- August 24, 2016
- Posted by: Liam Dai
- Category: Uncategorized
Insurance Q & A: Why You Shouldn’t Have More than One Insurance Advisor
Q: “Hello, I have a question that’s been on my mind for since a fire partially destroyed my home last August:
While I had insured my home with homeowners insurance policy, I knew that some of my furnishing would be expensive to replace and beyond the limits of the policy. My wife advised me to purchase umbrella insurance through another insurer company (they were cheaper), which I figured was a smart decision. When it came time for a reimbursement, we still had to pay money. What gives? While we’re back on our feet, isn’t this what umbrella insurance was for?
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A: David, that’s unfortunate to hear. Being involved in the insurance industry, your particular situation is not uncommon at all. While we chalk it up to companies fleecing hardworking Americans, the underlying issue to your problem is diversifying your insurance. While many financial advisors recommend that the secret to riding the fluctuations of inflation, depreciation, and the flux of the stock market is to diversify, for insurance, this is a costly mistake for insurers.
Let’s look at a few reasons why it is disadvantageous to have more than one insurance advisor.
Coverage Gaps: If there’s a minimum period you must be paying premiums before you can be insured, you have what is known as a coverage gap. After that period elapses, you’ll be covered, but not until fulfilling those requirements. Problems begin to occur when you have an auto insurance policy with one company, another agent for umbrella insurance, and another for homeowners insurance. Are you aware of the renewal periods? Umbrella insurance usually will have a minimum limit you MUST have before coverage kicks in. If an accident or loss occurs within the period, you will a) not be covered, and b) still be paying premiums.
Having multiple brokers, agents, and advisors is not only a strategy for a headache, but you also run the risk of buying double insurance. You may be rendering some of your coverage redundant. For example, having liability insurance and property insurance at a 2nd location is extended from primary home owners insurance. You only need to buy insurance for the building itself on 2nd location instead of buying a BRAND NEW Policy that provides the same coverage that is already purchased elsewhere. Why make things more complicated when your insurance responsibility can be consolidated (and often times at a cheaper rate).
The disadvantage of having too many insurers is that not all of the policies are streamlined. Let’s clarify:
Suppose you had 100/300/100 coverage for auto insurance through an agent. Another agent wrote the umbrella insurance policy. However,the umbrella requires car insurance to have a minimum of 300/300/300 coverage. While this might not seem apparent to novice eyes, this is a clear no-no., If the insured was sued for an auto accident with 100/300/100 and an umbrella that kicks in when $300,000 was reached, the auto insurance covers the first $100,000. After that, you pay out of pocket for the remaining 200k , and then the umbrella will pick it up.
Yikes! Looks like the umbrella showed up too late to keep everyone from getting rained on, no?
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