My neighbor is an attorney who quit practicing at a large downtown firm to start his own law practice from his home. Actually, he is using his detached garage as a makeshift office and the fact that he's using the detached garage as his office is significant.
If he instead chose to work from his spare bedroom, his current home insurance policy wouldn't have any heartburn with the fact that he's running his office from home. In fact, if he worked anywhere inside the confines of his home his insurance policy would work just the same as if he didn't work from home.
But what he didn't understand is that because he is working from his detached garage, the entire policy coverage for the garage would have been completely wiped out if it was damaged by fire, wind, etc! So if his detached garage burned, there would be no coverage to rebuild the garage. It has to do with a little-known exclusion taking away coverage to detached structures that are used for any business venture (by the way, a court ruling many years ago found that even storing boxes of files in a detached structure was enough for an insurance company to invoke this exclusion!).
Thankfully, because he and I talked about his new business we made a slight change to his policy which gave back coverage to his detatched garage for use as an office. Every policy and every situation is different, but the point is that he wanted to pursue his dream of running his business from home and because he brought it to our attention, we were able to help him reduce his worry about his insurance so that he could focus on building his practice.
Monday, June 28, 2010
Friday, June 25, 2010
Free Car! Free Car!
I am so jealous of my friend, Matt. He is region VP of an investment management company and because he travels so much, he is provided a company car. And his company is so cool, they have no problem with him or his wife using it for personal/family business. So basically, he and his wife get the use of a free car. Awesome!
What Matt didn't know is that his company's auto insurance policy would only extend coverage to Matt personally if he were using the car on business. So if his wife was driving the car or if Matt was using it for personal business and they caused an accident, he wouldn't get fired, but he also wouldn't have any insurance coverage for the injury caused someone else!
So then most people would think "okay, no problem, I will just use my own personal auto insurance to protect me". But they'd be wrong. Most policies have a significant exclusion removing liability coverage for autos you regularly have access to but are not owned by you. So that company car sitting in the driveway that you don't insure because your business does? Not covered by your policy!
But there is some good news. All it takes to correct this potentially catastrophic problem is an agent who takes the time to understand all the risks a family faces and then endorsement on the auto policy that will cost between $2 and $4 per month to give back coverage for the use of a car you don't own. And now we all make Matt drive when we go out to dinner.
What Matt didn't know is that his company's auto insurance policy would only extend coverage to Matt personally if he were using the car on business. So if his wife was driving the car or if Matt was using it for personal business and they caused an accident, he wouldn't get fired, but he also wouldn't have any insurance coverage for the injury caused someone else!
So then most people would think "okay, no problem, I will just use my own personal auto insurance to protect me". But they'd be wrong. Most policies have a significant exclusion removing liability coverage for autos you regularly have access to but are not owned by you. So that company car sitting in the driveway that you don't insure because your business does? Not covered by your policy!
But there is some good news. All it takes to correct this potentially catastrophic problem is an agent who takes the time to understand all the risks a family faces and then endorsement on the auto policy that will cost between $2 and $4 per month to give back coverage for the use of a car you don't own. And now we all make Matt drive when we go out to dinner.
Wednesday, June 23, 2010
My Sister-in-law's Cabin
My sister-in-law and her family own a very nice waterfront home on my favorite spot on the planet - Flathead Lake in Montana. We get to visit and stay there for a week every summer and it is one the highlights of our year as a family.
Their home was originally built back in the 1980s and is one of the few homes built literally right on the beach. This is a rarity because in the years following the construction of this home the building ordinances and the environmental restrictions have changed to prohibit any other new home from being built so close to the water. So not only do we get to enjoy the benefit of being on the water's edge, but my sister-in-law gets a slight boost to her home's market value because of this rarity.
But there's a risk to her because of her home's uniqueness. If her home should be destroyed by fire she would not be able to obtain the permits to rebuild her home as it is now because of those changed building codes! And because of the hillside that sits immediately behind the home, the cost to excavate, grade, and shore-up the land in order to rebuild farther back from the water (and meet current codes) would be extremely expensive (an extra few hundred thousand dollars worth)!
Fortunately, we discovered this in our risk review for her and we developed a plan to help reduce her out-of-pocket exposure to these potentially huge extra costs. In her case we worked with a contractor to asses the potential added cost to reconstruction and then added more Ordinance & Law coverage to her home insurance policy. And because this huge potential cost was no longer the same threat to their financial position, it allowed them the comfort to invest in a total remodel of their home just as they always wanted!
Taking care of this risk gave her family the freedom to do something else with their money.
Their home was originally built back in the 1980s and is one of the few homes built literally right on the beach. This is a rarity because in the years following the construction of this home the building ordinances and the environmental restrictions have changed to prohibit any other new home from being built so close to the water. So not only do we get to enjoy the benefit of being on the water's edge, but my sister-in-law gets a slight boost to her home's market value because of this rarity.
But there's a risk to her because of her home's uniqueness. If her home should be destroyed by fire she would not be able to obtain the permits to rebuild her home as it is now because of those changed building codes! And because of the hillside that sits immediately behind the home, the cost to excavate, grade, and shore-up the land in order to rebuild farther back from the water (and meet current codes) would be extremely expensive (an extra few hundred thousand dollars worth)!
Fortunately, we discovered this in our risk review for her and we developed a plan to help reduce her out-of-pocket exposure to these potentially huge extra costs. In her case we worked with a contractor to asses the potential added cost to reconstruction and then added more Ordinance & Law coverage to her home insurance policy. And because this huge potential cost was no longer the same threat to their financial position, it allowed them the comfort to invest in a total remodel of their home just as they always wanted!
Taking care of this risk gave her family the freedom to do something else with their money.
Is My Insurance Portfolio Good? - Part 2
There are three areas where we find the most problems with peoples' insurance portfolios. One of those is the limit of insurance people choose on their home insurance policy. In at least 7 out of 10 policies that we review we feel that consumers do not have enough insurance to rebuild their home.
Think of your Dwelling Limit as being the amount of money your insurance company will pay to repair/rebuild your home if it is damaged by a loss covered by the policy. It is easy to project what would happen if you ran out of insurance money before your home was fully rebuilt!
It seems to us that most people don't choose enough coverage on their home insurance for the following reasons:
1. They confuse market value with the reconstruction value. This is especially dangerous at a time like this when market values have dropped, but we aren't convinced that the costs to rebuild homes have dropped in a corresponding fashion.
2. They rely too much on another insurance agent's suggestion of a Dwelling limit without that agent having ever see their home.
3. They fell victim to an agent who wanted to write the insurance policy so badly that they drove down the Dwelling limit in order to shrink the premium. Yikes!
4. They have had the same policy for many years without ever having an updated review based on today's construction cost realities.
This is another example of the danger of putting insurance ahead of risk management. If you jump right into buying home insurance and choosing a limit of coverage on your house based on no assessment of your risk, then you might be unintentionally choosing to have your home rebuilt without the kitchen, or having to liquidate your IRA to help pay for the job to be completed.
Imagine instead having the confidence that you have a legitimate amount of insurance on your home, giving you the freedom to put more of your other investments to better use than reserving them to pay for a partial home rebuild.
Think of your Dwelling Limit as being the amount of money your insurance company will pay to repair/rebuild your home if it is damaged by a loss covered by the policy. It is easy to project what would happen if you ran out of insurance money before your home was fully rebuilt!
It seems to us that most people don't choose enough coverage on their home insurance for the following reasons:
1. They confuse market value with the reconstruction value. This is especially dangerous at a time like this when market values have dropped, but we aren't convinced that the costs to rebuild homes have dropped in a corresponding fashion.
2. They rely too much on another insurance agent's suggestion of a Dwelling limit without that agent having ever see their home.
3. They fell victim to an agent who wanted to write the insurance policy so badly that they drove down the Dwelling limit in order to shrink the premium. Yikes!
4. They have had the same policy for many years without ever having an updated review based on today's construction cost realities.
This is another example of the danger of putting insurance ahead of risk management. If you jump right into buying home insurance and choosing a limit of coverage on your house based on no assessment of your risk, then you might be unintentionally choosing to have your home rebuilt without the kitchen, or having to liquidate your IRA to help pay for the job to be completed.
Imagine instead having the confidence that you have a legitimate amount of insurance on your home, giving you the freedom to put more of your other investments to better use than reserving them to pay for a partial home rebuild.
Tuesday, June 22, 2010
What If? vs. Why Not?
In the movie Along Came Polly, Ben Stiller's character is an actuary/risk expert who is consumed with worry over all the "What If" scenarios in life. And until Polly came along, his life was inhibited by his attitude of fear. For the movie's benefit Ben Stiller's portrayal is obviously a caricature of what most would associate is the risk/insurance professional's attitude and personality.
But we believe good risk management presents the opportunity to have a completely opposite view of the world. Good attitudes toward managing risk means you get to pursue the ideas and wishes you have in your head without the same worry as if you had no "fall-back" position.
Think of your wildest dream and ask yourself why you aren't living it right now. Now suppose that you could take one of those excuses and wipe it away because you planned for it. Now suppose you took the next excuse and planned for it, too. And suppose you kept repeating that kind of planning until you ran out of excuses. Would you then pursue your dream? Would you then be asking "Why Not" instead of "What If"?
Risk management is the license to DO. We aren't saying that every obstacle can be wiped away easily, but we do strongly believe that many people assume that there are no options available to mitigate the risk and consequence of failure, so they don't even try. Fear of failure is normal and healthy, but if you only dream big and don't live big, you might be missing out.
So we advocate listing the excuses for not doing more of what you want and then let us see if we can help wipe them away with a risk management plan. Maybe we can, maybe we can't, but why not give it a shot? Any caveman can sell you insurance, but only your friend can help you live more happily.
But we believe good risk management presents the opportunity to have a completely opposite view of the world. Good attitudes toward managing risk means you get to pursue the ideas and wishes you have in your head without the same worry as if you had no "fall-back" position.
Think of your wildest dream and ask yourself why you aren't living it right now. Now suppose that you could take one of those excuses and wipe it away because you planned for it. Now suppose you took the next excuse and planned for it, too. And suppose you kept repeating that kind of planning until you ran out of excuses. Would you then pursue your dream? Would you then be asking "Why Not" instead of "What If"?
Risk management is the license to DO. We aren't saying that every obstacle can be wiped away easily, but we do strongly believe that many people assume that there are no options available to mitigate the risk and consequence of failure, so they don't even try. Fear of failure is normal and healthy, but if you only dream big and don't live big, you might be missing out.
So we advocate listing the excuses for not doing more of what you want and then let us see if we can help wipe them away with a risk management plan. Maybe we can, maybe we can't, but why not give it a shot? Any caveman can sell you insurance, but only your friend can help you live more happily.
Monday, June 21, 2010
Is My Insurance Portfolio Good? Part 1
How do you know if your insurance portfolio is what is should be? What if you are underinsured in some really critical area, or are totally wasting your money buying insurance in an area that is unnecessary?
We have lots of advice to give because a big part of our job is answering the question, "Is my insurance all that it should be?". We begin with posing these questions:
1. How involved were you in choosing your current limits of insurance?
2. How did you decide between your coverage options?
3. Could you summarize some of the major claims that would NOT be covered by your insurance?
4. How often do you conduct a complete risk and insurance review?
5. How did you decide on your deductibles?
We have yet to find a consumer who can answer these questions with:
1. Very.
2. After thorough research, counsel, and discussion.
3. Definitely.
4. Annually, and as needed when things and circumstance with people whom we love change.
5. After determining our risk appetite, our cash reserve position, and comparing the premium savings with the intentional level of self-insurance.
Instead, our clients typically respond with "Uh...will you just do this for me?". Absolutely!
We have lots of advice to give because a big part of our job is answering the question, "Is my insurance all that it should be?". We begin with posing these questions:
1. How involved were you in choosing your current limits of insurance?
2. How did you decide between your coverage options?
3. Could you summarize some of the major claims that would NOT be covered by your insurance?
4. How often do you conduct a complete risk and insurance review?
5. How did you decide on your deductibles?
We have yet to find a consumer who can answer these questions with:
1. Very.
2. After thorough research, counsel, and discussion.
3. Definitely.
4. Annually, and as needed when things and circumstance with people whom we love change.
5. After determining our risk appetite, our cash reserve position, and comparing the premium savings with the intentional level of self-insurance.
Instead, our clients typically respond with "Uh...will you just do this for me?". Absolutely!
Less Worry. More Happy
It isn't a slogan, it's a purpose. Life is short and it feels like families spend more energy fighting the pressures of time, money, and relationships than they do enjoying the time, money, and relationships that they do have.
We certainly share the common wish that we'll get more of what we want tomorrow than what we have today. That's why we work hard and plan for our futures. But we'd be missing out if we also didn't pay close attention to making the most of today's opportunities.
In our business we provide families with comfort and peace of mind. Whether it's considered a moat of financial protection, or a backstop to life's events, or a brake to prevent a backwards slide in a down market, what we care most about is giving families the freedom to stop thinking about the bad stuff and giving them the license to think more positively about what they have and what they can give to others.
It is our opinion that THAT is what constitutes the real advantage of having a good risk management plan - having the freedom to do and to give.
We certainly share the common wish that we'll get more of what we want tomorrow than what we have today. That's why we work hard and plan for our futures. But we'd be missing out if we also didn't pay close attention to making the most of today's opportunities.
In our business we provide families with comfort and peace of mind. Whether it's considered a moat of financial protection, or a backstop to life's events, or a brake to prevent a backwards slide in a down market, what we care most about is giving families the freedom to stop thinking about the bad stuff and giving them the license to think more positively about what they have and what they can give to others.
It is our opinion that THAT is what constitutes the real advantage of having a good risk management plan - having the freedom to do and to give.
Wednesday, June 16, 2010
It's NOT Insurance. It's Risk Management. Here's the Difference
I wouldn't describe my doctor's job as "prescribing medications". I do, however, think that he has worked over the years to understand my exercise habits, my diet, my family medical history, and my attitude toward different methods of treatment. Because of the work he's put toward getting to know me, I think of my doctor as a my body's consultant for maintaining a user-friendly lifestyle.
We don't consider our job to be "selling insurance". Throughout the years we've aimed to understand what our clients love, how they live, and what their attitudes are about risk. We place a high level of importance on being our clients' financial consultant for maintaining a less-worry lifestyle.
We don't consider our job to be "selling insurance". Throughout the years we've aimed to understand what our clients love, how they live, and what their attitudes are about risk. We place a high level of importance on being our clients' financial consultant for maintaining a less-worry lifestyle.
Tuesday, June 15, 2010
Proactive Risk Management
It seems to us that most financial planners care a great deal about building great castles for their clients. Minding good investment strategies, navigating complex tax issues, and creating wealth transfer strategies are all critical elements in building strong financial houses. But really, how much attention do investment-minded planners pay to the moats around these castles?
Your current and future financial stability (and capability) is under constant threat from a variety of risks. Some are sudden and accidental, others are more long-term and preventable. Either way, worrying about what might interfere with your financial plans is just as important as having the plans in the first place.
Proactive risk management is the process of devising a plan that fits with your overall financial position to help defend your castle against unpredictability. This is what we do - build moats.
Your current and future financial stability (and capability) is under constant threat from a variety of risks. Some are sudden and accidental, others are more long-term and preventable. Either way, worrying about what might interfere with your financial plans is just as important as having the plans in the first place.
Proactive risk management is the process of devising a plan that fits with your overall financial position to help defend your castle against unpredictability. This is what we do - build moats.
Safeco Auto Insurance Offers 12-mo Policies
Most insurance companies offer auto insurance policies with six-month policy periods. This means that every six months your auto insurance renews and you are sent new policy ID cards, your rates change (potentially), and you have more paperwork to file.
Safeco still offers the six-month policy, but they now also offer 12-month policy periods on their auto insurance. If this interests you let us know and we can take care of that for you.
Safeco still offers the six-month policy, but they now also offer 12-month policy periods on their auto insurance. If this interests you let us know and we can take care of that for you.
Monday, June 14, 2010
Referral Appreciation Program
We do no advertising and instead rely exclusively on referrals from our existing clients. This is because we want more clients like the ones we already have! So when one of our clients is nice enough to recommend us to someone, we want to be sure to acknowledge this incredible gift with a small token of our appreciation.
So if you refer a friend, here is what happens:
1. We will ask how they heard about us.
2. We will send you a $5.00 gift card and a thank-you.
3. We will add $5.00 to our monthly-designated local non-profit donation.
4. Your name will be entered into a monthly drawing.
5. Your name will be entered into an annual drawing.
June's local non-profit is the Issaquah Food Bank. June's monthly drawing is a $50.00 gift card. Thank you so much for all of your referrals. It is the nicest thing you can do for a small business!
So if you refer a friend, here is what happens:
1. We will ask how they heard about us.
2. We will send you a $5.00 gift card and a thank-you.
3. We will add $5.00 to our monthly-designated local non-profit donation.
4. Your name will be entered into a monthly drawing.
5. Your name will be entered into an annual drawing.
June's local non-profit is the Issaquah Food Bank. June's monthly drawing is a $50.00 gift card. Thank you so much for all of your referrals. It is the nicest thing you can do for a small business!
Real agents vs. fake insurance salespeople
If I didn't think families were being harmed, I would have a small amount of admiration for insurance companies like Progressive and GEICO. They spend literally BILLIONS of dollars on advertising trying to convince consumers that insurance is all about premium and "discounts". And they are successful at it! Why do they do this? Because they have no real ability to provide three things that agents do:
1) Leadership
2) Relationship
3) Creativity
And because they can't compete with real expertise, they create fake people like Flo, the gecko, and cavemen to convince people that insurance isn't really that important. Their ads are witty, and their message is well-veiled behind the entertainment value; don't consider insurance important for your family, just follow our yellow brick road to the magical land of cheap and easy.
All this is fine until you actually need what you spend a lot of money on. Just wait until you have a loss and then be prepared to bear the consequence of following a caveman's "advice". Your prehistoric coverage might send you and your finances back to the stone age.
1) Leadership
2) Relationship
3) Creativity
And because they can't compete with real expertise, they create fake people like Flo, the gecko, and cavemen to convince people that insurance isn't really that important. Their ads are witty, and their message is well-veiled behind the entertainment value; don't consider insurance important for your family, just follow our yellow brick road to the magical land of cheap and easy.
All this is fine until you actually need what you spend a lot of money on. Just wait until you have a loss and then be prepared to bear the consequence of following a caveman's "advice". Your prehistoric coverage might send you and your finances back to the stone age.
Friday, June 11, 2010
Home Insurance Deductibles
Many people are amazed at how far their premium falls when increasing their home insurance deductible from $500 to $1,000. If you can afford to cover the first $1,000 of any covered loss, you'd be wise to see how much smaller your premium would be if you made that change to your policy. And since insurance is best applied toward covering the losses you can't afford otherwise, it makes sense to keep your own dollar and not send as much to the insurance company!
Our blog, version 2.0
If you're looking for our old blog posts, find them by visiting mechelseninc.typepad.com. Going forward we'll be using this site as the place where we share information about the insurance issues facing families and individuals.
We also have new Twitter and Facebook accounts where we can communicate with you.
twitter.com/darmcg
search Mechelsen, Inc. on Facebook
We also have new Twitter and Facebook accounts where we can communicate with you.
twitter.com/darmcg
search Mechelsen, Inc. on Facebook
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