Your Money

Ins and outs of insurance policies

Certified financial plannerJanuary 20, 2013 

Property and casualty insurance together represent two of the four major categories of insurance with health/disability and life insurance as the two others. When we think of property and casualty insurance, we typically think of homes, cars and liability coverage.

Here is what you need to know about each type of policy:

An auto insurance policy generally covers you and your spouse, relatives who live in your home and other licensed drivers to whom you give permission to drive your car. The policy is “package protection,” which provides coverage for bodily injury and physical damage to your vehicle. It is typically shown in numeric form such as 100/300/50. The first number represents the maximum amount of claim payment to one person for bodily injury, i.e. $100,000. The second number is the maximum to be paid to all injured parties for bodily injury with the last number representing the property damage limit. It is important to simply not have the minimums required by your state.

In addition to a focus on the limits, one must also maintain a proper deductible – the amount that you will pay out of pocket when you file a claim. Your goal is to keep the highest deductible you can afford in order to reduce the actual number of claims as well as lowering your premium.

How much you pay for auto coverage depends on many factors, including your driving record, the value of your vehicle, where you drive, how much you drive, your marital status, your desired coverage, your age, sex and even your credit history.

Our homes and their contents are our greatest assets, which is why it is so important to have proper insurance. Homeowners’ insurance typically covers the dwelling, personal property and contents and some forms of personal liability. Your contents are generally covered at 50 percent to 75 percent of the dwelling; for example, a home covered for $200,000 would normally have $100,000-$150,000 of coverage for contents. In addition, it is important to have full replacement cost coverage on your contents versus the actual cash value. For instance, your loss included a TV for which you paid $3,000 two years ago but is worth only $900 today. With replacement cost, you would be paid $3,000 versus only $900 with actual cash value.

Just as important as knowing what is covered, is knowing what is not covered – known as exclusions. Most policies exclude losses resulting from earth movement and water coming up from the ground such as sewage backup or flooding. However, water coming down from the sky is generally covered. If the dwelling does not comply with local building codes, the insurer will not be liable for the cost of construction to bring the structure up to code. Other items typically not covered include war, nuclear disasters, intentional damage, neglect and often acts of terrorism.

Personal liability risk is inherent in the ownership or rental of real estate, automobiles, recreational vehicles and other real and personal property. Certain professional, business and volunteer activities also result in liability risks.

Most individuals purchase minimum liability insurance with their home and automobile policies.

In most cases, these policies should be supplemented with umbrella liability coverage. If an individual is liable and damages are awarded in excess of the amounts covered by the auto and home insurance policies, the umbrella liability policy will cover a portion of the difference (up to the total amount of umbrella coverage).

As financial planners, our job is not only to help people accumulate assets but to also protect those assets. Without a sound insurance protection plan, accumulating assets can be almost as risky as not having any assets.

Life is a journey, plan for it.

Neil A. Brown is a CPA and CFP with Burkett Financial Services in West Columbia. Reach him at or (803) 200-2272.

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