I’ve got a two topic post today about personal insurance needs and the reinsurance industry. Over the past few weeks I have been working with our insurance provider (Allstate) on a claim for our travel trailer. Here’s a bit of back story on our insurance claim, some advice from professionals on personal insurance, and a look at the reinsurance industry for those who are curious.
The End of the Road: Our Travel Trailer
I have written before about our 26′ travel trailer in a post titled “Mobile Money Pit.” I have had one or two visitors to the blog reason that my experience is not the norm, but I have heard from more and more who have had similar experiences. At the end of 2013 our travel trailer was out on a trip and part of the leading edge of the roof collapsed in transit.
When the trailer made it home I threw a tarp over it and tried not to think about it. (Out of sight, out of mind.) Early in 2014 our insurance agent made his annual call to see how things were going and if we needed to make any adjustments on our policies. In conversation I told him about the trailer and he suggested I file a claim and have an adjuster come out to see if it falls within the coverage of our policy on the travel trailer.
The adjuster came out and within just a few minutes deemed that the damage was covered and that the trailer would most likely be totaled. The front paneling, entire roof, interior structure, and some interior panels would all need replacing. Between the cost of materials and the $150 per hour labor rate of RV repair places, the cost of repairing the trailer would exceed its value. Cutting to the chase, after a very smooth claims process the insurance company sent a wrecker to tow the trailer off and sent a check for the fair market value.
Insurance Suggestions From the Pros
Dave Ramsey calls insurance “ugly but necessary.” Very few people like looking at their insurance policies because they are fairly complex, expensive, and typically bring to mind some of the worst things that can happen in life. But insurance helps to transfer the risk and expense of a worst case scenario. Here are a few suggestions from Dave…
1. Homeowners / Renters Insurance
If you’re an apartment dweller with more than a milk crate for a chair and an old TV you should probably have renter’s insurance. When we had an apartment our policy was around $30 a month and covered the surprisingly high replacement cost of clothes and various other items that quickly add up. And homeowners absolutely need a policy for their property. Homeowner’s insurance covers a wide variety of damages and claims that might happen on your property. Dave says to make sure your policy has guaranteed replacement value for your items.
2. Auto Insurance
You just shouldn’t put the keys in the ignition without auto coverage. Dave suggests making sure you have adequate liability coverage and consider the worth of collision coverage for your particular vehicle. If your insurance agent doesn’t call you annually to see about any policy changes / updates, make it a habit to call them to check for any new discounts. Also, make sure you’re using the best provider for your need. For example, I use Haggerty for insuring my Mustang. They specialize in antique vehicles driven for pleasure only. The insurance rates are minimal on the Mustang because the risk is low.
3. Dave’s Other Suggestions
Dave Ramsey also recommends health, disability, long-term care, identity theft, and life insurance. All of those policies are nice but I’m not sure I would agree that they are all absolutes. Obviously health and life insurance are critical. Make sure to avoid whole life policies. The other policies are great to have in place if your employer provides them, but if you are self-employed they can add up rather quickly. But the bills can add up even quicker if you find yourself disabled without the proper insurance.
4. Jon’s Suggestions
Find an insurance agent you are comfortable with and who has an office staff that will quickly and adequately answer your questions. Look into insurance for any big ticket item, especially if it sits outside. I have low-cost policies on both my trailers that are a part of my auto insurance. In most cases, trailers are covered when hooked to your vehicle but they are not covered when sitting on your property unless they have their own policy. In our litigious society it also might be advisable to look into an umbrella policy that increases your overall coverage by a million dollars or more. Many times these policies cost only a few hundred dollars a year but provide extra coverage and extra settlement expenses in the case of a major claim.
The Reinsurance Industry
The reinsurance industry is a field that fascinates me. Made up of several large institutions, they are the insurance company to the insurance companies. As an example, Allstate might have 1,000 policies with a $1 million policy limit. Worst case scenario those policies represent a $1 billion payout. Allstate might sell a portion of the risk for those policies to a reinsurer that would help pay those costs in the case of catastrophic loss.
Reinsurance is a bigger topic than this post will allow, but it is a fascinating topic. 2013 was a year with light catastrophic claim activity, only $45 billion which is about 20% below the 10 year average according to Aon Benfield. This allowed reinsurers to increase their capital to near record levels which will produce some interesting changes within the industry. It is nice to know that there is a safety net for the safety net.
This topic might be a bit dry for some to consider, but it is nice to know that insurance policies can be easily understood and that we can mitigate the financial impact of risk in our lives.