6 Common Property Insurance Mistakes - You Could Lose Everything

Insurance laws may vary widely from state to state, different kinds of property require specialized coverage, and collections of art, antique cars, and other unique items may be difficult to protect fully.

property insurance

Getting the right property and casualty insurance coverage may not rank high on your list of financial priorities. Compared with investment decisions and estate planning issues, questions about the language in your homeowner's policy, say, may seem hardly worth considering. Yet the more successful you become, the more complicated your asset-protection needs are likely to be—and the more you have to lose.

Suppose, for example, that in addition to your primary residence—a historic home—you also own a house at the beach and a condo in the city. The properties are in three different states. The value of your collection of Abstract Expressionist paintings has grown rapidly. And you just volunteered to serve on the board of directors of a charitable organization.

Almost every aspect of this situation could cost you dearly. Insurance laws may vary widely from state to state, different kinds of property require specialized coverage, and collections of art, antique cars, and other unique items may be difficult to protect fully. Meanwhile, serving on a nonprofit's board could subject you to additional personal liability.

Safeguarding yourself and your family may mean buying additional coverage, but more insurance isn’t necessarily the solution. Rather, it’s important to review all of your needs, consider specialized policies or policy options, and coordinate your coverage with other aspects of your financial situation. Here are 6 different shortcomings that could prove costly.

1. Leaving gaps in homeowners' coverage.

Any homeowner needs to review coverage regularly to keep up with rising replacement costs. However ensuring different kinds of homes in different locales poses extra challenges. If you buy insurance from more than one carrier, you may face contrasting rules, limitations, and policy renewal dates. For example, the liability limit on the policy for a second home might fall below the minimum on an excess liability policy designed to complement the insurance on your primary home. You could wind up responsible for the difference.

2. Ignoring the property's unique characteristics.

One perk of affluence is the means to own exceptional homes; one drawback is that they may be difficult to insure adequately. Standard homeowners coverage won’t pay for the materials and craftsmanship needed to rebuild that 19th-century showplace you’ve painstakingly restored. Coastal homes may face hurricane damage, while a place in the California mountains could be subject to earthquakes or wildfires. Meanwhile, city co-ops or condos may need policies tailored to their buildings or associations coverage.

3. Under-insuring art and collectibles.

Standard homeowners policies limit coverage for the losses of antiques, furs, and other valuables. While you could schedule additional coverage, ensuring the real value of a collection of contemporary art or vintage muscle cars likely will require a specialized policy addressing several critical issues. How is the value of the collection determined? (You’ll need a professional appraisal when the policy is designed, with frequent updates as items appreciate.)

Will a damaged or destroyed item be paid for with cash, or will you be required to have it replaced or restored? Will additions to your collection automatically be covered?

4. Forgetting to insure household employees.

When someone works for you or your family, as a nanny, landscaper, personal assistant, or in another role, you could be liable for medical expenses and lost wages if the worker is hurt on the job. Several states require household employers to pay into a worker's compensation fund, while in other states it’s optional, but providing such insurance may be mandatory for ensuring your financial well-being. If an employee drives your car, also make sure he or she is included in your policy.

5. Neglecting your liability as a board member.

Excess liability coverage could help protect you if you’re sued as a director of a nonprofit's board. Or for more comprehensive protection, you may want to consider special directors and officers liability insurance.

6. Failing to get frequent policy reviews and updates.

Your financial life isn’t static, and neither are your insurance needs. The value of a collection may increase; extensive home renovations could mean a sharp rise in the value of your property; and the re-titling of assets as part of your estate plan—or because of divorce, a death in the family, or the birth of a child—could necessitate policy changes. Even lacking major events, you probably need a comprehensive review of all your insurance coverage at least every two years.

6 Common Property Insurance Mistakes - You Could Lose Everything

7 Things Seniors (and Everyone Else) Should Know About FDIC Insurance

How much does the FDIC insure your savings for?

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Older Americans put their money… and their trust… in FDIC-insured bank accounts because they want peace of mind about the savings they've worked so hard over the years to accumulate. Here are a few things senior citizens should know and remember about FDIC insurance.

1. The basic insurance limit is $100,000 per depositor per insured bank.

If you or your family has $100,000 or less in all of your deposit accounts at the same insured bank, you don't need to worry about your insurance coverage. Your funds are fully insured. Your deposits in separately chartered banks are separately insured, even if the banks are affiliated, such as belonging to the same parent company.

2. You may qualify for more than $100,000 in coverage at one insured bank if you own deposit accounts in different ownership categories.

There are several different ownership categories, but the most common for consumers are single ownership accounts (for one owner), joint ownership accounts (for two or more people), self-directed retirement accounts (Individual Retirement Accounts and Keogh accounts for which you choose how and where the money is deposited) and revocable trusts (a deposit account saying the funds will pass to one or more named beneficiaries when the owner dies).

Deposits in different ownership categories are separately insured. That means one person could have far more than $100,000 of FDIC insurance coverage at the same bank if the funds are in separate ownership categories.

3. A death or divorce in the family can reduce the FDIC insurance coverage.

Let's say two people own an account and one dies. The FDIC's rules allow a six-month grace period after a depositor's death to give survivors or estate executors a chance to restructure accounts. But if you fail to act within six months, you run the risk of the accounts going over the $100,000 limit.

Example: A husband and wife have a joint account with a "right of survivorship," a common provision in joint accounts specifying that if one person dies the other will own all the money. The account totals $150,000, which is fully insured because there are two owners (giving them up to $200,000 of coverage).

But if one of the two co-owners dies and the surviving spouse doesn't change the account within six months, the $150,000 deposit automatically would be insured to only $100,000 as the surviving spouse's single-ownership account, along with any other accounts in that category at the bank. The result: $50,000 or more would be over the insurance limit and at risk of loss if the bank failed.

Also, be aware that the death or divorce of a beneficiary on certain trust accounts can reduce the insurance coverage immediately. There is no six-month grace period in those situations.

4. No depositor has lost a single cent of FDIC-insured funds as a result of a failure.

FDIC insurance only comes into play when an FDIC-insured banking institution fails. Fortunately, bank failures are rare nowadays. That's largely because all FDIC-insured banking institutions must meet high standards for financial strength and stability.

But if your bank were to fail, FDIC insurance would cover your deposit accounts, dollar for dollar, including principal and accrued interest, up to the insurance limit. If your bank fails and you have deposits above the $100,000 federal insurance limit, you may be able to recover some or, in rare cases, all of your uninsured funds. However, the overwhelming majority of depositors at failed institutions are within the $100,000 insurance limit.

5. The FDIC's deposit insurance guarantee is rock solid.

As of mid-year 2005, the FDIC had $48 billion in reserves to protect depositors. Some people say they've been told (usually by marketers of investments that compete with bank deposits) that the FDIC doesn't have the resources to cover depositors' insured funds if an unprecedented number of banks were to fail. That's false information.

6. The FDIC pays depositors promptly after the failure of an insured bank.

Most insurance payments are made within a few days, usually by the next business day after the bank is closed. Don't believe the misinformation being spread by some investment sellers who claim that the FDIC takes years to pay insured depositors.

7. You are responsible for knowing your deposit insurance coverage.

Know the rules, and protect your money.