Are you a homeowner or looking to become one? Here’s where you can learn about all the insurance you may need!

Listen in as Zacc and Laura are joined by insurance professional Spencer Shelton to delve into property and casualty insurance. They discuss various personal and commercial insurance types, including auto, home, and umbrella policies.

Spencer explains the nuances of homeowners' insurance, such as the differences between HO-3, HO-4, and HO-5 policies, and the significance of flood insurance.

The conversation highlights the importance of understanding insurance coverage, the benefits of umbrella policies, and the need for individuals to review and discuss their insurance needs with agents.

Other discussion points include:

• The essentials of casualty and property insurance
• Understanding your homeowners’ insurance policy
• Car insurance, umbrella policies & how to protect your assets
• The role of insurance agents in your financial journey
• And more

Read the Full Transcript:

[00:00:00] Welcome to The Financial Call. We are financial advisors on a mission to guide you through the financial planning everyone should have, whether you're doing it yourself or working with a financial advisor. These episodes will help you break down complicated financial topics into practical, actionable steps.

Our mission is to guide motivated people to become financially successful. Welcome to The Financial Call. It's Zacc again with Laura, and today we have a guest. Spencer Shelton. We've worked with Spencer for quite a few years now. I have forgotten how many, but we have quite a few mutual clients. And I told Spencer earlier that whenever we run into a category where we don't feel like we are equipped to be able to really talk completely about the subject and really help people understand it fully, we like to bring in an expert.

And so today we're talking about property and casualty insurance. And so we have Spencer here to help us. Spencer is by far the most prepared guest we have ever had on the podcast. So first of all, Spencer runs his own firm. [00:01:00] He basically wrote a book I'm looking at, I'm looking at his, at the notes that he's, how many pages do we have here?

30. I don't know. I'm embarrassed. I don't want to admit how much. No, but for real, I really do think you could take that, throw it up on Amazon Prime. 'cause you can self-publish and that thing will sell anyway. So most prepared guest runs his own firm. I. Does lots of different types of insurance, not just property and casualty.

Does pre-Medicare, healthcare does Medicare and I have my home insurance and other property and casualty insurance through Spencer's agency. So I have some personal experience working with him. So we're happy to have you here. Thank you for spending the time with us once again. We know you're going to do fantastic.

'cause he wrote a novel specifically for this 30 minute episode. Anyway, anything else that we should add, Laura, before we dive into. What is property and casualty insurance? I don't think so. We're excited to be here today. I will give you a little bit of a reminder. This is the season associated [00:02:00] with insurance for us.

We organized an entire guided path and the seasons went. Income planning, social security investing, tax planning, estate planning, business owners, charitable giving, and finally, insurance. And this is the last planned episode that we have. No pressure. Spencer, I already feel like I've already messed with you a little bit, but no pressure here.

This is the last episode. I actually think you and I, Laura, need to do another quick episode at some point to just put a bow on the whole thing. Maybe we add another season, maybe we don't. The bottom line is this is what we planned about two years ago to get to this point, and so it's exciting for us to finally be here and have this resource available to everybody.

The full guided path. Pick up wherever you feel like you need to along the path. So Spencer, today, I. Hopefully the goal is, I told you earlier, the goal is we have listeners that are trying to figure out the basics around what they need to do with property and casualty insurance, or what they need to know to at least have like an [00:03:00] educated conversation with someone like you.

So today, could you maybe give us a feel for like, how would you define and clarify what is property and casualty insurance? Yeah. So first of all, it's great to be with you guys and thank you for having me. So the most common types of personal and commercial insurance are obviously going to be auto home umbrella, condo, renters boat, RV A TV, general liability, professional liability, commercial auto workers' comp.

And that gives you kind of an idea of what people are dealing with on a day-to-day basis with their property casualty insurance. So are all of those considered under the. Category, title of property and casualty, or are some of those a whole new category that we should be talking about? Yeah, in effect, yeah, there's subcategories within those based on what types of policies they are.

But yeah, Uhhuh. Okay. So the goal would be today to dive deep enough within each category that people feel comfortable at least [00:04:00] discussing their own plans. I actually really like your list. Let's do it in your order because I, I had made a list, but it's not comprehensive enough. You have more categories than what we had.

So why don't we start with auto and homeowners, and let's start with home in particular too, because those are pretty different. At least for me. I struggled with this last renewal because it felt like there was a lot of complexity to my homeowner's situation that I had to ask you multiple times. Like what does that mean exactly?

And what am I missing and if I change policies to a new carrier? 'cause my premiums were going up and they have for the last few years, and I was really nervous about. What I would be losing if I moved from one plan to another. So maybe help everybody who feels like me understand like what should you know about homeowner's insurance to have a basic understanding of it.

Yeah, so the first thing I would say is I. Any insurance policy in its purest form is a contract. And of course, not all contracts are created equal. And so [00:05:00] understanding the verbiage in a contract is really important. Like if you go sign up for a a new cell phone plan, you'll notice you'll sign a big contract.

Well, with insurance, it's the same thing, and it's really important that you read through that contract so that you understand what it is you're signing up for so you can make an informed decision. So that's the first thing I would say. The second thing is understanding the differences between the different forms of homeowner's insurance.

So for example, the vast majority of home plans are HL threes. So if you look at an HL three, that's going to provide coverage for the basics like fire theft, vandalism, windstorms, hail, all those things. You have coverage for the structure, and you also have coverage for your personal contents. So you look at an HO three, an HO four is a renter's policy, for example.

So if you don't own the home but you're living in it, then you would have a renter's policy. An HO five is in effect, the same thing as an HO three, but it's actually more comprehensive. And so [00:06:00] like with an HO five, it provides coverage for both the structure of the home and the personal belongings on a more open peril basis.

Whoa. I don't know what that means. I know about you, Laura. Let's talk about that. What is open peril basis? So what that means is it covers all perils unless they're specifically excluded on the policy. So the HO three covers, let's say seven, eight, a certain list of perils, but an HO five basically says, we'll cover everything but these items.

That's correct. Uh huh. Yep. And then of course, an HHL six is a condominium policy designed for condo owners. So it provides coverage for personal contents liability, even improvements made to the unit, but it doesn't cover the actual structure of the building since that's covered by the HOA Master policy.

So the first step with homeowners insurance is really establishing what type of a policy do I need to have. Right, and the majority of policies [00:07:00] for single family structures are an HO three, and I think you said, sorry, was six, the last one. The condominium townhome where you're insuring like studs in and they're insuring studs out.

Okay. When I had my townhouse in North Salt Lake, that's what we had pretty sure. HO six policy. That's what you would have, right? Yeah. So part of what you're. Paying with your HOA fee is, there's a premium that goes towards the master policy that covers the entire structure and you're responsible usually for drywall and in, and I think they had like a $10,000 deductible associated with if I caused something that was actually applicable to the whole HOA or to the master area.

And then my HO six was able. Like you were able to throw in what they call like a rider or an adjustment onto that policy that made it so that it would cover like everything after $500. So it gave like a $9,500 gap filling that gap for me if I ever needed it. And that was like a little. Back to Spencer's [00:08:00] point around the contracts are not all equal.

That was something I had to make a choice whether or not I wanted to fill that gap of that $10,000 deductible for the master policy with my own personal HO six. So the HO does, I assume that stands for homeowners, is that correct? Okay. And by the way, these letters and numbers were the most difficult part for me of the insurance licensing exam.

Funny that like, just because we don't deal with it. Mm-Hmm. I'm like, dang it. Was that the four or is that the six? Or is it the, so three is the standard homeowner's policy. Correct. Four is a renter's policy. Mm-Hmm. Five is, let's call it HO three on steroids, is what I interpreted. Yeah, that's a good way to think about it.

And then six is the condo. You're the owner, but only of the Drywall Inn typically. Yep. So if you're sitting down with somebody, when would you recommend an HO three policy being enough for them? And when would you say, no, we need to beef this guy up. Let's do an HO five. [00:09:00] Yeah, that's a really good question.

And the reality is, is most insurance companies don't offer an HO five. So a way around that would be to purchase an HO three, but then add policy endorsements, kind of beef it up. Hmm. So the average person probably has an HO three. Yeah. I would say 90% of single family homeowners policies are HO three.

And in your opinion, is that usually enough to cover their needs? Do you like to add those different riders or change 'em to an HO five or what's your opinion? Obviously it's variant, but so obviously from a coverage standpoint, if you can ride an HO five, that's great if it's a feasible option. If not, you can add endorsements to an HO three.

And usually that's sufficient for people. Okay. Based on their specific needs. Right. Yeah. Interesting. Do you remember what I have? I don't, yeah, the three or the five. You do you, you, you have a five. Oh, I do. Okay. Yeah. Feel so special. I need to go home and check mine. I have no idea. So I'm totally fine actually talking about this.

Maybe not in crazy specifics for the recording, [00:10:00] but why did I go five? It sounds so well, I feel so irresponsible not knowing these things. So part of it is the value of your home. You have a nicer home, obviously, and so because of the value of your home, that particular market falls into more of an HO five category usually.

I see. Yeah. Not always, but usually. Okay. Yeah. Yeah, and I think that's right because I think my previous home was on an HO three. That would make sense. Yeah. Okay. But HO threes are, I'm not saying they're bad because again, you can beef those up with endorsements and so it's not necessarily a bad thing to have an HO three.

You just want to make sure you look at the coverage and establish the need. And I would assume that I pay a fair amount more for the HO five than I would on an HO three, if I could even use an HO three. Are they more expensive? The five? They are a little bit more expensive. Yeah. Okay. Which makes sense because we're covering more things potentially with Mm-Hmm.

And that's the trade off. Mm-Hmm. Okay. Super helpful. That's great. Actually, that's probably the best. I've understood this in a long time. Well, good. I'm glad my novel didn't put you to sleep. I'm [00:11:00] not reading it. You're the one that, you're the one I'm just engaging with you, which is how I live my life. I like that side of life.

Okay, so let's, what else before we move on? There are certain things within home ownership that are impactful, like. The three that come to mind are fire, flood, earthquake. Mm-Hmm. And maybe there's more, but these are three outside factors that I think can have a pretty big impact. Like how much of those things are typically covered and which ones are not?

And which ones do you add as endorsements and can you help us on that a little? Yeah. So really what exclusions do people often forget about? Yeah, I guess, yeah. Yeah. So it's a really important question. We found that, first of all, many homeowners rarely take the time to look at their policies and really understand them.

So again, I can't reiterate this enough. It's good to look at your declaration page, make sure that you understand the coverage that you have, and if you have questions, talk to your agent. Say, Hey, I don't understand. What does this mean? Can you just walk me through this? Help me [00:12:00] understand what exactly this verbiage or language means.

Because for the most part, people don't really take the time to read through that. So that's the first thing I would say. Can I just throw this out there really quick though? Like Yeah. I'm in a very similar industry to this industry. And I struggle with the declaration pages. Do you know what I mean? Like I just feel a little bit like we're asking a lot of the average consumer who might be in healthcare or might be in, in a completely different industry, at least our industries are, are adjacent.

Right. But like I just feel like rather than trying for them to completely. Consume what is on that declaration page and completely understand it. It almost feels like, I would say scan it so you're educated enough to like at least know what numbers are. You're going to see some numbers on there. You're going to see the table.

You're going to be able to guess a little bit and get a minimal understanding, and then every so often. And every few years or every year, like maybe have a quick conversation with your agent like you, because I feel like I make so much more progress [00:13:00] after scanning it and then talking with you than I do trying to completely interpret it myself.

Sure. Is that fair? Absolutely. So the process that we take our clients through is we know what to look for. So when we look at your declaration pages and review. Your coverage, whether you're an existing client or a new client, potentially, we're going to look at it and we're going to be able to see, exactly, okay, you don't have sewer line coverage, you don't have earthquake, you don't have flood.

Or Oh, it looks like you've got some scheduled personal property that maybe we need to look at the value of that. When did you last have it appraised? Right? So there's all these different things that we can look at and determine. What recommendations we would have, and then you as the consumer, if you decide, oh, this is a risk I want to accept not having, then that's okay with us.

But at least now you are able to make an informed decision and you know what you do and don't have. Yeah. So if you're out there listening and you can hear Spencer say, Hey, you really should understand what's in your contract. I mean, recognize that you are [00:14:00] normal like the rest of us, and no one understands their contracts fully.

And it's probably worth a summary because people like Spencer and his team, it's just like how Laura and I can look through a tax form and know pretty quick which line to find your net income, your taxable income, your deductions, your itemized, your, whether you're getting a qualified business income deduction or things like that.

We can. Quickly flip through the pages and know exactly where to find it. An insurance agent knows that stuff too, so maybe get the summary from them. Okay, let's move on. But like flood for example. I feel weird 'cause I have so many personal examples with these situations, but I guess fine, we'll talk about my situation, but okay.

In the middle of a week after week, took possession of our house, we had the one that we just built. We'd finished the basement completely and it's a good sized basement and there was a massive storm and the contractor left a bunch of gravel sand pallets of pavers in the road, and water came up into our front lot and our lot has a [00:15:00] negative slope 'cause it's on the hillside so it.

The water then flowed to the house, filled the basement, completely destroyed this brand new basement, which was super frustrating. Now, flood is interesting because if it's an issue caused by man, it seems to be covered where if it's an act of God, it's not right. And so that's nuanced 'cause that one was.

Kind of like nature, but also there was an element of negligence or a mistake by the person. So their insurance actually ended up covering it. But that's professional liability, not homeowners that maybe just help explain this situation to all of us that would've fallen on his general liability policy.

But you know, the easiest way to think about flood insurance is how can water enter your house? So you think about the different ways that water could enter your house, number one. Let's say you have a roof leak, water could come through your roof. You have no idea that you, maybe you have an area on your roof that needs to be patched.

In that situation, it would be covered a sudden [00:16:00] roof leak, for example. But if you had groundwater that maybe there's a big storm, and let's say that groundwater goes through your foundation or through your window, well in your basement, that would not be covered. And so. The easiest way to think about it in general is if you have water entering your house other than your roof, it is generally not going to be covered and you would need to buy a flood policy.

What about your own sprinkling system? So it depends because that's ground, but it's, I. Not rain and natural cause. Yeah. So it depends, like we've seen claims covered, for example, where maybe the stop and waste valve is next to the foundation or like a window. Well, so for example, on a lot of older homes, what they would do is they would actually, for whatever reason, put the stop and waste valve next to the window.

Well, they don't do that as much anymore because it poses a flood risk. But we've seen claims covered where maybe the stop and waste valve. Malfunctions. 'cause those generally need to be replaced every, I don't know, 10 to 15 years. Sometimes [00:17:00] they last 20 or 30 years. It just depends on, so if you go buy a house, you don't know when the last time the stop and waste valve was replaced.

Right. So we've seen situations where maybe a little kid accidentally leaves the hose on. Floods the basement. You start to get into some gray areas there with the insurance company and really what they're willing to cover and won't cover. But in general, that's the rule of thumb is groundwater is not covered.

I. That's if you have flood insurance. Is flood insurance included in an HO five policy or an HO three policy? It is not. You would have to add it. Add flood insurance. Sorry, to clarify, let's say the roof leak, that would be covered. That's covered if you add flood insurance or regardless of whether or not you add it.

That is apparel that is covered is if you have a sudden roof leak, they would cover the damage to that under an HO three, well, under HO three and HO five without throwing on flood insurance. Correct. So let's say we get an HO three, we don't throw this extra endorsement of flood insurance on and water comes through the roof.

Mm-Hmm. We're still covered. You're [00:18:00] still covered. Now the insurance company might come back to you and say, Hey, we think your roof is really old and we can see that you've got a a lot of granular loss to the shingles, and as a result, we want you to replace your roof or we won't stay on this risk. We see that happen because again, the insurance company is trying to prevent loss in the future, losses from happening.

But yes, that is a common peril that is covered is if you have a roof leak, they will repair the damage. They might not replace an old shingle. Or shingles, but they'll repair the damage to the house. Yeah. Got it. And then if you add flood insurance, how does that change? Because I feel like we basically determined from the roof down it's likely to be covered without flood insurance, but ground in most likely not.

Maybe a few exceptions if it was a man mistake, but let's just set those exceptions aside. So flood in from the ground. Most likely not. But now let's throw in the variable of somebody adds flood insurance. What does that do? So there's different types of flood policies [00:19:00] available. So for example, you can add a flood policy and say, I want it to just cover the structure.

So let's say your basement floods and you've got $30,000 of personal contents in your basement. Well, if you don't have content coverage on that policy, they're just going to maybe replace your drywall, your carpet. Things like that, paint it. And so not all flood policies are created equal either. So Yeah, and kind of going back to what we were talking about a minute ago with the stop and waste valve.

So we've seen situations where if the stop and waste valve fails and there's damage in the home, we've seen insurance companies cover damage in the home, but they won't pay for the Stop and waste valve itself. Which I know we're kind of getting, that's nuanced. Right. But yeah, that makes sense. So if a pipe bursts in your house, some people think of that as on the ground, but it's not.

That's different. That does usually get covered. That's covered if it's in your house, correct? Yeah. So it's ground from the outside is not going to be covered. [00:20:00] But if it's on the ground from the inside, it probably is covered. And as a homeowner, you're actually responsible for the sewer and the waterline that goes from the street to your house.

So, for example, I don't know if you guys have ever seen those little things that HomeServe will send out saying. You may not have underground utility line coverage, for example. So that's a common endorsement that homeowner insurance companies have started to offer in recent years is coverage for that as well.

Because if you have a water line that breaks, they have to bring in a backhoe, they have to dig it up, and it could cost an excess of $10,000 by the time they dig that up and replace it. So again, these are things that are important that you go through with your agent so that you have a clear picture of what you have and you don't have.

Got it. Okay. So that was Flood fire was a big deal for me when I was talking to you because I live in Farmington, but I'm pretty close next to wild area. So like the people across the street from me, their [00:21:00] backyards. Go up the mountain and you know, there's always kids up there on those dirt roads and every once in a while they're not supposed to, but they've got fireworks and it seems like every several years there's a fire above on the hillside.

Right? So how does it differ? Same to question as flood versus a fire from the outside or a kitchen fire, and do you have to add fire insurance or not for these things to be covered? So you don't have to add an endorsement for fire. So for example, one of the areas that insurance companies have really started to crack down on is what we refer to as the PC or protection class.

And typically what that means is how close is the nearest fire station. Like you might see a PC three, and that might mean that you're three miles from a fire station, for example. Or you might live in an area where the insurance company just feels there's too much wildfire exposure. Maybe you're close to a fire station, but maybe.

A hundred yards behind you. Like there's areas down in [00:22:00] Woodland Hills, Utah, for example, that insurance companies just get really, really nervous because you guys remember a number of years ago when they had all those wildfires down in Woodland Hills and they actually got pretty close to the houses. And so that's typically how that works.

But no, you would not have to add another endorsement to add fire. Okay. That's good to know. Just you need to make sure that the insurance company will at least insure your house anyway. Based on its location and proximity to a fire station. Yeah. And of course they've started to, a lot of them have started to change their underwriting appetites with exposure to wildfires.

Got it. Okay. Moving on to earthquake. Is that normally covered? Is it not covered? So earthquake is not covered. And that's a really hot topic here in Utah because of course we live in a near a folds. Yeah. And depending on where you live, I mean there's areas where people are pretty concerned. And of course we had that earthquake, what was that three?

Was that three years ago? That was 2020? Yeah. Do you remember that? Yeah. That was when we were at home during the [00:23:00] pandemic. Yep. And then there was an earthquake. I remember sitting in the basement of my house working from home thinking, you have got to be kidding me. You could feel it. Yeah. And then like a month later there were like the killer bees or something like that, that were coming out.

I'm like 2020. Stop it. Yeah. So similar to flood, earthquake is not covered on a homeowner's policy. Okay. Can it be, can you add it? You can, you can. Is it super expensive? I'm not going to lie, it is expensive. However, they've come up with new options now where they're allowing people to have a little bit more skin in the game, and they're allowing you to change the deductibles.

So instead of having. A 10% deductible, maybe you have a 20 or 30%, for example. Right. And so what we're finding, especially since that happened, people are, it's more on their minds. They're thinking about it. They're thinking, is this something that I really should have on my home? And so it is more affordable if you're willing to have a little bit more skin in the game.

Yeah. Not all earthquake policies are considered equal either. Oh, I, I'm sure, like you have some that'll include personal [00:24:00] contents. You'll have some that'll just include the structure. So you want to look carefully at that. And debris removal's a big one. So for example, let's say your home is rubble from an earthquake, which is a horrible thought, but you may not have coverage to haul that rubble away.

That's debris removal. So you have to look at all of those things. 'cause that might cost 50 or a hundred thousand dollars to just to remove it all outta there, especially with the concrete. Okay. So let's do a quick summary on home because we definitely have so many other categories to cover with Spencer.

This is good. So from a homeowner's standpoint. The main numbers, I think it was 3, 4, 5, and six that we run into. Most people have three, some renters have four. Some people have five, which is three in my words. This is not Spencer's words. Throw three on steroids. And then six was homeowners for like a condo, basically drywall in and then.

The main things to be thinking about within each of the policies is what is covered, what is not covered? Should you be adding an endorsement and then do those things cover [00:25:00] just the structure or personal contents as well? So if you have a feel for that, you know what letter you have, you know what endorsements you've added, and you know whether it covers structure.

And contents are not, then you're doing pretty good. You're doing, I think you're doing better than most people out there understanding their own homeowner policies. And then of course, review it with your agent. Look at it Real quick, before we move on, we have talked a little bit about this and maybe it would be helpful, Spencer, if you can just tell people you review this regularly.

Partly because rates have been climbing a lot. Now there may not be anything you can do about rates climbing. That is just the environment we're in. Inflation makes things cost more, so when a claim is made, the insurance company has to pay more and therefore you will pay more for your premiums. And it's frustrating.

I know my policy premiums have gone up just about every year, but Spencer, what can you tell us briefly before we move on as to what's happening in the PNC world that's making it so much more expensive? Yeah, it's a really good question. So the p [00:26:00] and c industry is in a very hard market right now. Like you mentioned, inflation is a big contributing factor.

We've had some pretty crazy weather the last year or two across the country. And of course, from the lens of a property casualty carrier, they look at it and say, okay, for every dollar that we take in in premium, how much are we paying out? And if they're paying out. Typically more than 98, 90 9 cents per dollar.

That could be problematic. That means they're losing money potentially. And insurance companies, as we know, they're not in the business of losing money. So the last year or two, we've seen a lot of rate increases because of combined loss ratios. We are in a hard market. Having said that, I think over the next year or two we're going to see some light at the end of the tunnel.

I think some of these double digit rate increases that people have seen are going to go down as P and c companies see that, okay, we can make money again in this market. And of course, it varies from market to market. Like for example, [00:27:00] Utah is one of those states where it's a great place to do business. I.

Not just insurance, but in general, we have a great state here from an economic perspective. But if you look at states like California, for example, the governor declared PNCA state of emergency not long ago, and State Farms said, Hey, we're not going to write any new policies in California. And that's problematic because they have more market share there than any other PNC carrier.

And so when consumers have less options. That makes it more difficult. And then when you combine that with these rate increases that we've seen and continue to see. Yeah, we've been in a hard market for sure. Okay. So don't blame your agent too much when your rates, when your rates go up, everybody's experiencing that, but there's things you can do.

So, for example, it's always good to check in with your agent and say, Hey, are there any discounts that I could potentially be getting on my auto or home policies that I'm not getting? One of the things that people have done is, have you guys ever heard of Telematics before? No. So, so [00:28:00] years ago, I.

Progressive actually kind of pioneered this, but they came up with this device and you would plug that device into your car and that little port next to your steering wheel, and they would measure your driving habits. And if they determined that you were a good driver, after a predetermined amount of time, they would give you additional discounts on your auto policy.

So in other words, they would say, if you're a good driver, we're going to reward you. And now pretty much all the carriers, well not all of them, but most of them are doing. Some kind of a telematics program where you can be rewarded based on how you drive your driving habits. And so now it's an app and it's on people's cell phones.

Oh, interesting. Yeah, I could see a lot of people struggling with that. Like I don't want 'em to know how I drive. You know, everybody's different because a lot of times the insurance companies will give you a five to 10% discount just for trying it, and then you can see how you do. The downside is sometimes it can have an adverse effect on your rates with certain carriers.

I was wondering. If you're a bad driver, does it increase your eyes [00:29:00] if they find out that you're a bad driver? Yeah. So sabotage with with some of 'em. Now, there are some companies that they'll just give you the discount for trying it, and if they determine you're a bad driver, then you might just get that initial five or 10% discount, but you may not get any additional discounts on top of that.

So. Yeah, that's fascinating. My wife would argue I'm an awful driver, but it's usually 'cause I just missed turnoffs. It's not because I'm going too fast or breaking too hard. It's like, oh, that was our exit. I guess we're going to the next one. And those are the things that they look at. Or things like miles driven, how hard are you braking?

How fast are you accelerating? What hours of the day are you driving? Like obviously if you're driving at two in the morning, they're going to look at that different than if you're driving at five in the afternoon driving home from work. Yeah, that makes sense. Okay, so let's do talk about car insurance now, because this is our next category, and maybe you can help people understand the differences.

Obviously you have to have some level of car insurance by law to be operating a vehicle on the road, and that's usually liability only, [00:30:00] right? And then there's full coverage. So what can you tell us about how to think about those differences? Yeah, it's a good question. So it's a question we get asked a lot, and it is important to understand the difference between the two.

So the decision between liability only and full coverage. It depends on several factors including the value of your vehicle, your budget, and of course just your personal circumstances. I. If you have a lender, like a loan on your vehicle, they're going to require you to have full coverage. And if you don't, they'll put forced place coverage on your vehicle, and that's a lot more expensive than it would be just to go buy it on your own through a private insurance company.

But if you have an older vehicle with a low market value, it may not be cost effective to have full coverage because the cost of the premiums might exceed the potential payout in the event of a claim or a total loss. So you have to run the numbers and decide. If it's worth it to you in general, if you have a newer vehicle, it always makes sense.

Almost always makes sense to have full coverage. Yeah. And so those are kind [00:31:00] of the differences there. And so liability only by definition, that just covers bodily injury and personal property damage. So in other words, if you. Had a 20-year-old Honda Accord, for example, and let's say that, well, this car is only worth a couple thousand dollars, right?

I'm just giving you an example, and let's say you go out and you get in a big car accident and you're legally liable for that car accident and you've caused bodily injury and or property damage. The liability portion of your policy on that Honda that's 20 years old is now going to pay. For those damages of the other party.

Does that make sense? So whereas if you have full coverage, it includes all of the state required liability coverages, but in addition to just liability, it covers damage to your own vehicle. So that's the difference. But the liability only would cover the damages. To the other person's car. Correct. Even if it's a Porsche or or whatever.

So you remember the sleeper car, right, Laura? Oh yeah. So I had a car I used to leave at [00:32:00] the train station here in South Jordan and had a magnet key underneath it so anybody could use it. And I would ride the train to work 'cause I could get work done on the train. And when I got off, I had a car to drive around down here it was a 2006 Mazda three.

It was our old family car before we got a larger vehicle for the family, and I just kept it. So it was this situation. It was probably worth 2,500, maybe $3,000 total, and it was liability only. And I was driving it home one time. I had actually lent it to somebody and I went and picked it up from their house here in Sandy.

And I was driving it home on the freeway and there was a semi with a flatbed trailer on my left, but a little bit in front on my left, and they wanted to go right and get off the exit quickly. So they swerved into my lane, braked really hard, and I braked really hard and I was. going to go into the back of the flatbed.

So like the flatbed was going to come through the windshield. So I [00:33:00] decided, I don't know what's on my right, but it's better than what's ahead of me. And there, of course, there wasn't enough time to even look to my right. So I swerved to the right and I collided with a car that was. In the right lane, and then it bounced me back into the side of the semi, so my Mazda was gone.

Right? I mean, it was totaled and luckily it was still drivable to a certain extent that I could get it off the freeway and around. And so we were able to get off the freeway. I didn't have any bodily harm, which was insane. Which was really, really wonderful blessing. The person that was driving the semi fled the scene, so the fact that they took off meant that the person who was liable for the accident, because they tried to cover, I can't believe you, this big semi tried to cross three lanes and exit in a very, very short like distance.

But that person took off and the person I hit, and I, of course stuck around My liability only coverage did not cover my car because there was no insurance to pay for my car [00:34:00] because the semi took off so my liability only where full coverage would have stepped in and covered that car. But my liability only didn't cover my car.

However, my liability only because I was considered second. At fault. The first at fault was the semi, the second at fault was me in that scenario. And then the third person involved was the person that I hit. So my insurance liability only covered the vehicle to my right. And then my car just got totaled.

And I remember I was able to, I. Waive the toe fee if I brought the title in to the scrap yard. And so, so like they made me go visit, they, they're like, you'll cut you deal. Yes, totally. Like if I signed the title over to 'em and handed them the title at the scrap yard, they waived like a $300 toe fee or Wow, there's toe fee or something like that.

So anyway, that's one accident that shows the difference between. Liability only and full coverage. And even in that accident, my car was not covered. But the one to my right was, yeah. And the reality is full coverage is [00:35:00] actually kind of a sling term. Really all that means is you have comprehensive and collision coverage, if that makes sense.

That's a much better term. Yeah. So when you add both comprehensive and collision, you now have full coverage. And the other thing I'll mention is a lot of people, they just equate or think of full coverage, like if they were in an accident, but they don't realize there's also coverage for theft, vandalism, and fire.

So if you have something stolen out of your vehicle, you would have coverage for that as well as an example. My wife and her family were in Vegas and somebody smashed the windows and stole all of their luggage. The car did have full coverage, but it's funny, the insurance company made them, of course, itemize all the things in her back and she was like, I don't know what clothes and things I put in my suitcase that are now gone and anyway, so that can be tricky.

Okay. So what are the main things people should think about? I remember at one point I had not enough coverage because vehicles get more expensive. I mean, I remember at one point I. Most new cars [00:36:00] cost 20 to $30,000 and now a lot of 'em cost 40 to $150,000. So there's potential of needing to increase it.

What else should people be thinking about that they might miss? Yeah, so it is pretty amazing how much more expensive cars are. Now versus just five to 10 years ago. I was sitting in a insurance webinar recently and they took like a mirror on a fully loaded, I think it was a Honda Odyssey van, and they said, this is how much just to replace this mirror is, and it was like five times more expensive now versus just.

Five to seven years ago. And the reality is, is cars nowadays, they're kind of like computers on wheels with the technology and how much things have evolved. And then of course, from like 2020 to, you could even argue till now, the values, especially of some of the higher line cars have gone up tremendously.

Like you've seen some cars that people are spending 30 to $40,000 over MSRP even just to get the car, right? So the thing that you want to be [00:37:00] aware of with car insurance is you want to know. Okay. If my car is totaled, it's a total loss. How is that claim going to be settled? And the two main things that you should be aware of is you have what's called actual cash value or a CV, and that's the most common way in which a car I.

Like if your car's stolen, they don't recover it. It's a total loss. That's how the insurance company's going to indemnify you. The other term that you should be aware of is what's called stated value. So if you have a 1972 Jimmy in your garage that you inherited from your dad and it's worth X amount of dollars to you, you can actually insure your car in some cases for a stated amount.

And they're not going to give you what they think is the market value. There's no depreciation there when factoring to settle the claim. So those are the two things you want to think of. The other thing that we often see, so have you ever heard of Utah being a no fault state? I have, but I don't remember this exactly.

Okay. So what that means is [00:38:00] because Utah is a no fault state, that means that regardless of who's at fault in the state. In that accident, regardless of who's at fault, they're going to give you what's called pip or Personal Injury Protection Benefits, and they start off at $3,000. And the purpose of that is the insurance companies are trying to keep these smaller claims out of court.

And so there's lost wages. There's even a small. Funeral benefit, there's medical coverage, and so one thing that we often talk to people about is, do you want to increase those PIP benefits on your policy? And it's something worth looking into. They start off at 3000 and depending on the company, they can go as high as 20 plus thousand.

That's another thing we look at quite a bit. Okay, so home and auto feel like the two basic first ones to tackle and then we move on to, at least in my list, I had down like general liability and umbrella [00:39:00] policies. Mm-Hmm. I was actually surprised. Nobody told me about umbrella policies for many, many, many years until, I can't remember if I came across it in my own studies about things in finance or if some insurance agent mentioned it to me.

But I was surprised how many years, maybe decade or so of having insurance that I'd never heard about an umbrella policy. And this is a policy that works in conjunction with your other. Property and casualty policies to help ensure against additional liability. Explain more about this though. Why aren't we hearing about it and what is it?

Yeah, so I would say umbrella is one of those things that should be absolutely mentioned more than it is. Why it's not. I don't know, but I can tell you it absolutely should be mentioned more than it is. And as a general rule of thumb, if your net worth exceeds the primary underlying auto limit, we always recommend that you buy an umbrella policy.

So for example, let's say the bodily injury limit on your underlying primary auto [00:40:00] policy is half a million dollars. But you have a net worth of a million dollars. Well now you have a $500,000 exposure there that needs to be addressed. A general rule of thumb is you want to have enough liability coverage to protect your assets, your net worth, and the lifestyle that you've worked hard for.

I. Give us some examples of umbrella policy, like what's covered when you have an umbrella policy that is not covered when you don't. Yeah, so I'll give you five examples that I think are important when it comes to umbrella coverage, and of course there's quite a few, but I'll just give you five examples.

So number one, the obvious is an auto accident. So you're found liable for an accident that results in property damage or bodily injury. And that exceeds your primary limits on your auto policy. Well, now you have that secondary layer. Of liability protection. It protects your assets, it protects your income.

That's the first example. The second example that people often don't think about is if somebody's injured on your [00:41:00] property. So let's say that you have a party, someone trips and falls. There's a lot of different things that could happen, but they could in theory, sue you if they're injured on your property.

So that's something that you need to think about. Another example is a dog bite. People don't think about this, but dogs bite quite a bit. This is going into my history a little bit. My left leg, I have a huge scar on my calf. I got a pretty back dog bite, actually needed surgery for it, but this was down in Belize.

So they don't really have umbrella policies down there? I don't think so. Nothing happened with the dog. But this is really interesting because if you just have a typical HO three policy or HO five policy and somebody gets injured or bit by your dog, they're not going to step in and cover any of that, right?

So the liability coverage in all of these policies would have coverage for dog bites. But the question is, how much liability coverage do you have on your primary underlying limit? So I'll give you an example. Like let's say you're renting a house, and let's say [00:42:00] that your landlord requires you to have a renter's policy and list them as an additional insured or the property management company for the house you're renting.

Oftentimes, they're only going to require you to have like a hundred thousand dollars of liability coverage, which may sound sufficient. But the problem is, is if let's say you have a Rottweiler or a pit bull and it bites your neighbor, that claim could be hundreds of thousands of dollars, right? So number one, you should increase your liability limits, and usually it just costs a couple dollars a month to go from a hundred thousand to.

300,000, for example, most homeowners insurance companies will go up to 500,000 for liability. But if it exceeds that amount, that's when your umbrella policy would kick in. And you'd be surprised how many dog bite claims there are and how large they are. Mm-Hmm. So you do have some liability coverage in your policy, but that's where you really need to sit down with your agent or skim through your own policy and see how much liability coverage do I have?

What's the gap? Between that and my net [00:43:00] worth that someone could potentially go after. And that's where you fill in with. And also think of it as a moat that you want to put around your castle, right? How much do you want anybody coming after you to have to swim through before they could touch any of your own assets?

And the HO three, HO five, there's a little bit of a moat there, but if you want to widen that moat, you do that with an umbrella policy to just push the risk a little bit further away and put that risk on the insurance company of liability. So the more you have to protect, the more at risk you are. The bigger the castle, the bigger the boat.

The bigger the moat. Yeah. So another example would be slander. Libel. Defamation. That's something that's covered in an umbrella policy. So if you're found liable for. There's quite a few things. There's even international incidents on some umbrella policies, like depending on your policy, you might have coverage for something that happens abroad, and so there's quite a few things, but those are the two primary motivating factors for most people to buy.

An umbrella policy would be an [00:44:00] auto accident or something happens related to their homeowner's policy, like an injury, a dog bite, something like that. I oftentimes think about insurance and encourage people to think about insurance in a way that if you can pay a small premium to avoid a financially catastrophic risk, I.

That is an excellent insurance trade-off when you're paying high premiums for a risk that doesn't really impact your finances. That's the opposite of what we want here. And to me, an umbrella policy is the right example of that. It is a fairly low premium to avoid a financially catastrophic event. And ideally, you never have to deal with it.

You never make a claim on it. But the reality is the premium's so small, you're not even going to feel it very much. Yeah, I mean, typically you can buy a $1 million umbrella policy for a couple hundred dollars a year, and for most people that have. Assets in excess of 1, 2, 3 plus million dollars. It's a small price to pay to your point.

And then when you start adding [00:45:00] increments for each million that you add, sometimes depending on the carrier, it can even become less expensive. So you know, less expensive than the per million, right? So nobody knows what's going to happen. You just don't want a costly accident or something to wreak havoc on what you've worked hard for.

So it's definitely worth having a conversation. Interesting. We covered home, we covered car covered umbrella policies. What about professional liabilities? You know, there are a lot of professions out there that you could cause damage in lots of different ways. What types of. Professional coverage, do you see?

When do you recommend it? Give us some thoughts on that. Yeah, really good question. So with general liability insurance, that's going to appeal and apply to the vast majority of businesses out there, whether it's a small business, medium, large business with professional liability, really any individuals or businesses that provide.

Any sort of advice consulting, they really should have a [00:46:00] professional liability policy. So examples of that would be like professionals in a service-based business, such as a doctor, a lawyer, an architect, an engineer, a business consultant. I. If they make a mistake or if they fail at their work, that could result in financial losses to their clients.

Like if you pay an architect to help you build your dream house and do the designs and they make a costly mistake, that could be a claim. Another example would be businesses that provide professional services like accounting firms, IT consultants, all those types of businesses. Just think of giving advice, consulting all those types of businesses.

You're going to need professional liability. It makes sense to me. We have to have it for our advice, and luckily we've never had to make a claim on it. Or maybe it's not luck, maybe it's good practice, but we've done a good job not having to make a claim on it. Also, let's put it as the deductible on our errors in omission.

Insurance is so high that I would be very surprised if we would need to [00:47:00] do it anyway. So once again, it's. For catastrophic issues that could have a big impact on the business. Yeah, and I'll mention professional liability and e and O are the same thing. Okay. So that was a really good summary and this is good.

We've spent about an hour here, almost. Spencer. I would love for you just to give us a feel for, is there anything in writing your novel that you felt like we should cover today that we didn't? I would love to hear that. Let's start there and then I have maybe one more question for you after that. I would say in summary, whatever type of policy it is, do your best to understand what type of coverage you have.

Make sure that the coverage you have is meeting your needs. Think of an insurance policy as a contract. Like if you go hire an attorney to write a contract for you, you tell that attorney, this is what I want this contract to accomplish. These are the areas in which I want to be protected legally. Right.

Think of that when it comes to insurance to a degree, working with your agent, communicate with your agent and [00:48:00] tell him or her what it is that you're trying to accomplish. Those would be the biggest things I would say. And understand that all these policies, they're not created equal. They vary quite a bit.

I think especially with home insurance, it's easy to put on autopilot because in most cases, people's homeowners policies are paid through what's called their escrow accounts. So they make their monthly mortgage payment. And part of that payment goes towards, of course, taxes and insurance. And they may not be paying attention to, number one, what's happening with their rates.

And number two, they may not be paying attention to the coverage that they have. A lot of these things that we've talked about. Are simple, easy endorsements that you can add to your policy. Like I said in the beginning, whether it's sewer and water backup coverage, whether it's earthquake, flood, there's so many things you could look at adding, and a lot of people assume that it's just really expensive and in a, in many cases, some of these endorsements are not expensive and they give you a lot more peace of mind Scheduled personal [00:49:00] property is a huge one for people.

You know, you think about. I think of this story that we had with a client, and I'll tell you really quick, but we had a guy who, he went and got a really nice, it was like a $30,000 Rolex watch. He went to Hawaii and he somehow thought he lost it on the beach. So he called us in a panic saying, Hey, I, I.

Just lost my $30,000 Rolex. What am I going to do? And we pulled up his policy and he did not have that scheduled On his homeowner's policy or, yeah, on his policy. And so we had to say, sorry, we didn't know you purchased that. Had we known and you let us know, we could have added it for you and scheduled it.

Well, luckily he ended up finding it. Someone turned it in. He was in Hawaii. And the other thing is, take inventory of your house. Take pictures in your house. Document what you have, get appraisals of what you have. You know, if you have Nice. Musical instruments. If you have a collection, if you have expensive artwork, the easiest way to think about is anything that's high value in your home.

Talk to your [00:50:00] agent and see if it should be scheduled. There's advantages to scheduling it. Oftentimes, the deductible won't even apply if you have a claim. A lot of times they'll give you what's called lost or mysterious disappearance. Coverage on that. Particular, you know, so if you have an expensive wedding ring and you lose it, it's just good to keep that communication line open with your agent.

Like if you do a renovation on your house is another thing. Don't go do a hundred thousand dollars remodel on your house and not tell your agent. That's another thing that we see happen sometimes. You want to avoid situations where the claim may not be what you expect, and these are ways that you can do that.

I'm sure that person called right after that trip to get that added, and that was, he left us hanging. I was wondering, did he add it? Yes, he did. Oh, okay. Yes. Yeah. Yeah. He had a heart attack and that's, Laura and I both tuned out for a minute. We're like, but did he add the Rolex the most? Right? Yeah. But yeah, he certainly did.

So my question for you is, and by the way, that was a wonderful explanation of. How a consumer should be thinking about this, and [00:51:00] I love the way you've explained it. It's daunting. Let's end with this. I think it's daunting and intimidating for most people to think about all of these different policies, and then within it, there's so many different endorsements or paths or coverage levels and situations like, I guess, what would you say in terms of words of encouragement for the normal person out there who doesn't understand your industry as they try to navigate it?

Yeah, so I would say words of encouragement would be number one, build a long-term relationship with your agent. Of course, I'm a little biased when it comes to working with an independent agent because we're an independent agency between personal and commercial markets. We work with over 50 different companies, and so.

Unlike a captive agent, we don't work for an insurance company. We work for our clients. And as things are changing in the PNC industry, it's more important than ever to work with a trusted advisor, a good agent that you feel comfortable with. It's like with your [00:52:00] CPA, your financial advisor, you build that long-term relationship with them.

They understand the bigger picture of what you're trying to accomplish and make sure that you understand. Or you communicate all these things that we've talked about so that the agent can better address your situation. In other words, like if they don't know that you have a $50,000 painting in your house, they can't schedule that for you on your homeowner's policy.

You'd be surprised just by having a quick 10 to 15 minute conversation every year or two with your insurance agent just checking in. Do I qualify for any discounts? Is there anything I can do? Ask your agent. Say, what do you think of this policy? What would you change? I think the biggest thing is just communicating, and then of course you want to work with somebody that you like and you trust.

That's important too. So what I'm learning here is that I don't buy nice stuff. I have nothing worth itemizing. I mean, my mountain bike in the garage is probably the most expensive thing, and it's worth less than $3,000. But maybe a guitar, I don't know. I don't have nice things apparently. That's. [00:53:00] $50,000 30.

That's kind of been surprising to me that people own stuff like that, which is great. You'd be surprised. I mean, we have clients that are renters. They'll rent an apartment, but they'll have a five or $10,000 mountain bike. Yeah. Mountain bikers were crazy, so that makes sense to me. But the 30, $30,000 Rolex didn't make sense to me.

Okay. This has been so great. Thank you, Spencer, for spending the time and helping us understand all these different topics. I feel better today understanding my own insurance than I've felt in a long time. So that's That's fantastic. Thank you. Yeah, definitely. Yeah, thanks for having me on. I appreciate it.

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