PODCAST EPISODE 227: Could a Car Accident Cost You Everything?

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Paul 0:00

Hello, and welcome to your business, your wealth. My name is Paul Adams, I am the CEO of sound financial group. And you are getting me by myself today you guys are used to my co host, Corey Shepard being with us. He is not with us today do a little bit of a scheduling mishap. But today we’re going to cover the idea of how much should you protect yourself, how much insurance should you own, there’s a lot of conversations out there about being insurance poor, or underinsured, and what does that even mean. And that’s what we’re gonna jump on today. But right before we start, I want to give you guys a heads up of an upcoming show that we have. As you guys know, we’ve reviewed some of these articles where financial advisors in say, The Wall Street Journal, etc, have given somebody financial advice, to produce some outcome in their financial future. And one of those couples reached out to us after we commented on their Wall Street Journal article saying that the little bit we talked about their situation on the podcast was as helpful if not more helpful, than the actual financial advisor that they were connected with by whatever publication that was in. So they’re going to be with us this next week. And we’re going to be picking up and showing them some of these ways of looking holistically at multiple assets at a time looking at our assets, more like a business looks at their assets and less like we look at assets as an individual, at least the way we’ve been taught by financial institutions. And that’s what we’re going to bring to bear in the coming weeks. So we hope that you join us there. But today, we’re getting on this idea of protection the moat around your castle, how much should be there? And how do you make sure you’ve got enough when something bad happens, but not so much that you hamper your wealth building capacity. So with that, we’re going to jump into this simple philosophy around getting protection. Now, it’s pretty simple and might occur to you that one of the things you most need to do is make sure that you have coverage before whatever bad thing occurs. So consider that one of the things that of course has to be in place is that insurance has to be something that you acquire before the bad thing happens. Because they won’t let you buy it when you need it. You can’t get the medical insurance, the day that you’re sick, you can’t get disability insurance, the day that you get disabled, you can’t go out and get homeowners insurance or extra liability insurance the day that it looks like you might have a liability. Of course not the insurance companies don’t want to insure that. So what is our philosophy because it always helps to start with a philosophy about why you would protect anything. And it comes down to being pretty simple one, we want to put a moat a wall protection between us, and whatever could interfere with our wealth. And that could be in two ways. One is of course, something like an accident, can wipe out an asset like a car or a home of fire burning it down. That’s one way we encounter loss. The other way we encounter loss though, is from liability. Meaning we do something with our car or home our own personal actions that then gets our other assets pursued beyond the one that was involved, say like the car in the car accident. And when we have those liabilities on us, it can take wealth away from us two ways. One, of course taking your current assets. Which means if you’re taking my current assets from me, you are stealing, or maybe properly taking from me if it was my fault in a car accident, but you are taking away from me the work that I’ve done so far, you see your net worth your balance sheet, the way that your finances stand today are predicated upon the hard work you’ve done in the marketplace up until right now. How much have you managed to retain hold on to etc. And when somebody Sue’s you and they take those assets from you things that are highly

I would say uncredited or protected, that are easy for somebody to get their hands on are going to be things like investment accounts, bank accounts, depending on the state you’re in your home equity because homestead laws aren’t that great many states. All that retirement accounts, generally speaking are protected. But truth be told every asset can be impacted by something like a liability from a lawsuit. Car accident, somebody hurt at your home. And the other thing they can do is attach your income for the future. So they can not only take our past from us all the past work we’ve done to build what we build, but they can take part of our future way in the way of wage garnishing, which is equally a problem. If you have a personal liability situation, whether you’re an executive for a large company or you own your own business, they can attach and get court orders against your cash flow. And we’re going to talk about how to prevent that a moment. So we have to put this moat between us and these things that threaten us. But the first thing to ask is if we’re going to insure things When should we insure them? When Well, we only want to insure something, if it’s loss is going to be significant, in this case, if it’s a loss would be catastrophic. So if we have something that if it is erased off our balance sheet, it’s going to really hurt, it’s gonna foul up our future plans, etc, then easy first thing thing about it is it’s lost catastrophic. So of course, our home, maybe the value of a car. But certainly things like our ability to earn an income, etc, are super important. So if it’s loss would be catastrophic. And then if it’s a catastrophic loss, how much of it do we want replaced? Well, of course, if our house burns down, I don’t want a house, well, I guess I need, I don’t need a full house, if something happens to me, I could just have a 1964 Airstream trailer, drag onto the property here and just live in it. That’s all I would need. But that is certainly not what I want. So if a catastrophic loss occurs, what I want to see happen is full replacement. So boils down to a very simple rule is we visit what to have each of these protections set at and we have this conversations, just know it’s grounded in this idea of protect against catastrophic loss, and then pursued best we can full replacement of that loss. And of course, you can’t get perfect replacement, because if it was perfect replacement, then it would be there would be no hindrance to making any kind of insurance claim. So we’ll cover that here in just second. So we’ve got our, our main philosophy here it is going to be full replacement for catastrophic loss. So as we get into this today, what we want to make sure that all of our listeners are doing is grab your declarations page, grab your homeowners page, we’re just going to go right through them. And don’t hesitate. If this feels like it might be a little too much you have questions, you can always use the comments below, you can email us. And of course, as always, if some of this resonates with you is something maybe your advisor should have talked about in the past and hasn’t, you can always reach out to us and get a philosophy conversation scheduled and and see if the way we work with our clients might actually further your financial aims. So if we don’t have the appropriate liability insurance, we get exposed to our assets, and maybe are future income depending on the state that you live in. So when you open up or look at your declarations page for your car insurance, one of the first things you’re going to see is liability. Often it says 250 500 or 100 300. This means you are protected at that level, per participant the other vehicle and per incident. So easy example would be 100 300 means 100,000 for each person, the other vehicle 300,000 aggregate per incident. That means that there’s four people and they all win a lawsuit of $100,000 each, that is going to roll back on you. Or as we like to say the first three people get paid by the insurance company that last one gets your phone number. That’s what we want to avoid for our clients that we’re going to get to that in the umbrella policy. But as you continue to go down there in this idea of we want to protect against catastrophic and full replacement, you’re going to see a couple things that may be on your car insurance, that aren’t exactly catastrophic coverages. For instance, rental car coverage, meaning if you got into an accident, they would pay for your rental car. But frankly, so many of our clients have multiple cars anyway, many times, especially today, we don’t find ourselves driving both cars every day. And last but not least, rental cars are not that expensive. And so when you pay say $80 A year or $40 a year even to protect against something that is not a catastrophic loss, it’s a little bit like getting the warranty on the $200 television at Best Buy. It’s just not a big enough purchase to need to insure. So we’re going to leave the liability alone for a moment, we’re talked a little bit about the rental car coverage. And another one you’re going to see on there is sometimes referred to as medical pay something that effect this can make sense if you’re driving around a bunch of uninsured people, maybe because of church volunteer work or or maybe you’re serving with YMCA or Big Brothers Big Sisters where you’re carrying a lot of kids around and that might make sense to keep it but in reality that insurance is only going to cover your deductible of what would be covered anyway. So in a small way, all you’re covering is the deductible on your health insurance, but you chose that deductible already on your health insurance because you knew you could take that experience. Meaning you could take the experience of getting pneumonia, let’s say and paying for your deductible at the doctor. Well if you get in a car accident, your fault was no different. Your health insurance is still going to pay that car insurance isn’t Not allowed to double pay with the health insurance, there’s no way you get a gain from it. And if you look at your coverage, and you have it there, it is pricey. And what we’re going to want to do is take those things off of your coverage, of course, making sure that you personally can take that risk. This is an individual conversation, we have each of our clients that we don’t know, as you’re listening to this what your financial circumstances are. So you have to be your fiduciary in that judgment, but I would highly encourage you to consider the Get rid of the rental car coverage, get rid of that medical pay off of the car insurance, because we’re going to be able to redirect those dollars to getting you appropriate liability coverage. Now, when it comes to your homeowners, one of the biggest ones we see, because of the increase in building costs, the increase in value in real estate, is that sometimes if you’ve been in your home five or 10 or 15 years, your rebuild costs inside of your homeowners insurance policy are not enough to rebuild your home now. So it’s a great reason when you’re reviewing your homeowners insurance to jump in, make a phone call to your homeowners insurance agent say is this still enough, especially in your home more than five years. Oftentimes, they’ve already handled that inside the policy, but not always. So you want to check and make sure that the rebuild cost of your home has kept up with actual rebuild costs. So that’s the rebuild portion of your homeowners. Now, you’re

also going to see replacement coverage. So you have this coverage on your homeowners insurance that allows you to have all of your stuff replaced, if something were to happen to your home, everything was stolen, or there was a big fire. Now, you’ve got all this stuff that’s covered probably to the tune of hundreds of 1000s of dollars on your home. And oftentimes you look at and go, Oh, my stuff isn’t worth that much. If I went and sold it, you know, at a garage sale, I don’t think I would get more than you know, a few 1000 for everything. Now that’s true. But if you have a total loss on your home, and now you’re getting ready to move back in, you’ve got maybe just a week or two to go buy everything at fresh retail prices, to be able to replace everything was lost, that’s close, that’s furniture, that’s electronics, you know, appliances, everything’s got to be replaced. That is why you need to do an inventory. Now this doesn’t have to be a complicated inventory, you can just go around or send one of your kids around the house, get pictures of all the stuff. And it might be as simple as pictures of every room. And then place like the kitchen where there’s a lot of cabinets, just open all the cabinets and take the pictures again. And what this is going to allow you to do is if there were total loss, you’re going to have a set of images you can give or video to give to the adjuster to say, hey, my coverage is going to give me enough to stay at the W downtown all week. So what I’d like you to do is have my house looking like this again, in the next six months, because that’s where we’re going to be as downtown and I’d rather not drive back here every day. This is what it used to look like that would be the ideal outcome. And not to mention not only make it easier if there were a claim, but to make it so that the coverage you paid for you’re actually protected by because you inventoried your belongings. So that’s car homeowners now on your homeowners insurance, there’s going to be some coordination required with the liability protection on your car. And one of the biggest things we see between car liability protection, and homeowners liability protection is a lack of coordination between the two very easy example, your car insurance right now might be 100 300 100,000 per person 300,000 per incident. But your home is just a $300,000 liability coverage. Well, what that means is if you hit just one person, you are protected better in your home, where mostly the people that come over are people you know and you’ve invited. And in a car, you’re driving around with a whole bunch of Yahoo’s you have no idea who they are on the road. And yet, we’re less protected from all those other individuals on the road than we are in our own home. And we’re going to bring a little bit of coordination between these two is something called a personal umbrella policy. Now a personal umbrella policy is just a type of coverage that you get, that will pick up where your car insurance and your homeowners insurance leaves off. Now we have a general rule of thumb for this is that and you can read about this in our book sound financial advice. But if you look at your total net worth, we want the umbrella policy be more attractive than coming after you personally I’ll explain why in a moment. That when you insure your liability, the plaintiff’s attorney is going to look at two things your net worth, and what can they get from your insurance company. Okay, so we want it to always be what they can get from the insurance companies more than what they can get from you. So an easy rule is 250% of your household income, or 10% more than your net worth, which Do you ever have those two is higher. So if this is a household that they’re making $400,000 a year, and they also have 1,000,005, they probably want to be at about $2 million of personal umbrella policy. Now, the personal burial policy helps us two ways. One, it’s going to protect us from the actual lawsuit, if we lose it that’s kind of, you know, makes just all the sense in the world that if we lose the lawsuit because of a simple car accident, well, then the insurance company will write the check. Both the insurance company also does is they defend you from that lawsuit.

So they defend you bring they bring their attorneys, and those attorneys that they bring are just common sense, going to be more effective, aggressive, better proven in court, the more money the insurance company is on the line for, because you see, these insurance companies certainly aren’t in the charitable business. So one of the things they have to do is make sure that if they’re going to send a big team of attorneys, they’ve got something that they’re going to benefit from. So if they’re on the hook for $2 million, they’ve got some real benefit in negotiating a $2 million lawsuit down to 1,000,002. But if your whole liability coverages only 100,000, that’s their total loss that the insurance company is going to see, they don’t have the same incentive to send the best attorneys. So our benefits so far have the umbrella one, they pay the claim, if there’s a problem, too, they send their attorneys. And then the least talked about benefit of a personal umbrella policy, is the plaintiff’s attorney may actually become your advocate. Let me explain. When you lose a lawsuit, and let’s say they’re going after your net worth, there are charging orders additional legal procedures that have to be done to tap your investment accounts or force you to sell your home or get garnished on somebody’s wages, that creates a ton of additional work for that plaintiff’s attorney. But if the insurance company pays the claim, it’s very simple, they are gonna pay the attorney, they’re 30%, they’re gonna pay the plaintiff there. 70%, whatever that split is, it’s very smooth, done, everybody gets their money and walks away. That’s what the plaintiff’s attorney wants, because they’ve got a business run. And so if we bring the force of these, hopefully better attorneys from the insurance company, plus the fact that the insurance company will pay the claim plus the fact the insurance company makes it easier for the plaintiff’s attorney, you can see how much better served you are by simply having a personal umbrella policy. And most of the time by doing something simple, we didn’t even talk about deductibles on car and homeowners insurance. But let’s say your deductibles are low on your car and home and you bump those up a little bit, we get rid of things like the Med Pay on the car insurance, we get rid of things like the rental stuff on the car insurance. And we probably free up enough to get at least the first million of this personal umbrella policy coverage. Many, many of our clients are able to implement a million or two a personal umbrella policy with their car insurance agent by simply making some of these changes. And you might ask, why is it? Why is it that these insurance companies don’t just tell us, I mean, surely, with big data and all the information they have on you, they could just see who’s paying too much and probably has a net worth based upon their zip code that they don’t need these little coverages like rental car and med pay. Why don’t they just send you an email saying you could have a $2 million umbrella at the same cost because they are not in the business, the insurance companies, this doesn’t mean they’re bad just got to understand their incentives, the insurance company’s job is to charge you the most that they can for the least amount of coverage. So the most cover the most that they can charge you for the least amount of liability that they’re going to have. Okay? So charging you the same with an extra $2 million, a liability limit doesn’t match into their business model. So that’s the reason why we want to make sure we have that personal umbrella policy and get rid of some of these smaller coverages, maybe raise our deductibles slightly on our car and homeowners insurance, because I’m okay taking an extra $500 risk, say on my deductible. If what that means is the insurance companies watching my back for an extra 2 million. You see what we want is we want the most coverage for the least cost and the insurance company’s objective is to give us the least coverage for the most cost because that works best for their business model. So with that, what we’re going to do is wrap this episode today it took a little while to get through just car and homeowners and umbrella policy. But what we hope and in a future episode will cover down on disability insurance again and life insurance amounts because we haven’t talked about that in quite some time. But I hope to see you guys back this coming week. I think what we’re going to have is long as everything goes well scheduling wise With our new guests, who really took a shot at getting traditional financial advice from one of the top news organizations in the country, connecting them with a financial advisor, and yet found that wanting, and we’re going to get a chance to live with them, talking about their finances. God bless these folks for being willing to get this help and being vulnerable, but you’re going to get a chance to learn from them too. And as always, from me and everybody else here at sound financial group, we hope that this has been a contribution to you, being able to design and build a good life

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