PODCAST EPISODE 292 – How Much Insurance Should You Have? Auto, Home, Umbrella, Disability & Life

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0:12

Hello, and welcome to the sound financial group podcast. My name is Paul Adams and I am joined today, as usual by a man who is so sharp Lawn Darts play with him. Cory, I’m glad that you could be here.

0:26

I hope you woke up in the middle of the night last night like I got it. That’s what I should say,

0:31

totally stole that joke. It was a gut filled introduction I saw in a video clip, and I was like that one actually applies to Cory. So I thought I thought I would go ahead and use it. Now, today, I’m psyched to be able to share this with all of you, because we’re going to give away basically our protection philosophy today, how much and how to own the insurances that you need, we’re going to do our best to make it a very tight episode. But first, just thinking a little bit, Cory, why should people care about making sure their insurances are accurate, for where they are now?

1:12

Well, in, you know, insurance, we insure something when the loss would be so catastrophic, that we need to offload some of that risk on to on to someone else. That’s why people talk about self insuring. And it’s not you really can’t, that’s not a thing you can do you just either get insurance or you take the risk yourself,

1:35

like self insurance, fake news. Not true, not real big, there’s

1:44

like some, you might decide that the risk is small enough that you take the risk, don’t want to get the insurance, a lot of people are doing that in Florida right now, where premiums for home insurance are getting really high. Now, I don’t agree with that choice for most of the cases, but that’s the assessment that they’re making. So getting your insurance accurate, like, if a thing is so valuable, it would be catastrophic to lose it, we want to make sure we have as much of it protected as possible and in the right ways. So that in this random world, our world is random and our country is litigious. So those two things are a lot of things that we don’t control that could have an impact on our future success in our in our balance sheet. So if we can wipe as much as possible, all the things off our balance sheet that we can control as having an impact. And what we’re left with is just our choices, as much as possible, dictating where our balance sheet goes in the future. And that’s a much stronger place to to be. So that’s why it’s important. Yep.

2:53

And well said, and since here, I was slamming self insurance. So if you’re somebody who thinks you’re self insuring right now, I’d encourage you, and Miranda if you in mind, throw this in the show notes. It’s episode 247 self insurance 249 self insurance is a scam, I would encourage you guys to take a look at that if you have been saying your self insuring something because you’re just taking the risk. So today, we’re gonna cover quarry car insurance, homeowners insurance, umbrella policy, disability insurance, life insurance, we won’t get to wills and trusts today. But as we go through that, y’all I want you to think about what are the misconceptions that you’ve heard that perhaps we’re going to clear up today when we talk about these insurances? Just drop it in the comments below one, we want to know what misconceptions you guys are facing out there, too. If there’s anything specifically we did not hit on in this episode, we’ll just do another episode. And you’ll have another post that addresses the question that you have.

3:56

So if you don’t know if it’s a misconception or not, if it’s just a thing you heard or the last thing you were taught about one of these and we didn’t specifically talk about it put that in the comments below. We’ll have some fun later going through those

4:09

indeed and because I can’t resist be sure that you like this video and that you subscribe, and if you would Miranda have them put that subscribe little demon and it’ll go right along with this wink. Okay, so that’s how we do our editing over here. We just let you guys know what we’re editing and hope to God that that went ping. By the way put in the comments if they didn’t do some kind of cool sound effect with that. I want to know. All right, let’s start with car insurance. Corey. Everybody insures their car. They’re driving around the road with a ton of randoms every day. What are the legit there are different sections, we have your liability. We have your uninsured motorist, liability, deductible, etc. Why don’t we just start with deductible that’s going to be the first term everybody’s familiar with.

4:57

Well, and I will. One thing I’ll add Not everyone insures their car. Like it is the law that you have to have auto insurance, I think in every state in the in the country and most people have auto insurance. But though they have the liability section, but sometimes they don’t have their car insured, if it’s like grew up in Maine, it was like the beater in the field, the old truck 30 years old, runs every Tuesday, but not most of the rest of the week. Like, it wouldn’t be that catastrophic of a loss if it was. So that just doesn’t make sense to pay premium on replacing the car, but the liability protection is there. So that’s just one more good example of, if a thing is valuable enough that we don’t want to lose it, we insure it. And if it’s not that catastrophic to lose it, we don’t know. On the deductible side. So, deductible, higher the deductible, the lower our premium, the lower the deductible, the higher our premium. So lower deductible means the insurance company kicks in sooner. So we’ve got to pay more for that feature. Now, I see a lot of folks, Paul, I think you’ve probably seen it to north of 50% of everybody who meets has a deductible similar to what their car insurance was the first car they got to college or kind of college. Yeah, or the first time got off their parents or whatever. Yeah, or their parents, right. So that $100 $500 deductible. mean, that might have been tough to meet with the amount of cash in the checking account back then even, it was good to have that deductible there. Because we, you wouldn’t be able to get over it if it was any higher. But now, we see folks with 20 times that in their checking account, just day to day slush fund, and we say hey, you could save some money on those on those premiums. So if you can handle it, we usually see $1,000 as a sweet spot of that, that deductible.

7:38

So when they set your insurance premiums, there are all these components they figure in. So you picture it like a Venn diagram overlapping, there’s like your zip code, the kind of car you drive your credit report driving record, and your deductible. And every now and then if you are at a $500 deductible, and you go to 1000, they’re gonna tell you, it saves you like 97 cents a year. Right? That’s the case, don’t change it. But do stay on top of it, because those pricing things can change later. So that’s why $1,000 deductible. The other reason for $1,000 deductible is imagine that you’re just backing up, you’re at Costco, you hit a pole, nobody is hurt, the pole is not damaged. The only thing is there’s $1,000 of damage to your back your car. And if you’re one of those people that makes what I think is the rational choice of do I report it to my insurance company or not? Just bet everybody says I wouldn’t report it because I don’t want my rates to go up. So if you would have $1,000 claim that you wouldn’t report to protect your premiums then don’t have less than $1,000 deductible.

8:39

And a $500 deductible is paying more for something that you’re not actually using. Yes, it’s like having two gym memberships, and going to neither

8:48

going in either. So next up is liability protection. Liability protection is how well you are protecting everyone else from you. So if you get in a car accident, what’s a very common liability number is 100 300. So if you see that on your car insurance, what that means to 100,000 per person in the other vehicle or vehicles 300,000 maximum. So if there are four people with a very legitimate claim for 100 or $100,000 each, then passengers one through three, get $100,000 and passenger for get your contact information. That’s what we don’t want now. The most common deductibles that we recommend are 100 300 or 255. Levels. Yeah, yes. But hold on to that, because we’re going to explain why those levels in just couple minutes when we get to umbrella policy. Now up next is your uninsured motorist. General here. You should protect yourself and your family to at least the level you’re protecting everybody else from you. Yeah, yeah. So you’re uninsured mode. Risk is just designed to act like someone else’s car insurance if they don’t have any insurance or they don’t have enough insurance, and why that’s so important. It was right after the financial crisis. So like early 2009, one of the big polls that came out was something like 25% of the people in Southern California were driving without car insurance, or window of time because people were so tight on their budgets. So really important uninsured motorist, to coverages to consider dropping, do not do this until you’ve contacted a professional or you’ve worked with a financial coach is helping you with this. But there is car rental coverage. It’s not catastrophic, we can recover from paying for a car rental. Number two, many families don’t even need a car rental anymore, because we have enough cars, people work from home, etc. And last but not least, you’re always gonna see a maximum I be 35 bucks a day, maximum $400 It’s like, if I can afford a $400 thing, I don’t need to insure against it. It’s right up there. We’re getting the best buy warranty. I missed one. Cory Oh, our medpay medical Yeah, I’ll hit this one real quick, then I’m gonna have you take homeowners because I need to breathe. So in the medical, there’s something called Personal Injury Protection. When you go into the doctor, they give you a form. And one of the questions is always was this a result of a car accident. And the reason they ask is that doctor’s office, no offense to the doctor’s office, but they would rather submit their claim to all state than to Blue Cross Blue Shield. If they send it to all state they get fully reimbursed. If they send it to Blue Cross Blue Shield, they get whatever their reimbursement rates are. So we are literally, it we help ourselves with our deductible. Maybe if we got in a car accident and needed to pay our medical bills, but we have that deductible for a reason I might get in the hospital because I fell down my stairs and broke my ankle. That would be the kind of thing that could happen to me that nobody else is going to pay for. So I selected my deductible based upon something I could take. And that medical insurance coverage that’s on that form isn’t even well priced. Most of the time, these are small coverages, they’re able to tack on significantly increased profitability of the insurance companies. Cory, Dennis anything on car, before we go to, you

12:29

know, I will say that, if you’ve got a teenage driver in the house, all of these may be thrown for a loop. So especially when we get to the umbrella side. So just again, this is a starting point for you to hear some things and start a conversation with someone specific, don’t just run an act on every single thing here without understanding the whole picture. Okay, homeowner insurance. Now, we’re going to make a similar observation around deductibles with homeowners insurance with a with an and then some. So folks have we see low deductibles on homeowners insurance. And we often encourage folks to get quotes to look at what those would be at $1,000 or more level on their home. And the reason besides saving money is promoting good long term decision making around whether or not to make a claim on our home. Now, in our auto insurance, if we make a claim, our premium might go up. But the claim stays with us. It doesn’t stay with our car, like we can sell the car and someone else can get auto insurance on that car based on whatever their situation is. Homeowners insurance claims stay with that home. And if you get too many quotes, too many claims within too short amount of time, like I think it’s

13:58

three or five more years, more than two in five years. Most companies won’t be on consequential action.

14:04

Then your property can get on a blacklist essentially, they can only qualify for the state insurance fund the fire insurance fund, it’s sometimes called that is the highest cost and least comprehensive kind of insurance. This is why a good friend of mine, Dan Dela Cruz, an excellent State Farm agent here in Illinois, told me you know any of his clients that have rental properties, another reason why they all need to be in their own ownership and their own separate policy other than just your own liability against your rentals is if they’re all in the same zip code and one hailstorm comes through and they’re all on the same policy. Three claims on three houses in one month like you’re right, they’re in one storm and look at their own risk looking like a risk. And then but if they’re each in their own policy, that’s a lot it’s a lot easier. So the Last part of that is if it’s your, your primary home, if you’re going to sell it, most folks are coming in bind with a mortgage and they’ve got to have proof of insurance before that mortgage closes, they’re going to find out if you’ve made too many claims and gotten your home on the blacklist, if you if you will, much harder to sell that home. Replacement coverage is another one. There’s two different kinds of coverages for the belongings in your home. One is current value and one is replacement value, we want replacement value because if your house burns down, you’re not going to go find a refrigerator the same age and model is your current but you’re just gonna go buy a new fridge now as part of that if you have replacement value coverage amazing. How are you going to prove to the insurance company what was there to replace they want some sort of substantiation for that so

15:53

yeah, right before we do this, something important I think should be put down in the comments. Let’s say your house burned down you’ve got replacement coverage so you have to replace everything I’ve always thought about you go out and buy everything but I think I could set a record of the amount of Amazon boxes that would be on my front step to replace everything if I just one and like one cart two so it all shows up as quickly as possible together if anybody else thinks massively replacing everything in your house from Amazon would be at least in interesting social media post of the boxes. Comment below okay, cool.

16:33

Like like, Can I order so much that UPS just sends a

16:38

truck truck? Yes, that’s

16:39

what I want. It’s just me. Like, hello, Mr. Shepherd. Good to see you. Are they?

16:46

Logistics and it’s like 90 trucks throughout the day. That’s the one that I would prefer.

16:52

Would you really I’m pretty sure you wanted me to park in your driveway blocking it so the Amazon couldn’t drive their trucks.

16:59

Oh, I just don’t like them driving through on like the oval that is my driveway. So I like them having to back out like I want to hear I want to hear the backup beeper every time an Amazon truck comes it’s a thing I have.

17:13

Love it. Love it. So yeah, so replacement value, really easy way to solve for that. If you have kids in that, I don’t know, seven to 12 year old range, especially good way for them to earn their dinner tonight hand him a phone or if they have a video camera. You know, just take your iPhone, walk through the house with a quick narration of what’s what’s in there doesn’t have to be super intricate, but just get that video.

17:40

open cupboards because that will be what you need. Should there ever be a complete loss claim. And you’re going to see your policy also gives you the ability to like live somewhere else for a year while they rebuild your home. You’re paying for the replacement coverage. But if you don’t currently have it inventoried. You don’t quite have the coverage.

18:01

Yep. Yep. Let’s see, I think that’s great. Oh, no liability limits inside of your home insurance is important as well. We often see those. We often see those at higher levels and auto the joke that we make to to folks is like, if you hit someone right around the corner from your house, maybe pull them back and lean them up against the garage and say the garage door hit it now. Yeah, I’d advocate the insurance fraud. That’s just a joke. Not that it’s that funny idea was that you have, you know, this much higher coverage at home where you’re generally more safe and only people that know you are coming over versus driving out in the world with the randomness and the potential potential crazy.

18:53

Yeah, the chuckleheads. So just one last one last thing on the car insurance or homeowners since we talked about it on the car, is you’re going to notice if you’re looking at your declarations page, there is something called Med Pay on your home. Yeah, they give it away with homeowners insurance. That’s how unlikely terrible things are gonna happen to us in our home. They literally give us medpay at no cost on homeowners insurance. So you’re ready to shift gears to umbrella. Umbrella. Yeah, okay. So it’s a good place to pick up because we just talked about the liability levels on the car and the liabilities level on the home. And the simple example would be if your car is 100 300 and the house is 300, you hit the person in the crosswalk, you’re covered for 100,000. How do we fix that? Ideally, in most cases, people have their current homeowners insurance with the same company because there’s usually discounts. Well, that’s also required most of the time, if we want to get a personal umbrella policy is that the company issuing an umbrella policy, just like it sounds, it’s an umbrella that’s covering over the car and homeowners insurance giving you a dish coverage picking up where the car or the home leave off, they call that your underlying coverage, that underlying coverage, the insurance company will tell you what it needs to be. So some companies, your car needs to be 250 500. And your home needs to be about.

20:19

I would say that’s more common than not is to 5500.

20:23

And then some are, allow a 100 300. Yep, yep, yeah. And so if we have that 100 300 or 250 500 coverage, you’ll find out if it’s efficient when you call to get the umbrella policy, now we have the umbrella policy for two reasons. One is the of course, that if it was our fault, and it’s really a problem, we want an umbrella policy that is at least two and a half times our income, or 10%, more than our net worth. So two and a half times our income, or 10%, more than our net worth. Now the reason is, we want it to be more attractive to go after than us personally. And believe it or not, it helps in several ways. One is imagine you get in an accident and your coverage for the one other person you hit his 100,000. But they have a legitimate case against you for over a million. They think they’ve proved some kind of negligence. Well, if that insurance company has got to defend that they’re not supposed to do this, but human nature is normal. And they’re gonna look and go, Well, we’re definitely losing our $100,000 on this one. Let’s learn that new that new kid that just passed the bar exam. In go device one right out. Richie should try this one. Yeah, yeah. But if you’ve got them on the hook for 2 million, and you get sued for 1,000,005, they’re sending the 18. They’re sending their best attorneys to defend that case, because now they know they can negotiate it down below their limits. Now, believe it or not, you also have the potential to have the plaintiff’s attorney, if we have any planets to attorneys listening, please comment below. I want to hear what you have to say about this. But you will create the plaintiff’s attorney in attorney in some ways being your ally, they become your ally, because think about what it takes to go after you. If they’re gonna come after you so hard that many states, your income can be attached for up to 25 years, in the case of a lawsuit where you didn’t have enough insurance, they may be able to force you to sell your home, depending on your state’s homestead laws, they may be able to go after your investment accounts. That’s a lot of work for that plaintiff’s attorney to pursue all of that, they would much rather do the thing that the insurance company does easily, they will literally give a separate check all upfront for that settlement to the attorney and to the client. And that attorney would rather have the 30% today than to have to work over the next five or 10 years to try to get it from you. So we’re protecting your future income. And we’re protecting all the assets you’ve built up until now. Get an umbrella policy. If you’re driving home from work today. Call your rollover drive home. Well, your

22:55

agent. Yeah, yeah, if you’re driving right now say, you know, folks ask, they asked us how much umbrella to get, and we have our formula. The joke, if we’re feeling funny is like, just tell me how much you’re gonna get sued for. And I’ll let you know how much I’m going to get. Right? That’s the real answer. And so when you’re gonna get that umbrella is ridiculously inexpensive, as far as coverages go, yeah, again, maybe driver in house. But if say that formula that we just mentioned, is a million dollars for you. We’ll also ask for a million more, wherever you come down on the formula, just also asked for a quote for an additional million on top of that, because often you will be so surprised and how little extra it adds to get that extra million that you say, I just assumed have that extra million. Like, you could ask them how much the max that you’d let me have. And depending on your situation and everything that’s going on in your world, it’s good to know because you may want that you might want that extra peace of mind, you get to make that decision.

24:04

And one other thing I’ll throw out here is you know how we say on the podcast all the time, Cory, that you should not listen to somebody, just because they threw out an opinion on a YouTube video, or on a podcast or on the radio or you read an article except this one, get an umbrella policy. Don’t worry drove home today. It won’t hurt you. Okay, disability insurance,

24:28

liability insurance.

24:30

So here’s, here’s I’ll give one high level thought about it. And then I’ll let you handle the specifics of individual and group stuff. The easy thing to think about with disability insurance, everybody thinks of somebody being in a wheelchair. We think that the person that’s in a wheelchair somewhere, because that’s what our handicap signs say. Except that is not most disabilities as the minority of disabilities. Most of them are things you can’t even see that end up putting somebody out of work. So we’d like to say, if you’re unable to work due to sickness or injury, it’s a much better interpretation. And if you want to know how your income might be affected here would be my challenge. Everybody listening at some point has had the flu. Now, as you’re listening, I don’t want you to think about what would make you feel like you have the flu. Just imagine you feel just like the flu, but for two years, and what would your happen your income capacity. Now there’s many people out there that might be listening, go, Well, if I was in a wheelchair, you know, after I got through my rehab, everything else I’d be just fine because I sit at a desk all day, maybe. But what if you felt like you had the flu for two years, I’ve had the flu,

25:39

that org, that just kind of nothing is as easy as it used to be, yeah,

25:45

being able to get too far away from facilities or whatever, whatever would cause that that is what we need to address against. And if your income shuts off, you not only lose your future income earning possibilities, except many times I’ve done the math with people in their early 40s. being out of work for like two years could wipe out the last decade of the work you’ve done trying to build up your net worth, like the formula really does work like that. So Cory, maybe jump into a little bit about group, individual how much to have.

26:21

So most people that are listening to this call will already have some sort of disability insurance, because if you work for a large employer, there often, that’s one of the benefits that has come pretty standard these these days. And it’s often something like 60% of your salary up to a cap, often $5,000 a month, if you’re a doctor working at a hospital, that monthly cap is usually higher, it’s usually something like 10,000. So the first question you’ve got to ask is, am I actually getting 60% of my income covered by that group coverage? Because that cap could keep you lower than that? You know, if you’re making 200 Oh, go ahead, Paul.

27:05

I was gonna say, and they those group programs, rarely ever cover bonuses. Well, that’s the other. That’s the other questions. Yeah. Right.

27:15

So the the you have to be really clear on the language that they use? Is it just your base salary? Is it your total average monthly income? That’ll work out better for you if you’re getting bonuses every month or every quarter? So that’s one thing, you’ve got to think about? What am I, what’s the actual rate that I’m covered at, and then take taxes off the top, because your employer unless you are paying for the disability with after tax dollars, it is going to be taxable to you as a benefit like if you because your employer is getting a dis deduction on their taxes for the employee expense. So that you know, every dollar that flows through your paycheck in some way is going to get taxed somewhere along the line. So if you’re, if it’s a pre tax deduction, it’s going to be a taxable benefit. So take 25 30% Off the top of that to see where you’re covered so that 60% of your income group disability policy could only be 20, or 30% of your total all in income after after tax. And if,

28:23

as you heard from Cory, if your stomach just shrunk up a little bit like oh, I didn’t know that. That’s a good reason to reach out to your advisor. Or if you don’t have one that has these kinds of conversations reach out to us. And we’re going to go into a series where we’re going to talk about disability and life insurance, throw your questions below, things you’d like to hear us talk about as we get into deeper specifics rather than the overarching conversation we’re having today.

28:51

Now, there’s more that we’re not going to touch on right now about language in the contract, we’re just talking about amounts of insurance, there’s a whole deep dive on specifications inside of disability insurance. But if you are somewhere less than 70% of your total income covered by your group policy, you may want to consider going on to the private market to add supplemental coverage on top of that to get you up to that Max and that’s that’s about the highest that you can get somewhere between 60 and 70% of your income covered in disability insurance. No company wants you to have more than that. Because then if you were disabled, you would have no reason to get better even if you could and so there is a max that you can can reach but most folks are pretty well started by their group policy but would benefit from some additional amount on top of that to help to help make up the difference.

29:52

And and for some of you may be listening and be like I don’t know how I would ever get disabled etc. Well, uh Of course after you like and subscribe and comment, go to the description. And what you’re going to see is a link to an episode that I did years ago. With an actual client of ours. It’s episode 111 Miranda is gonna put it in the show notes for everybody down in the description. Big deal though. He was kidnapped, to captors kidnapped him they had kidnapped a friend of his earlier and that was part of how they got him in the car. And he ultimately end up kin killing both of his kidnappers. And that whole experience permanently disabled him. And in the interview I did with him he literally said, I never ever thought in 1000 years, I would get disabled from anything other than hanging Christmas lights. And it will blow up all your preconceived notions against episode 111. If you’re listening to podcast, you can find it really easy. It’s called the worst case scenario. And we’ll have a link to it down the description of this episode on YouTube. Oh, after that light note, Cory wants to jump into life insurance.

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