Often times when I am visiting with an individual for the first time or reviewing an existing client’s insurance portfolio, I am asked, “What would you do?” It’s quite possible that the next four newsletters could be the most important that you receive from me because they will change your life for the better. I will be discussing exactly how I structure my insurance policies to:1) Protect my future earning power; 2) accumulate wealth; 3) and achieve financial independence. When structured correctly, your insurance portfolio should not only protect your current assets, but also create an environment that allows your wealth to grow. That statement sounds bold. Sometimes facts are bold. I’ve watched it happen to every client who follows this model.
In this first installment we are going to discuss the structure of your auto insurance policy. If you are a contractor and only have a commercial auto policy don’t feel left out because the principles apply to your policy as well. First, ignore all of the insurance commercials that you see on TV. Most insurance companies and agents miss the mark completely on auto insurance. I recently heard a Farmer’s Insurance advertisement that said that their agents are trained to slash your auto premium. Great, are they trained to manage my liability limits when my truck hits a patch of ice and slides into the other lane? Another company promises 15% savings in 15 minutes or less. Last month I had a client come to me with a GEICO policy that was missing uninsured motorist coverage. That’ll save 15% for sure, but any way you cut it these insurance companies are selling auto insurance at a cost to their policy holders. Their focus is on the price alone. We will make up that price many times over when this is all complete.
The most important coverage that your auto policy provides is the liability. When you hit that patch of ice and slide into the other lane and injure a family, what is protecting your life savings and future earnings from being taken away? The answer is your auto liability insurance. Keep those limits high. I recommend a limit of $500,000. Contractors, if your commercial auto policy is at $1,000,000, keep it there. On a personal auto policy the difference in premium between $500,000 and $100,000 is very small. An equally important coverage is your uninsured and underinsured motorists coverage. Your uninsured and underinsured motorists coverage should be equal to your liability limits. Again, I recommend $500,000. Uninsured and underinsured motorists coverage is for you and your family. If you are injured by an at-fault driver and lose your ability to earn a living, your can collect on your own insurance policy, up to your limits to help pay for your loss of earnings and pain and suffering if the at-fault driver does not have enough insurance, or no insurance to pay for your losses. We will discuss the importance of a liability umbrella in another installment.
When most people think of auto insurance, they think of physical damage coverage for their vehicle in the event it is damaged in an accident. “Full Coverage” “as the public refers to it” can be important, especially if you have a newer vehicle with a loan. If you carry a $250 deductible, raise it to $500, $750 or $1,000. Raising the deductibles will lower your premium, however be careful that you do not select a deductible limit that is higher than you have reserves to pay.
If your vehicle is older than 10 years and its not a “classic” vehicle, you may want to consider dropping physical damage coverage altogether. There are several other coverages that may come with your auto policy, such as towing, rental reimbursement, glass coverage, etc. These coverages are nice to have (I have them on my own auto policy) but they are not essential.
Summary: Your liability limits should be high; your uninsured and underinsured motorists coverage should match your liability limits; and your deductibles (if you carry “full coverage) should be as high as you have the reserves to pay.
Have we protected our earning power, accumulated wealth and gained financial independence? Not quite, but we’re well on our way. We’ve helped protect our earning power with high auto liability limits. We have a nice solid wall between our assets/future earnings and possible negative consequences. Read next month’s newsletter to see how we take one more step forward towards our goal of financial independence. We will achieve it. If you can’t wait that long, call me.
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