What You Need to Know About Property and Casualty Insurance (Before It’s Too Late)
Some people do not put insurance high on their priority list. For some, insurance is the first to get either cut down or eliminated entirely if finances get tight. But that is not a decision to be made without fully understanding the implications. You need to think of insurance as your safety net for when things go wrong. Not having insurance can cause more financial harm than you realize until it’s too late, and you find yourself in a difficult situation.
What is Property and Casualty Insurance?
When you think of insurance, you think of coverage that helps cover some costs. So when you apply the basic definition to property insurance, it is a type of coverage that will cover damages or loss to your property. The property damage can occur to your home, car, or even your personal belongings. Another type of insurance coverage is casualty. Casualty insurance will protect you when you are at fault in an accident and legally responsible for the injured person’s injuries.
If you feel like there is a lot of common words or phrases that you’re seeing when shopping for insurance, check out this Glossary of Insurance Terms.
Determining Your Coverage Needs
Determining the amount of insurance you need can be tricky. The goal of buying property and casualty insurance is to get enough coverage to cover all your belongings if they should need replacing. You do not want to overestimate the value of your belongings because then you will pay for more coverage than you need.
For example, if the unthinkable happened and your home had a fire, what would you estimate the cost to replace all of your belongings like clothes, furniture, electronics, bedding, everyday necessities and repair your home to a livable condition again? To determine the correct amount of coverage, you should inventory your belongings and determine a replacement value. This will allow you to gauge the amount of coverage you need to replace the lost property.
Now, determining the amount of coverage for casualty insurance is a little different. Instead of looking at what it will cost to replace, you need to think about what you can afford to pay out of pocket if you injure another person. When you purchase casualty insurance, you need to think about what type of expenses the other person may incur from their injuries, physical or otherwise.
Some of the expenses can include loss of wages, hospital and doctor bills, physical therapy, lab tests, or x-rays to start. These things can add up quickly, and if you have to pay all of them out of your own pocket, you can become financially strapped. So, it would help if you determined the potential cost of the worst-case scenario, and what you can afford to be responsible for paying if that were to occur. The difference in these amounts is what you will to use to determine your coverage needs.
Impacting Your Financial Plan and Budget
Whether you have property and casualty insurance or not will affect your financial plan and budget. If you do not have any insurance coverage, and an incident happens, you have the sole responsibility to repair and replace the lost or damaged items. You will need to pay 100 percent of the costs.
If you do not have a plan to save for these types of expenses, your budget will have to take a hit that can cause you to really get yourself in trouble. If you think about it, can you withstand having to make larger than average payments on a credit card to cover the repairs? These payments can affect your future financial health. For example, one of your goals is to retire early. Now, that cannot happen because the extra money you were saving for retirement needs to go to paying off the damages.
The same outcome may occur if you do not purchase enough coverage. Even though you have property and casualty insurance, if you do not have the right amount of coverage, you may still need to dip into your savings or other assets to cover the damages. When you take or redirect funds from their intended use, you cannot reach the end goals.
Now, the reverse can occur if you end up purchasing too much coverage. If you happen to buy more insurance than you need, you are spending money now instead of saving it for future expenses or financial obligations.
Finding Discounts and the Right Insurance Provider
When shopping for insurance, you need to price your coverage with several providers. You may save money if you move other insurance policies to the same provider. For example, you may get a discount on your insurance if you bundle your home and car together with the same carrier. Alternatively, a provider may provide you with a discount if you have a security or monitoring system. Do not just accept one quote and call it a day. Checking with additional suppliers can help give you a more competitive rate for your insurance coverage.
Opinions expressed in the article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.
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Any opinions are those of Chip Munn and not necessarily those of RJFS or Raymond James.
