Ralph Bovitz, CPA, PFS

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Overlooked Features of Insurance to Protect Your Investments

By Ralph Bovitz, CPA, PFS

     Are your investments at risk due to items seemingly unrelated to investment planning?  Before you start investing, or even if you are investing already, take time out to see if you have any risks that you should lay-off on an insurance company.  Nothing will undermine a good investment plan like a loss from an auto accident or damage to your home not covered by adequate insurance.  Letís focus on insurable risks often not covered in auto, personal liability and homeowner insurance.

      Starting with auto insurance, California requires a minimum of $15,000/$30,000 in liability coverage, just to get on the road legally.  That means, in the event of an accident, the insurance company will pay up to $15,000 to each person you have injured in an auto accident and up to $30,000 for that particular accident.  For an attorney with significant investments, that would be disastrous because those assets would be at risk, if the damages to the other party exceed the policy limits.  Even an attorney without significant assets could saddle future earnings to pay the claim.  So, for an attorney, basic auto liability coverage should start at $100,000/$300,000 or even $250,000/$500,000.   

     But thatís only the beginning.  With the reportedly large number of uninsured motorists on California roads, you have a pretty good chance of being hit by an uninsured or underinsured motorist, some day.  You are unlikely to collect from an uninsured motorist.  And, if the other motorist has minimum liability insurance coverage, $15,000/$30,000, rather than none, you will only be compensated for your losses at those low limits.  If you cannot practice law, due to your injuries from that accident, so that your income declines or dries-up, itís also unlikely you will recover damages beyond the other personís policy liability limits.

      The solution is buying uninsured/underinsured liability coverage with the carrier of your own auto liability coverage.  Then, your own company picks-up the slack, if you cannot practice law for a period of time, due to an accident with an uninsured/underinsured motorist.  To protect against the risk of loss from an uninsured/underinsured motorist accident, you should opt for the same coverage levels as your own liability protection affords, $250,000/$500,000, for example.  Look at your auto policy tonight and you may find your uninsured motorist coverage is only $15,000/$30,000.  This is one of the ways an insurance company holds down your premium, but to your potential detriment.  For an attorney with significant assets or an income stream to protect, an auto accident with an uninsured/underinsured motorist poses a real risk to an investment plan.

      A necessary companion to high-limit auto liability protection is a personal liability policy that provides additional coverage beyond the basic auto policy limits.  The personal liability policy is often called an umbrella policy because it provides liability coverage on top of liability coverage you have in your underlying auto policy.  Umbrella policy coverage usually starts at $1 million and goes up from there, to as much as $5 million and more. These policies provide substantial additional coverage for a comparatively nominal cost.  It is usually a good idea to get your umbrella policy from the same carrier that supplies your underlying auto liability coverage.  It minimizes the chances of agents from different companies claiming the other one did not fulfill the terms of the umbrella policy.    Ideally, the umbrella policy should provide excess liability coverage against uninsured/underinsured driver liability, too.  However, some carriers do not offer such coverage.  So you may have to do a little legwork to find the right policy.

      While every attorney should have adequate auto insurance and umbrella coverage to protect against the risk of auto accident liability, an equally important form of risk management is homeowner insurance coverage.  Again, having homeowner liability coverage is essential for an attorney with significant investments or one with a promising or currently profitable income stream.  The same umbrella policy that covers your liability for auto accidents should also cover your liability for injuries to others that occur at your home, or from your recreational vehicle or boat.  If you rent, rather than own your home, be sure to get liability coverage, to protect yourself against injuries occurring in your rented home.

      Having adequate insurance on the bricks and mortar of your house is another important step to take in protecting your investments.  You donít want to liquidate an investment to pay for damage to your home that could have been covered by insurance.  Letís look at a couple of considerations, as you decide how to insure your home. 

      With the rising values of homes in California, particularly in Los Angeles, attorneys should insure for the homeís replacement value.  Homeowner policies carry a coinsurance clause that limits reimbursement to the portion of the loss that the insurance amount is to the property value. If that ratio is less than 80%, you are deemed to assume part of the risk of loss.  Thus, if your home is worth $500,000 and your insurance is only for $300,000, you would not get full recovery for a partial loss.    For instance, if your home sustains a $100,000 loss, you might receive only $75,000, if the coinsurance clause kicks-in.  So, having a policy with replacement cost coverage is essential for an attorney.

      In addition to making sure the property value is adequately covered, attorneys should consider getting coverage to meet the added costs from existing building code requirements at the time damage is repaired.  Your carrierís liability is limited to the cost of restoring the home to its former self, unless you have building code protection. 

      Adequate auto insurance, although not cheap, accompanied by an umbrella policy will protect existing investments and earnings in the event you are involved in an auto accident.  Where the accident is with an uninsured or underinsured motorist, having coverage for this contingency makes additional good sense.  To shield your investment plan further, be sure to have appropriate amounts of insurance to protect against physical damage to your home and sufficient liability protection, in the event of injury to persons on your property. By having the insurance companyís prescribed amount of homeowner liability coverage you will also be covered under the umbrella policy.












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