You’re building a $22-million house in Vancouver. You’re a little paranoid, so you’ve put hurricane-proof glass in the windows and specified that all the walls must be at least two feet thick. It seems you’ve thought of everything.
Fast forward to two months before move-in date. The contractors are finishing the hardwood floors, and the solvents catch fire. While everyone gets out safely, the house itself isn’t so lucky. Normally, firefighters would have doused the blaze quickly. But those windows and walls? Impenetrable. Even for the fire department.
Your mansion burns to the ground.
You run to your financial advisor and ask, “Am I covered?”
According to Gina Teresi, vice-president, strategic sales, private client group with property and casualty insurer Chartis, many Canadians wouldn’t be, because few financial advisors see to property and casualty coverage.
Four questions to ask yourself:
1. What is my annual insurance review policy?
If you can’t describe this, it’s a red flag your current broker may not have all the bases covered. That person’s job is to make sure the insurance covers the client’s personal circumstances.
2. How did I choose my limit of liability?
3. How did I establish the replacement value on my homeowner’s policy?
If the answer to either question 2 or 3 is, “My broker suggested it” or “It’s the minimum amount,” you’ll want to reexamine the policy to look for gaps.
4. Describe the boards my spouse and I serve on.
Many not-for-profit organizations have only minimal directors & officers insurance. If there’s a large claim, directors can be held personally liable.
The foundation of any financial plan is risk management, but Teresi finds life and health insurance tend to dominate conversations on the topic. Yet wealthy clients have more property to lose than average folks, and their needs are often more complex. While the majority of insurance tends to be marketed on price, Teresi says coverage is the more important factor for these clients.
“You always hear about the claims that don’t get paid,” she says. Those are the result of underinsurance and gaps in the policies.
Teresi gives the example of a client referred to her because his auto insurance premium went up after he insured his 17-year-old son. After interviewing him, she realized he also owned a beachfront home in partnership with his brother, was a director of a board, had a significant wine collection, and owned a property development firm. The associated policies were spread across multiple companies and American states, and as a result, there were significant holes in his coverage.
Analyzing whether you need property and casualty insurance is much like holistic financial planning, says Teresi, so it’s just a matter of taking your current conversations with your advisor one step further. Speak with your advisor about your current coverage, lifestyle, risk profile and attitude towards insurance. Those will help determine whether you need to get insured for everything or just catastrophic events, and the amount of your deductible.
During this assessment, you’ll also want to look for gaps in coverage based on your assets. A red flag, for example, would be someone with $1 million in personal liability coverage, but a $10-million portfolio.
Teresi stresses that property and casualty insurance is an integral component of wealth preservation. “Insurance premiums never bankrupted a client,” she says. “However, uninsured or underinsured losses can and will.”
And that house? It cost $16 million and two years to rebuild. And yes, the owner was covered.