Too Valuable to Be Put at Risk: P&C Insurance
In a time when health insurance dominates headlines, property and casualty insurance reflects an area most people overlook. But this doesn’t mean that it’s not important. Quite the opposite, P&C insurance should be an integral part of wealth management, especially for high-net-worth individuals.
A research paper by consulting company Accenture reveals that many high-net-worth individuals in the United States are underinsured relative to their asset values and personal liability risks. Seven out of 10 luxury homes are not adequately protected. What is more, many high-net-worth individuals do not change their coverage limits as the value of their assets increases.1 The unfortunate result: These individuals are vulnerable to substantial losses for which they are insufficiently protected from a financial perspective.
P&C Insurance: The Basics
So what is P&C insurance? P&C insurance actually provides two types of coverage. The first, property insurance, protects against losses related to the policyholder’s own person and assets. The second, casualty insurance, provides protection for the policyholder against the claims of others (say you are at fault in a car accident).
Most people already have some kind of P&C coverage. For example, most car owners have car insurance, just like most homeowners have homeowners insurance. Even if you already have P&C insurance, it is important to ensure that you’re adequately covered. A policy that covers a $1 million home doesn’t do much good if your house is actually worth $5 million.
To Protect Your Assets, Know Them
The first step in choosing the right P&C coverage is to list the assets that you would like to protect and the risks that you may encounter. For example, a trademark lawsuit is a possibility for a business owner. If your child has reached driving age, you may need to increase the coverage limit of your car insurance.
This process may be overwhelming, as it’s easy to miss something that may be valuable. This is where your financial advisor comes in. Not only can advisors assist you in determining which of your assets need to be insured, but they can also help you to set fair and accurate values for those assets, which are the basis for your coverage limits.
Once you know the assets you want to insure and the risks you want to be protected from, your financial advisor can help you select the insurance types and coverage limits that correspond to your needs.
Some P&C insurance types you may want to consider:
- Natural disaster insurance. As the name implies, this insurance will help cover the costs of a property in the case of a natural disaster, such as a flood or earthquake. The coverage you need usually depends on the location of your property (for example, if you own property along an earthquake fault, you may want to have earthquake insurance).
- Commercial crime insurance. This protects your business from various types of crime, such as computer fraud or burglary.
- Umbrella insurance. Umbrella liability policies help protect your assets in case of a lawsuit and can be used when your other insurance policies—such as your homeowners or automobile insurance—have reached their limits. Essentially, umbrella insurance adds another layer of protection on top of your other insurance policies.
Regardless of the type of insurance you choose, make sure you know what is covered and what is not covered. By building a personalized plan with your financial advisor to address your risks, and reviewing that plan regularly, you can strengthen the protection of your assets.
1 – Accenture, “A Path to Riches: Targeting High-Net-Worth Individuals to Achieve High Performance Growth in Insurance,” 2012.