Ep 269: The Necessary Evil

Quick question.

When you think about financial planning, what do you think about?

I bet you probably think about something that resembles last week's episode, like, should I buy SpaceX?

If I buy a little bit of SpaceX, am I going to end up rich and wealthy?

And yes, we should ask some of these questions.

But some of the things that we also need to be looking at with our financial planning are boring, are not fun, but they protect us.

So today we're talking about insurance.

We're going to help you to do an insurance audit on your life and make sure that most of your gaps are protected.

My name is David Chudick.

This is the Weekly Wealth Podcast.

And here we go.

Welcome to the Weekly Wealth Podcast.

I am certified financial planner David Chudick.

This podcast and my wealth management practice are both designed to help the mass affluent to live better lives by how.

They handle their money.

We talk about financial strategies, prosperous mindsets, and simply how to build true wealth.

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All right, so this week we're talking about insurance.

A lot of times it's referred to as, like, a necessary evil.

And I get it.

I don't even like paying for my own insurance.

Now, in addition to my work as a financial advisor, I also own a property and casualty insurance agency.

So the guy who owns an insurance agency, he doesn't like.

He doesn't like paying for his insurance.

So I can understand why you might have some misconceptions about your insurance.

Now, insurance is largely a set it and forget it industry.

You buy a policy, you get a renewal, you complain that the price went up, you pay it, and you move on.

Typically, your agent isn't calling you every year to say, hey, you made a lot more money last year.

Let's revisit your liability coverage.

That's just not how most of it works.

And the result is that most people are carrying policies that were designed for who they were, not for who they are.

So you bought a homeowner's policy when the house was worth $400,000.

Now it's worth $700,000.

And you've also done $150,000 renovation.

Did you tell your insurance carrier about the renovation?

Do you know the difference between market value and reconstruction value?

So these are a lot of things that we should be thinking about that can help us to fill the gaps of your insurance coverage.

And, and, you know, I love the business owners.

Did you start your business five years ago with two employees and now you have 12?

Did your general liability and workers comp get updated accordingly?

Sometimes, often not.

What about your life insurance?

You got a life insurance policy when you're in your 30s and your net worth was a fraction of what it is now.

Does that still match your need?

Rarely.

Rarely does it.

So this isn't about blame.

This is about a system that doesn't naturally prompt you to revisit these things.

And you, you know, many financial advisors, they have almost no desire to talk about your property and casualty insurance.

So it's not their expertise, it's not what's in their wheelhouse, but it's something that's very, very important.

So today I'm going to walk you through this, because an annual insurance audit should be as normal as filing taxes.

It's just not talked about that way.

Let's talk about overpaying on insurance or what you think might be overpaying.

But I want to introduce a concept to you that's very important.

Okay?

So let's think about it this way.

Insurance simply protects your money.

Nothing more, nothing less.

So let's say you're driving your car and you run a stop sign and you hit me and I have an injury.

Maybe I have a very bad injury and I'm in the hospital for months and months.

Well, somebody is going to pay for my injuries.

It's either going to be you or it's going to be your insurance company.

So wouldn't you rather it be your insurance company instead of you?

Okay, so that's the first thing a lot of people say.

Their car insurance protects their car.

Their home insurance protects their home.

No, your home insurance protects your money.

Because if your house burns down and you have to build a new one and pay for it, that's coming from your money.

All right?

So let's think about it that way.

Now let's also think about the cost of insurance and the concept of expensive insurance.

The most expensive policy, and listen to this very carefully, is the policy that doesn't do what you thought it should do at the time of claim.

Okay?

So the policy that doesn't do what you thought it would do at time of claim is the most expensive policy.

So Sometimes people say, well, I have car insurance, but they might have what in my state is minimum liability limits, which is $25,000.

So that would give $25,000 towards any one person's injuries if they cause that much damage.

Now, I don't know if you've been in the hospital or if you' seen medical bills, but $25,000 covers maybe a couple hours in the emergency room.

So, yes, in that case, you would have car insurance, but no, more than likely it's not adequate to protect your wealth.

Now, with that being said, let's look at some places where you might be carrying coverage that just isn't worth it.

Okay?

So part of your car insurance that pays for your vehicle if it's damaged is called physical damage, and that would be compreh and collision.

Now, if you have a car that's worth, I don't know, $6,000 per year, and maybe the collision or comprehensive portion of it.

So let's say you're doing the wise thing and you own a car, it's paid off, it's not super flashy, but it's not worth a tremendous amount of money.

All right?

That's what a lot of smart financial people do.

Now, in this case, maybe you should talk to your insurance agent and say, hey, if I decide to retain the risk of the vehicle, meaning that maybe I remove comprehensive, maybe I remove collision, and if I hit a deer, I'll just pay for the vehicle to get repaired.

If I my vehicle gets stolen, I'll just pay for it to be replaced.

Okay?

Sometimes it makes sense, and you'll save enough money on your insurance to justify removing those coverages.

Okay?

So it's important to make decisions based on facts, not making decisions based on what you think the facts are.

So step number one is to look at your comprehensive and collision coverage on old vehicles.

Talk to your insurance agent and see how much money it would save you if you remove those coverages and determine if it makes sense to either retain that risk or to keep it transferred to the insurance company.

Now, on your home insurance, some places where you might be able to save money is let your insurance company know if you've done any updates to the home.

So if you've done any major electrical updates, plumbing updates, roofing updates, things like that, oftentimes there are discounts that you can have.

Then also, many carriers give discounts if you have more than one type of policy with them.

So maybe you have home insurance and auto insurance with the same company if you bundle.

Oftentimes there is A bundle.

There's a bundle discount.

So again, work with a great local independent insurance agent.

Know where your discounts are.

Now another place where you can potentially save money.

And again, this one gets complicated.

There are a lot of different factors, but when you're using whole life or, oh, don't even get me started, a properly structured index universal life policy.

The people on Instagram and TikTok that talk about those drive me nuts.

But when you're using those as a savings vehicle, oftentimes it just maybe doesn't make sense.

There are times where buy term and invest the difference just will get you much better numbers.

So if you have a permanent life insurance policy and you've never had someone walk you through the actual illustrated returns against your alternative, that's worth doing.

Now, where have I seen people dangerously underinsured?

Well, the first one is if you have no umbrella policy or one that's too small.

So this is the single biggest miss that we'll see.

An umbrella policy sits on top of your home and your auto liability coverage and picks up where those leave off.

So we're talking an extra million, 2 million, $5 million of liability protection.

And here's the thing, umbrella policies are typically very cheap.

An umbrella policy can run a couple hundred bucks a year.

You know, 150, 300, $500, something like that.

Now, it's going to be based on your underlying exposures, but you want to make sure that you are carrying enough liability insurance.

Because remember, what does insurance do?

It protects your money.

So if you're driving your car and if you run a stop sign and hit me again, and if me to have a million and a half dollar medical bill, your car insurance typically does not have that much liability.

And then your umbrella would kick in.

So why don't more people have umbrella policies?

Well, it's because nobody asks them about them.

It doesn't feel urgent until you need it.

And because there's that underlying attitude that insurance is, quote, a necessary evil.

But now every dollar that we have and every dollar we ever will have is really riding on the front of our car.

So a missed stop sign, maybe being blinded by the sun, and pulling out in front of anything in front of somebody, all of those things in an instant can cause large, large lawsuits.

And we need to be aware of that.

So if you have meaningful net worth, you need an umbrella policy, period.

Call your insurance agent, tell them you want an umbrella policy, and then also ask them, hey, you know what?

I'm counting on you to protect me.

Why did you never Suggest that I get an umbrella policy.

It's really an inexpensive policy and a lot of coverage.

All right?

So umbrella policies, make sure you have one.

Call your insurance agent and get one today.

Now, life insurance is another place where people may be underinsured.

You know, you talk to people all the time and they're like, yeah, I have life insurance.

You know, I had a $50,000 policy back when I was 25.

Okay, well that's great.

That's better than nothing.

But now you're 40 and you're making $350,000, and if you die, your family not only loses you, but they lose your paycheck.

Well, yeah, but I have life insurance, right?

Well, yeah, you have $50,000 of life insurance, so that's not going to do that much to maintain your lifestyle.

So do a life insurance audit.

A really general standard rule of thumb is 10 times income.

That's a starting point, not an end point.

But the real number depends on your debts, your dependents, your business obligations, and maintaining your family's lifestyle and what that actually costs.

People will say, how much life insurance do I need?

And the answer really is, you don't need any life insurance.

It's not required by law.

So what do you want?

Work with a great insurance agent or your financial advisor and talk about some of the things that you might want.

Maybe you would want your family to be able to pay off the house.

Maybe you would want a bucket of money that's big enough to spit off 100, 200, $300,000 a year for five years or 10 years or indefinitely.

Then you can work backwards.

You can determine how much life insurance you need and you can go from there.

So don't just say, I have life insurance.

Make sure that you have the right amounts and the right types of life insurance.

Now, you know, I love the business owners and we need to talk about the business owners.

Let's talk about some general areas that business owners can be underinsured.

So one of the first one is no cyber liability coverage.

Cyber liability is a fastest growing risk category for small and mid sized businesses.

A single breach.

Client data, financial records, ransomware that can generate costs that dwarf your general liability limit.

Most liability policies don't cover cyber.

It's a separate policy and most business owners don't have it.

So ask your commercial insurance carrier about cyber liability insurance.

Oftentimes it comes with some training and they'll help you to take the steps that will give you a better chance of not needing it, which is a great thing.

But cyber liability Insurance oftentimes is not very expensive.

What about E and O insurance?

That's errors and omissions.

If you provide any kind of professional service and a client claims your advice or work caused them to have financial harm, your general liability won't protect you.

EO errors and omission is a coverage built for that exposure.

I'm always surprised how many professional service businesses are operating without it.

And here's one more place where a lot of people, business owners and employees, they forget, and that's disability insurance.

So your most valuable asset is going to be your paycheck, right?

It's your ability to earn income.

And most people have almost no protection for it.

So Social Security disability is much harder to qualify for than most people realize.

And it pays far less than most people assume.

Group disability through your employer typically replaces 60% of your income and stops if you leave the company.

So for business owners, group coverage usually doesn't even apply.

A private disability policy that protects your income if you can't do a specific job is called own occ.

OWN occupation coverage.

That's one of the most important and neglected pieces of a financial plan.

And the longer you wait to get it, the more expensive it gets.

And sometimes it gets impossible to get.

All right, the annual insurance audit.

Like, what should you actually do?

You've probably been listening and saying, yeah, I kind of need to look at an umbrella.

I'm not sure if I have one or if it's big enough.

And yeah, I've been thinking about disability insurance, but I just.

It's hard to do.

So let's give you something actionable.

So once a year, maybe around your birthday or your business anniversary or maybe even tax season, let's do an insurance audit.

So let's pull every policy you have.

That's your home, your auto, your life, your disability, your business, everything.

If you have more than one agent, that's fine.

But you need one person looking at the full picture at least once.

That might be your financial advisor.

If I'm your financial advisor, financial advisor, I have the expertise to do this.

Many financial advisors don't.

It might be a single agent you trust, but you need somebody to see it all.

Now, step number two is going to be to match your coverage to your current reality.

So has your net worth grown significantly?

Your liability limits need to grow with it?

Has your home been renovated or appreciated dramatically?

Are building costs much higher then your dwelling coverage may need to keep in pace?

Have you added new employees, new revenue, new services to your business?

Your business coverage need to reflect that, don't forget, if you're a business owner, if your exposure changes, which means that you're doing different things, you need to let your insurance company know so that they can adjust adequately.

All right, so then let's check for some gaps on your umbrella policy.

Do you have one?

Is it large enough?

Disability insurance, does it replace income for long enough?

And does it replace enough income?

Your life insurance, does your coverage match your current financial picture?

Your business owners?

Do you have key person insurance?

Cyber eo?

Do you have all?

Do you have duplicate or outdated coverage?

Is there anything on autopay that no longer makes sense?

And then make sure your advisor knows all that you have.

This is one that gets skipped the most.

Your financial advisor should know your insurance picture.

Your insurance agent should know your financial picture.

In reality, those two conversations almost never happen unless you have someone who brings both.

That's not a plug for me, although it is an advantage of working me.

With me, it's a structural problem in the industry.

Insurance and wealth management are treated as separate silos.

But your risk exposure and your asset protection strategy are and should be in the same conversation.

They should be talked about together.

So here's where I want to land the plane on this.

No, insurance is not exciting, but it actually is a little bit more interesting than you would think.

I've had people working in my office and said, wow, you know, like, insurance is pretty cool.

I never thought it would be interesting, but nobody admittedly wakes up on a Saturday morning saying, yes, I'd like to go review my umbrella policy, or I want to go get an umbrella policy.

I get it.

It's not the most intriguing topic, but I've sat across from enough people who had something go wrong.

They had a lawsuit, a disability, a fire, a business crisis, and they found out too late that their coverage didn't match their life.

And I can tell you with certainty that it's a worse conversation.

The audit that I described takes a couple of hours.

It might have saved you thousands of dollars in unnecessary premiums.

Sometimes it even costs you a little bit of money because you realize there's some other coverage that you need to purchase.

It might protect assets you've spent years building, and it might find gaps that if they ever got triggered, it would change everything.

So there are two ways that I can help with this.

Directly.

If you want to look at the full financial picture insurance as part of your overall financial plan, head to www.weeklywealthpod.

There's a 20 minute strategy call and we can look over everything together and point you in the right direction.

If you're looking specifically for property and casualty insurance company, that's home, auto and business, reach out.

You can email jillfsig.net or ashley.

That's a S H L E I g h@cfsig.net if that is.

If you're looking for coverage in a state that we're licensed, we can do the best that we can to help you out.

Our team does this.

It's what we do.

And unlike most insurance conversations, it's not going to feel like a sales call.

Alright, so that is this week's episode.

We talked about risk management, we talked about protecting your money.

We talked about the insurance audit.

If this was useful, share it with a business owner or a friend who hasn't looked at their coverage in a while.

They will probably thank you.

I'll see you next week.

My name is David Chudick.

This is the weekly wealth podcast.

Take care of your people and have a blessed week.

And here is this week's bonus episode.

Something that drives me nuts as someone who's been in the insurance industry, is when I hear the words full coverage.

So if anybody who even remotely calls themselves an insurance professional uses the word full coverage when they're talking about auto insurance, ask them very bluntly, is there anything that could ever not be covered fully?

And the answer, of course, is yes.

If you hit, if you caused a 30 car accident and everybody was severely injured, you can't possibly have enough insurance coverage.

So when they give you that example, ask them, well, that would not be fully covered, right?

So why are you calling it full coverage?

Isn't that deceptive?

And maybe you'll even give them an education.

Because full coverage is not a term that exists.

It's not a term that is logical.

There's always a chance that something would not be fully covered, which is why I just get the chills when anybody who's in the insurance business uses the term full coverage.

All right, everybody, that is my beef and we'll see you next week.

Have a great one.