6 Common Property Insurance Mistakes - You Could Lose Everything

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 been overgrown. 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. Instead, it's essential 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 six 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. But ensuring different kinds of homes in other 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 residence. You could wind up responsible for the difference.

2. Ignoring property's unique characteristics. One perk of affluence is owning exceptional homes; one drawback may be challenging to ensure adequate. 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 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. And while you could schedule additional coverage, ensuring the actual 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 group determined? (You'll need a professional appraisal when the policy is designed, with frequent updates as items are appreciated.) 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. In contrast, it's optional in other states, but providing such insurance may be mandatory for ensuring your financial well-being. If an employee drives your car, also make sure they are 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 notable 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 retitling 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 significant events, you probably need a comprehensive review of all your insurance coverage at least every two years.