For assurance, keep all of your insurance
Byron R. Moore, CFP ®
Moore For Your Money
As published in "The News-Star"
January 29, 2005

Question: I pay so much for insurance! But I’m not even sure if what I have is the right kind or amount. How do I lower my bill and make sure I have the right kinds of insurance?

Answer: Imagine coming out of Giganto-Mart one day and not being able to find your truck. After searching the parking lot ten times, you come to the very uncomfortable realization that your truck is gone. Maybe you forgot where you put it, maybe some unsavory characters from Lincoln Parish took it or maybe space aliens swooped out of the sky and ate it. 

No matter. It is gone and you must replace it.

Without insurance, what happens? You have to replace a $25,000 (for example) asset. Very painful. No fun. It would take a while to recover form this major loss. But you know what? You would recover.

Now forget the space aliens and Lincoln parish types. You DID find your truck coming out of Giganto-Mart, got in and started to pull out of the parking lot. As you are turning onto the main highway, you fail to look both ways and you run smack-dab into a little sports car.

The sports car takes the brunt of the impact and swerves off the road, hitting a tree. The driver wakes up after a few minutes, screaming, "My hands, my hands! I can’t move my hands!" 

You note on the back of the sports car one of those vanity license plates. This one says, "RICH SRGN." 

This is going to be a bad day. Yes, you’re going to get sued. For how much?

In this case, a jury may be asked to decide what lump sum a wealthy doctor needs to fully indemnify him for the rest of his career (20 years?) that you have cut short due to your moment careless driving. What will that number be? 

One million dollars? Two? 

Whatever that number is, you can count on this -- it is going to hurt much worse than the loss of your automobile. Much worse.

When it comes to insurance, you must answer two questions -- "what is going to hurts the worst?" and "what can I absorb?" 

What most people do is buy insurance for the little stuff, forget the big stuff and wonder what happened when catastrophe strikes. 

What if, right before the jury returned a verdict in your careless driving lawsuit, your insurance agent called you on your cell phone.

"It’s the strangest thing, "he says. "The insurance company just called and said they are running a special this week. You can buy as much liability insurance as you want, retroactive to the first of the year. So how much do you want?"

If you have two synapses firing at the same time in your brain, you’re going to babble something about, "All I can get!" 

So if that is the amount you would want if the event occurred, isn’t that the amount you should have now?

As simple as this sounds, here is what I constantly find when reviewing insurance: low deductibles and low limits of liability on insurance covering cars and homes.

This is totally backwards. It is my opinion that if you have enough income or assets to have any semblance of a financial plan, you should consider having at least one million dollars of liability coverage on your automobile or home. 

Such "umbrella liability" insurance policies are available through your casualty agent. This is only an estimate, but an umbrella policy would cost an additional 10% over your current premium. And you might be able to make that up by raising your deductible from the usual $100 or so to $1000 or more. 

By all means, be a wise shopper when it comes to insurance. But if you want to know the real definition of "insurance poor," try needing it when you don’t have it.