Property and casualty insurance might not be at the top of your list of financial priorities. Questions about the language in your homeowners policy, for example, may not seem as important as, say, how to invest your money or plan your estate. But the more successful you are, the harder it is likely to be to protect your assets, and the more you have to lose. For example, let's say you live in a historic home as your main home, but you also own a beach house and a condo in the city. There are three different conditions for the properties. Your collection of Abstract Expressionist paintings is worth a lot more now than it was before. And you just agreed to be on the board of directors of a nonprofit group.
Almost everything about this situation could end up costing you a lot of money. Insurance laws can be very different from one state to the next, and different types of property need different types of coverage. Collections of art, antique cars, and other unique items can be hard to fully protect. In the meantime, being on the board of a nonprofit could make you more personally responsible.
To protect yourself and your family, you may need to buy more insurance, but more insurance isn't always the answer. Instead, it's important to think about all of your needs, look into specialised policies or policy options, and make sure that your coverage fits in with the rest of your finances. Here are six different flaws that could cost a lot.
Leaving holes in the coverage of home owners. Any homeowner needs to look at their coverage every so often to keep up with the rising cost of replacing things. But it's harder to insure different kinds of homes in different places. If you buy insurance from more than one company, the rules, limits, and renewal dates may be different. For example, the liability limit on a policy for a second home might be lower than the minimum for an extra liability policy that is meant to go with the insurance on your main home. You might end up having to pay the difference.
Ignoring properties unique characteristics. Rich people can afford to live in beautiful homes, which is a perk, but they may be hard to insure properly. Standard homeowners insurance won't cover the cost of the materials and labour needed to rebuild that 19th century showplace you've worked so hard to restore. Homes near the coast could be damaged by hurricanes, while places in the California mountains could be hit by earthquakes or wildfires. On the other hand, city co-ops or condos might need policies that are made to cover their buildings or associations.
Not getting enough insurance for art and valuables. Antiques, furs, and other valuables that are lost or stolen aren't always covered by standard homeowner policies. You could also add more coverage, but to cover the real value of a collection of modern art or vintage muscle cars, you'll probably need a specialised policy that covers a number of important issues. How do you figure out how much the collection is worth? (When the policy is made, you'll need a professional valuation, and you'll need to update it often as items increase in value.) Will you have to pay cash for a damaged or destroyed item, or will you be able to pay with cash? Will your insurance automatically cover anything you add to your collection?
Forgetting to cover household workers with insurance. If a nanny, landscaper, personal assistant, or other person who works for you or your family gets hurt on the job, you could be responsible for their medical bills and lost wages. In some states, employers of people who work in their homes are required to pay into a workers' compensation fund. In other states, this is not required, but it may be necessary for your financial security to do so. Make sure that if an employee drives your car, he or she is also covered by your policy.
Not taking care of your responsibilities as a board member. If you are sued as a board member of a nonprofit, excess liability coverage could help protect you. Or, for more complete protection, you might want to look into special insurance for directors and officers.
Not reviewing and updating policies often enough. Your money situation changes over time, and so do your insurance needs. The value of a collection may go up, and if you make a lot of changes to your home, the value of your property could go up sharply. You may also need to change your policy if you re-title your assets as part of your estate plan or because of a divorce, a death in the family, or the birth of a child. Even if you haven't had anything major happen, you should probably look over all of your insurance coverage at least once every two years.