents, or some of the contents. There were companies that were far more willing to pay out, and others that were far less willing, which in some cases led to litigation.”

What Frisch realized was that these policies were so confusing that most people didn’t really understand what they were insured for. “People receive a 30-40 page document and they don’t necessarily know what they’re reading. They need a qualified advisor to explain what they’re buying because it’s very complex.”

Frisch now brings up the topic with all of his clients, but since he doesn’t have the expertise to guide their buying decision, he refers them to an expert who does—usually a qualified insurance agent who specializes in property and casualty coverage.

To determine the right policy, the client has to weigh the cost of the insurance versus the extent of the coverage. If someone wants to add coverage without paying more, he says this can usually be addressed by increasing the size of the deductible.

But a related question is how readily the client plans to submit a claim. If the client is willing to pay for the first $500 or $1,000 worth of damage out of pocket, so as not to risk a rate increase or policy cancellation, then they would be better off with a less expensive, high deductible policy.

Frisch also notes that adding an umbrella policy that covers cars and boats as well as homes is a very inexpensive way of increasing the client’s liability protection. Such policies substantially raise the coverage limit, so the client is much better protected in the event of a lawsuit.

For clients of modest means, Frisch says $1 million in coverage at a cost of $200 to $300 a year is a no-brainer, although a smaller and even less expensive policy still offers some value. But he cautions his clients to ensure that any umbrella policy remains current and up to date, since a change that affects a client’s underlying homeowners or auto policy will affect the umbrella coverage too, but this change won’t automatically carry over if more one carrier is involved in providing the coverage.

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