02 Feb 2021

Why you need personal insurance: a case study

Many people ask the question, “Why do I need personal insurance?”. Too often, people think that once they have insurance everything they own is covered and there is no need to worry if they had to file a claim. But, as the years go on, your lifestyle changes and insurance needs change as well.  In this blog post, we will share a case study to display the necessity of finding higher quality insurance that better reflects personal assets and earning potential.

Client Information

Job Title: CFO for a large company

personal lines insurance covers primary residence

Personal Assets:

  • Primary residence: Replacement cost $2 million
  • Rental property: Replacement cost $75k
  • 1 High-end vehicle
  • 1 motorcycle
  • 1 premium watercraft

What coverage does the client have?

  • Primary home is only insured for 50% of the total replacement cost. That means, if it is destroyed somehow, the client will only be paid $1 million dollars, rather than the full amount of what the home costs to rebuild.
  • Inadequate umbrella coverage limit based on assets and net worth.
  • Rental property underinsured by more than 50%.
  • Different insurance company for each policy – nothing is consolidated, and they have different effective dates (unorganized).

The Diversified Solution

After doing a full consultation, we provided a solution that helped the client have the proper policies in place that better aligned with their asset portfolio. First, we added personal cyber protection and identity fraud protection. If you are not familiar with these coverages, here is an example. After turning on your personal computer, you attempt to open a file and all your files are locked. You receive an email saying that your files are encrypted, and you must click on a link and pay an extreme amount in bitcoin within a certain time frame. This is cyber extortion. This client is now covered for this kind of risk.

Forbes magazine says, “While this might sound like the generic plotline of a late-90s thriller, it’s a real possibility and a growing threat. More than 4,000 ransomware attacks have occurred every day in the United States since 2016, according to the FBI. That’s a 300% increase since 2015, which averaged 1,000 ransomware attacks per day.”

Earthquake Coverage

Next, we secured earthquake coverage. This coverage is essential and should be carefully considered for your personal insurance.

Secondly, we increased the dwelling limit on both the primary residence and the rental property to their respected values of  $2 million and $75k. This means if something happens to these residences, they are fully insured to the actual value of the home.

Increased umbrella coverage to $10 million to better align with assets and future earning potential. Umbrella coverage can protect you if you have claims in excess of regular homeowners, auto, or watercraft policy coverage. It also protects you if you are involved in lawsuits.

why do you need umbrella coverage: a case study

We also added the client’s Revocable Trust to the homeowner’s policy. Investopedia says a Revocable Trust is a trust whereby provisions can be altered or canceled dependent on the grantor or the originator of the trust. During the life of the trust, income earned is distributed to the grantor, and only after death does property transfer to the beneficiaries of the trust.

Most importantly, we consolidated all policies to two insurance companies with the same effective dates. The package credit helped reduce premiums on all policies. This means that the communication between carriers is streamlined and simplified. If there is a claim, it will be much easier to sort out working with just two companies, rather than many.

Lastly, we added the appropriate protective devices (alarms, water shut-off devices, etc.) to the residence policies, which resulted in a discount. The previous agent had not added these credits.

At Diversified Insurance Group, our Personal Lines team would love to help you with a customized insurance plan. Let us use our expertise and experience to get you the best product possible. To contact us, go here.