Insurance can be very confusing. From homeowners to renters to auto, it's often hard to know how much coverage you need. Today, Paula is joined by Stacey Hill of Farmers Insurance to break it all down.
We start with auto insurance and what all the numbers and slashes on your policy mean. Often, our top priority is to keep our premiums down, but Stacey explains what other factors need to go into those decisions.
Paula asks about umbrella policies, which can have an important place in your financial picture. But often, you need to meet certain coverage minimums in your other insurance plans before you can qualify.
Next, Stacey walks us through renters' insurance. There are Parts A-D, and many renters aren't aware of all the coverage they have - from loss of use to separate structures to replacement costs.
With homeowners insurance, Paula was surprised to learn that the claims follow the address, not the policy holder. Stacey explains why.
Finally, we cover the factors you should consider when choosing your various insurance coverage.
Want to learn more?
Call or Text Stacey Hill at 248-605-7678, or send her an email. SHill@farmersagent.com
If you'd like to learn more about Paula's work as a financial coach, you can reach her at PaulaChristine.com, or send her an email: Paula@PaulaChristine.com
Paula: Welcome to Beyond the Paycheck. I'm Paula Christine. Living paycheck to paycheck and struggling to get ahead really sucks. What if you could take control of your money and live the life that you dream about? I know that you're saying, "Yeah. Right," but it can happen with knowledge and commitment. That is my goal today is to provide you with knowledge, to take control of your money, it's up to you to make the commitment.
So, one thing that I always struggle with is do I have enough insurance? So if something were to happen, I was get in a car accident, if there's a fire, my basement was to flood. Do I have enough insurance to cover the cost? I've asked Stacey Hill with Farmer's Insurance to join us today. So welcome Stacey.
Stacey: Hello. Thank you so much, Paula. I appreciate the introduction and I'm excited to be here today.
Paula: Let's talk about auto insurance first, and I know the coverage is different in all states. But what are some of the basic things that you wanna make sure you have in your auto policy?
Stacey: That's a great question, Paula. The biggest concern that most people want to be looking at is their bodily injury protection. Making sure they have the appropriate amount of coverage there. Every state, as you mentioned, is different. And I would suggest that if someone has a high dollar value vehicle, such as a Mercedes, a Jaguar, a classic car, something that has great value, a Tesla, those usually fall in that category that they carry a higher limits for bodily injury.
A lot of people don't understand what that means in terms of the coverage itself. So what I'd like to do is expound on that a little bit for people, just so they have an understanding of what is bodily injury. So normally when you look at your auto policy, you'll. For example, 100/300 or 250/500 for bodily injuy.
And what that means is that if you are in an auto accident with someone and they get injured, you cause that accident, your policy's gonna pay out that first number. Let's just say it's 100 slash 300. Your policy's gonna pay out $100,000 for one person injured in an accident or killed. And up to 300,000 for two or more individuals that are injured in an accident or killed. That's how bodily injury works.
If you have a high dollar value vehicle, I would suggest you may wanna speak to your agent about increasing those limits to a higher dollar value, because most people look at the type of car, an individual is driving and decide, based on that, how much they're actually gonna sue for their injuries. So that's something that you may wanna talk to an agent about to get some clarification on. Do you have the proper coverages to meet your needs?
Paula: Even if you have a low value car? I would imagine if I get in a car accident and sue someone, or I'm sorry, I get in a car accident and someone sues me, a hundred thousand dollars is not enough.
Stacey: That is correct. You are so right about that. Paula, most people don't consider the components of an auto policy in terms of "is this enough coverage for me?" They're looking at the bottom line, which is how much I'm actually paying for the coverage. And so, unfortunately, a lot of people look at auto policy premiums and they consider, well, I just need this to be affordable.
Affordability is a factor, but having the proper coverage is a bigger factor, especially if something were to happen. And let's face it. Insurance is for the purpose of making sure that you are covered and protected properly for that "what if." Most people don't really consider themselves, oh, every day, oh, what if I get in an accident?
They don't even think about that, but it is a reality. There are so many more people that die in car accidents than they do from a plane crash. So people make that assumption that I'm safe, cuz I'm a safe driver, but they're not considering the other people on the road. They're not considering bicyclists or joggers people that may not be paying attention.
And you might be distracted while driving, meaning that you're on the phone talking or texting or doing something you probably shouldn't be doing because it's taking your focus and attention away from what's important, which is to make sure that you have line of sight of everything around you so that you can keep yourself and your family's safe while you're in the vehicle.
Paula: If premium is a concern, and I know that's a concern for most people. Could you not increase your deductible? So instead of having, you know, a $500 deductible, you have a thousand dollars deductible. I mean, I don't even know what the highest deductible is available. Wouldn't that bring down your premium?
Stacey: That's a great point. And yes, it does assist in bringing your premium down. Absolutely it does. What a lot of people look at though, is they look at that as a major factor for them, as opposed to those coverage limits. I just spoke about such as bodily injury, coverage, and liability, which is another key component they look at.
Okay. Well, If I get in an accident, I have to pay a deductible. They focus on that, unfortunately, and they're like, well, I don't wanna have to pay a high deductible. So they want to have a lower deductible to make it more manageable for them. Cuz again, they're looking at their out of pocket cost. And then if an accident were to take place, what is the cost factor that I have to absorb in that? So a lot of people don't look at making their deductibles higher.
Paula: But if you think about this logically, I'm just gonna put my financial hat on for a second. And I don't know what the difference in premium is, but let's say you did look at, and you compared the cost of a higher deductible versus a lower deductible, the lower deductible low premium's gonna be higher than the one with the higher deductible.
And you take that difference and you save it on the chance that you do get in an accident. You then have that premium in savings. To cover that cost. Does that make sense or have a thousand dollars in your bank account and in case you get in an accident?
Stacey: Yes, you're self-insuring for that amount. That is correct.
And it does make sense, but it's not always the easiest thing to convince someone to do. It just depends on the client. Every client budgets differently. And it makes sense as a financial planner, obviously it makes sense to me being in the industry as well. So your line of thought is correct. But it doesn't always actually resonate with everyone, unfortunately.
Paula: Well, let's say I go for the lower premium and we were gonna talk about this later in the show, but I'm gonna bring it up now, cuz I think it fits, is an umbrella policy. So let's say that I do opt for the smaller liability or bodily injury, but then I get an umbrella on top of that to cover the difference.
Does that make sense to do that?
Stacey: It makes sense to have an umbrella and I absolutely advise clients to get umbrella coverage, especially if they are considered a high net worth client or medium income. And I say that because again, people look at what type of car you drive, where do you live? Those are factors that people kind of use to evaluate somebody's net worth, even though that's not actually accurate.
As we know, that's not always the case, but bodily injury. That's one component of the policy. There's also liability coverage. That's on a policy and that liability coverage is set at a certain amount. And then the umbrella picks up where the liability ends. And so an umbrella provides an extra layer of protection that covers you.
For your auto, it also covers you for your home where your liability limits end and any other items that you wanna tuck underneath that umbrella. That could be a boat. It could be a vacation home up north, things like that. But when you have umbrella coverage in place, Paula, you do have to have a minimum threshold for your bodily injury limit.
So you can't even get an umbrella policy. It won't trigger, to allow you to purchase one, unless you carry higher limits on your auto policy. So for example, with Farmers, you must have a minimum of 250/500 for bodily injury to even qualify for an umbrella, to be an option for you to pick up for coverage.
And then there's a minimum threshold for liability coverage on your homeowners that you must have. In order for you to qualify for an umbrella coverage, to kick in for you to extend that liability coverage over and above the limits on the policy, whether it be the home or the auto.
Paula: Okay. I know personally, my auto policy has a large deductible, the maximum amount of liability and body injury that I could get.
And I also have an umbrella just to protect myself. And I don't know if that has to do with my net worth or just that. I just don't ever get in that situation where I get sued and I'm having to pay outta my own pocket.
Stacey: I think that's very wise Paula and a lot of people don't always think about things like that.
I mean, you're a savvy business woman, obviously. And a lot of people don't really consider the risk factor because you're in the industry, you have insider information. So you see things that the average lay person doesn't see.
But it has to hit a lot of times, unfortunately, closer to home for people to really realize the importance of making sure they have the proper insurance in place. Now, normally what I run into since I've been in the business, and I've started in this business in 1993. Those individuals that are a little bit more savvy, such as yourself, have a higher net worth, they are aware of the importance of having this important coverage.
So I don't even have to ask them, do they want an umbrella? They tell me they want one.
Paula: And it's so important to make sure that your insurance agent is educated enough or going to educate you on the product site you need. And not just try to sell you something, just cuz it fits in your premium.
Stacey: I agree with you. I believe it's important to give people options. And so the way that I run my business is I like to make sure that I give everyone the exact same information and let them decide for themselves.
I tell them what it is, how it's going to benefit them. I let them know the price point and I let them know the, what ifs, like if you did not have this and something were to take place. How would you handle that? What is your course of action, should you have a situation occur? Cause I want them to think about the reality of that.
Paula: Right.
Stacey: Some people do and some people don't, even though it's presented to them and I hate to say it. I have clients that are living in half a million dollar homes and they still are like, well, let me think about it. In my opinion. There's nothing to think about.
Paula: Yeah. I agree with you because really an umbrella isn't that expensive.
So let's go and change subjects. You know, I'm, recently divorced, sold my home, renting a condo, and I bought renter's insurance, which I know a lot of renters out there don't even think about it. My renter's insurance, I think basically is just covering my contents. Correct?
Stacey: That is correct. Your personal contents. So if you took your condo and shook it upside down, everything that falls out, that's your personal content, is that gonna be your toothpaste, your shoes, your socks, your makeup, your clothes, your books, your computer equipment, your bedding, your bed. Those are the sorts of things that are protected in your renters policy as well as liability coverage.
So if someone were to sue you because they got injured in your condo, you have liability coverage as a component of that policy as well.
Paula: Oh, I didn't know that.
Stacey: Yes, absolutely. It works very much. Paula, like a homeowner's policy. It's just that it doesn't cover the exterior walls or anything outside of that condo or that apartment or that house that you made or someone may be renting.
It also provides coverage for what's called loss of use. Let's just say, Paula, your neighbor next door had a leak cuz they left the bath tub running and they forgot. And then that water seeps into your unit.
You're out of town for the weekend, having a great time in Florida, right? Laying on the beach, getting some sun, right? You come back and your carpeting is soaked. Your hardwood floors, they're ruined your clothes, your shoes, all of that is ruined. There's mold everywhere. Those are things that your renter's insurance is supposed to take care of for you making you back whole again. Not only that now you have mold, right? So is it safe for you to stay there? Absolutely not. Especially if you have asthma. So until your unit is put into a condition that will allow you to safely live there, you have a pot of money, so to speak, that the insurers carrier provides is called loss of use.
Those funds are a percentage of the face amount of the policy to allow you to stay some place temporarily until your home is made safe for you to live in again. Makes sense?
Paula: Yeah. I mean, that's great. I didn't even know I had all that stuff. But even bringing all that out, let's go back to the homeowners that you were talking about.
That is the most confusing policy, I think, for everybody to understand, cuz I know you have liability, you have, if your house burns down, sewer coverage possibly flood. I mean, all kinds of things go into a homeowner's policy. But how do you really know you have enough insurance? Because you don't wanna find that out after something happens.
Stacey: And I'm glad you brought that up. Homeowners insurance is standardized pretty much around the country. So there are certain components like Coverage A, Coverage C, Coverage D. There's standardized areas that a homeowner's policy that is considered a complete policy is going to have those coverages in place.
So for example, Coverage A is your dwelling. That's going to cover the actual building itself, the brick and mortar. So if a windstorm came. Or fire, cuz you'll hear sometimes, people referring to homeowner's policy as a fire policy.
Paula: Right, right.
Stacey: That's what it was called originally when homeowner's insurance was first introduced into the marketplace, but it has expanded since then cuz it covers wind and other perils as well.
So if that building itself got damaged, there's a value put on that building as to how much is it gonna cost to reconstruct this building today in today's dollars and bring it back whole with the same materials or as close to the same materials as were used previously. For example, let's just say someone has a historical home, it was built in the 1900's, early 1900's.
There was no such thing as drywall back then. So those walls are plaster. That application process is very labor intensive. So a home that has plaster walls is going to cost more to reconstruct than one that has drywall. So a lot of times. The dwelling portion on a policy, especially at renewal, it goes up every single year because of the cost of the material.
The craftmanship that's involved and of course, lumber and labor, those are the factors that make a difference. And obviously inflation is a factor as well.
Paula: Oh, so are you telling me that all our policies are gonna go up since inflation is so high right now?
Stacey: I am not making that statement, Paula, but I can say that you can safely assume, with all the shortages on these chips with these cars now, you know, everything since the fallout, we're basically still in the backlash of this pandemic, it's hard to get materials, right? Some things are coming in from overseas. We have issues with getting lumber as well. Even in the United States, there is a shortage of labor.
We all are experiencing that right now. Even McDonald's. Every place you go is hiring right now and they're paying top dollar. Gee, I, I wish I could have made 15 bucks an hour at McDonald's when I was in college. That would've helped out.
Paula: Me too. Me too.
Stacey: Right. So those are factors that make a difference. A lot of times that does impact the policy upon renewal because those factors are reevaluated every year, along with claims, that is a factor as well.
Paula: So let's go back. So you said there was a Part A, which was dwelling. Part B is...?
Stacey: That's gonna be your separate structures. So that'll be something like a fence. A driveway, anything that's not connected to the house, a she shed or he shed, or a detached garage.
Paula: Okay. What is C and D?
Stacey: Okay. You have personal property and you also have your loss of use. Those are gonna fall in those other categories. .
Paula: I know at homeowners is confusing and really you don't want to,find out that you don't have the right coverage. I always tell my clients that they should review their coverage annually and even shop it out every couple of years, just to make sure that they're paying the right premium and that they have the right coverage.
And it is important about claims too. I know that does affect your premium.
Stacey: Yes it does..
Paula: And sometimes it's not advantageous to make a small claim.
It really does affect you.
Stacey: Yes, it does. Paula. And I do advise clients to make sure that they evaluate the importance of how a claim will impact them moving forward. So if you can self-insure for say something $5,000 or less, I would suggest you do so, but anything over and above that, then you certainly want to put that on the shoulders of the assurance carry because they have deeper pockets.
Now claims do follow that house or that actual property address. So that will come up when you're applying for coverage, if there's a claims history at that property address, but claims also follow the individual as well. So if an individual is applying for coverage, a claims history will show up under that individual's name as well under their insurance score.
When they're applying for coverage with a different carrier or with the same carrier. And that does actually impose a surcharge on the premium. If they have a history of multiple claims, I would say to help people figure out what's the best course of action to determine if they have the right coverage for homeowners is to make sure they have replacement cost, not actual cash value.
Paula: Yeah. So it's important to have it replaced at today's dollars.
Stacey: Exactly. Because you don't wanna depreciate that investment, that's an investment for you. That's an asset.
Paula: So Stacey, thanks for sharing all that great information. And I thought I was pretty savvy on insurance, but I think I've learned a lot today, even about my own coverages. So if somebody wants to get ahold of you, how can they reach you?
Stacey: My phone number to my office, which is also text enabled. So you can text me as well as call. That is (248) 605-7678. Again, (248) 605-7678. My email address is my first letter of my first name. My name is Stacey Hill. So it's SHill@farmersagent.com and I'm in Troy, Michigan. And I'd love to hear from you.
So if you have questions about your insurance needs, I'd love to help you. Quotes are free. Any advice is free, and I really appreciate the opportunity to help anyone that I can.
Paula: Thank you, Stacey.
Stacey: You're so welcome, Paula. Thank you.
Paula: If anybody wants to get ahold of me, please feel free to email me at Paula@PaulaChristine.com or check out my website, PaulaChristine.com. Thanks again, Stacey, for being with us today. And we
will talk soon. Take care.
Stacey: Okay. You do the same. Thank you very much.