A few days after this last Christmas, I pulled our minivan into our garage. My family had just driven five hours from my parents’ home. We were tired and glad to be back.
In the back of my mind during the drive was the thought of how cold the past week had been. We knew about the low temps ahead of time, so I had taken normal precautions to prevent freezing pipes. Hopefully, that was enough.
When we raised the garage door, we saw water dripping from it as it went up. “Maybe it’s wet from the rain,” we hoped. But there was no rain.
As I got out of the van, I could see water spurting from the ceiling all over our things. The ceiling had fallen in, and the wall was wet. My daughter started crying. We feared major damage ahead.
I went in alone while the others waited outside. Luckily, there was so sign of water in the house. It was confined to the garage. I shut off the water. We called our plumber, and he fixed it the next day.
This ordeal has been merely an inconvenience. My boys and I hauled some ruined stuff to the dump. We made calls to get it dried out and repaired. Others weren’t so fortunate.
The first thing that went through my mind after shutting off the water was, “What’s my coverage?” I was pretty confident we were in good shape, but I remembered we had changes to the water damage coverage after a flooding event from eight years ago.
Following that claim, our deductible for this peril had been increased to $2,500. We elected this change instead of a premium increase. Unlike this one, the previous flooding event was totally my fault.
Another change is the total coverage for water damage was limited to $25,000. While I figured we were OK with this number for this claim, I don’t like this limit going forward. It seems a leak inside could easily cause over $25,000 of damage.
I was reminded of something a disability insurance specialist told me years ago. “When there’s a claim, the only things people care about is how much the check will be and when they’ll get it.” This is exactly what I was thinking as I looked up my policy details.
What we get in return for our premiums is protection from large losses. A secondary benefit is peace of mind. When there’s chaos, even a relatively small ordeal is stressful. Knowing your coverage is solid makes that one less thing to worry about.
Part of my work is helping clients identify risks and transfer them appropriately to insurance companies to avoid large losses of assets or cash flow. While I don’t sell insurance, every good financial plan should address it. I should have been looking more closely at my coverage each time it was renewed. However, life is busy, and I forgot. Fortunately, I won’t pay dearly for it.
I will likely leave the $2,500 deductible alone, but I’m going to increase the upper limit. Insurance’s best use is for catastrophic loss. Shelling out $2,500 stinks, but it won’t ruin us. A big loss would make it tough to recover. For us, this fits our plan. It might not fit yours.
When it’s time to decide how much premium we’ll pay for all kinds of insurance, we need to balance what we want to pay and remember the only things that matter to us when we need the insurance company’s deep pockets: “How much is my check, and when will I get it?”
Does your financial plan address appropriate levels of coverage? Contact us for help.
Allan Phillips is a Certified Financial Advisor (CFP®) and founder of Tree Street Advisory. He works with E-commerce business owners and Physicians who are concerned with issues such as cash flow management, high-earner retirement planning, debt repayment approaches, tax strategies, and business planning.