A perfect storm is hitting the personal insurance marketplace, leading to significant premium increases for home and auto insurance policyholders.
Whether you’re selecting a policy for the first time or reviewing an existing one, here are answers to frequently asked questions regarding property and casualty insurance.
Why are my home and auto insurance premiums increasing?
A major factor is the increasing frequency and severity of natural disasters, leading to higher insurance claims. Additionally, inflation has driven up the cost of repairs and replacements for these claims, impacting premiums.
Should I shop around for a lower-cost provider?
Rather than searching for the lowest premium, it’s imperative to have the appropriate amount of coverage in place. Low-cost providers, frequently promoted in TV commercials, typically charge lower premiums because they offer less coverage or less-than-desired claim services. It’s not uncommon for high-net-worth households to discover that they are underinsured, particularly given the rising cost of construction labor and materials. As the old saying goes, you often get what you pay for.
What coverage do I need for my home?
There are two primary types of homeowners insurance valuations — “replacement cost” and “actual cash value.”
A replacement cost policy insures your property for the actual replacement cost. If a pipe bursts and destroys your $10,000 Persian rug, the insurance company will reimburse $10,000. Property insured under actual cash value is covered for its replacement cost less depreciation. Five years after your purchase, that Persian rug may only be worth $5,000 due to depreciation, which is what the insurance company will cover. We recommend you carry replacement cost on property and belongings.
Loss of use coverage is also a smart bet. It provides for temporary housing, moving costs, and temporary storage of property if your home becomes uninhabitable due to a covered loss.
Do I need uninsured and underinsured motorist coverage?
These two separate coverages should be added to an auto policy.
Uninsured motorist protection provides coverage if you’re in an accident with another driver who has no insurance. Underinsured motorist coverage protects you when the at-fault driver does not have enough insurance. It is estimated that 20% of drivers carry no insurance whatsoever, and an even greater percentage are underinsured. The minimum amount of auto insurance required in many states, including Oregon, is very low relative to the potential loss.
Do I need an umbrella policy?
A personal excess liability, or “umbrella,” policy provides additional liability coverage beyond what your existing home and auto insurance policies cover. People don’t always appreciate how much liability exposure they have in their everyday lives. Simple things like serving on a non-profit board and/or owning a dog, pool, or trampoline can increase your liability.
Primary auto and personal liability limits rarely exceed $500,000, the amount at which most umbrella policies kick in. If you’re involved in an accident exceeding $500,000 in liability and your existing auto coverage is $250,000 per accident, you’ll be on the hook to pay approximately $250,000 out of pocket.
What’s Vista’s take?
We view insurance as protection against extreme loss, not routine maintenance. One way to make sure your policy serves this purpose is to carry higher deductibles. Maintaining higher deductibles offers premium savings and ensures the policy is used appropriately.
It is not uncommon for owners of expensive cars and sizeable investment portfolios to have lower deductibles than they might afford. As the chance and frequency of an extreme loss are low, years of premium savings can more than offset the higher deductible paid should a claim be made.
We recommend working with a qualified, independent insurance broker who can assess your risks, address any coverage gaps, and ensure the appropriate amount of coverage is money well spent.
Please contact your team at Vista if you’d like us to provide a referral.
