When we talk about retirement planning, we do not often think about property and casualty insurance. We often think about savings, living expenses, investing, retirement, stocks, bonds, medical costs, and many other concerns. Far down the list is liability insurance which is a real risk with an easy solution.
What is the Property Insurance?
This insurance protects damages to your property and provides insurance coverage for that property. Some common examples are your home and automobile. Why have fire insurance? For a relatively inexpensive cost, you can remove the risk of having to rebuild your home in the event of a fire. That cost to rebuild could jeopardize your ability to retire if you are not insuring for that loss. To be honest, most people I meet with have adequate property coverage. Generally speaking, it has not been a large concern of mine.
What is Liability Insurance?
The other part of Property and Casualty insurance is liability insurance. This insurance protects you if you were found legally responsible for an accident that causes injuries to another person or damage to another person’s belongings. The risk is real and it’s important to have adequate insurance to cover your potential risk.
What happens if you are in a car accident, hit a pedestrian by accident, have a guest slip and fall at your home, and you get sued and lose? Do you have enough coverage? If not, you may be funding those lawsuits with your retirement savings and you may derail your retirement goals. It is very common for people to be underinsured on their liability insurance. Lose a $1m lawsuit because you hit a bicyclist while pulling out of the grocery store parking lot and your retirement goals will likely be affected.
How to Obtain Liability Protection
The good news is that liability protection is relatively inexpensive. You can usually obtain a few hundred thousand of liability coverage on your homeowners and automobile policies. However, most clients I work with need to obtain an umbrella or excess liability policy. These policies provide coverage above and beyond your underlying automobile or homeowner’s policy covers. Usually, the policies are relatively inexpensive costing $500-600 per year for $1M in coverage. Generally speaking, additional liability coverage gets even less expensive.
Mind the Gap
Merely having an umbrella insurance policy is not enough. Typically, the umbrella kicks in at a certain dollar amount. For example, it will kick in for automotive related claims at $250k. Therefore, you need to make sure you have an underlying auto policy that covers you to $250k. If you automobile policy stops paying before you umbrella kicks in, you have a gap in coverage. If you have all your policies with one carrier, they usually give you a discount and usually will ensure there are no gaps in coverage.
The Take Away
Check in with your financial planner and ensure that you have adequate liability coverage. It is relatively inexpensive to eliminate one of the risks that may jeopardize your retirement goals. Richard T. Feight, CFP®, EA is trained in comprehensive planning and can help integrate property and casualty insurance planning within your overall financial plan.
Guest Author: Stephen Reh CFA, MBA, CFP® is a financial planner in Southern California. Steve founded www.investwithsteve.com and Reh Wealth Advisors LLC in 2010 to provide fee-only asset management and financial planning. If you are in the Southern California area looking for financial planning or investment advisory services, give Steve a call.
