One of our carriers, ACE Private Risk Services, has come up with three critical questions that their clients have found useful in evaluating their current insurance in order to avoid overpaying to be underinsured.

1. Have you recently evaluated the potential for reducing the cost of your insurance program by raising your homeowners and auto policy deductibles?

Many families with mass-market homeowners and auto insurance policies carry deductibles of $250, $500, or $1,000. Ironically, they pay a substantial amount in premium for such low deductibles, but when they have a minor fender bender, they won’t file a claim for two reasons: 1) they’re worried their insurance rates will go up, and 2) paying to repair the damage entirely out of their own pocket is relatively affordable for them.Consider how much you can pay out of pocket without significantly affecting your lifestyle. Then ask your agent to estimate the premium savings you could achieve with a range of deductibles up to the maximum amount. In this manner, you can assess the trade-off between risk and savings.

POTENTIAL SAVINGS WITH A $2,500 VS. $500 DEDUCTIBLE

ACE provides an additional and unique benefit known as the “deductible reserve.” When you choose a homeowners deductible of $2,500 or more, ACE will set aside 10 percent of the deductible amount in a reserve for each claim-free year on the policy. When you have your first claim, ACE applies the reserve against the deductible amount to effectively reduce your out-of-pocket expense. For instance, after five claim-free years with a $2,500 deductible, the reserve would equal $1,250, or half of the total deductible.2. Do you have umbrella liability coverage, and have you chosen a coverage amount that matches your net worth and future employment income stream?In today’s economic and political environment, families with substantial assets are more likely than usual to be targets of these multi-million dollar lawsuits. Their wealth represents the proverbial “deep pockets” that lawyers are trained to pursue. In many states, if you are found only 1 percent responsible for an accident, you can be held liable for 100 percent of the damages to the injured parties. Without sufficient protection, you could be forced to sacrifice your home, savings and investments, and future income stream from employment to pay damages in excess of your liability coverage.Umbrella liability coverage protects your net worth and lifestyle in the case of a financially ruinous lawsuit. It steps in when the liability coverage in the homeowners or auto policy has been exhausted. It is important to have the right amount of coverage to protect your net worth. To be fully protected, consider your equity in real estate holdings, the value of your personal possessions, savings and investments, and your future income stream from employment when setting a coverage limit. Coverage can be purchased through carriers that specialize in serving financially successful families, usually starting at $1 million, and going as high as $100 million.3. Do you have at least $1 million in uninsured/underinsured liability protection, and does it apply to more than vehicular accidents?The Insurance Research Council (IRC) has noted a direct relationship between the unemployment rate and the number of uninsured drivers on the road. The latest estimate is that one in seven drivers nationally may not have insurance. In a handful of states, the ratio can reach one in four. Moreover, these drivers account for a disproportionately high percentage of fatal accidents—20 percent. Should one of these drivers cause serious injury to you or your family, the driver will not have the resources to pay for lost income, pain and suffering, co-pays and other costs not covered by regular health insurance.The risk extends beyond the road, too. Homeowners under economic stress may be cutting back on coverage. If you or a family member sustain a serious injury at a neighbor’s home, the neighbor may not have enough liability coverage to pay for treatment and potential lifelong care.During one party at a hillside home, for example, an entire deck collapsed under the weight of too many people. The cost of treating multiple serious injuries quickly overwhelmed the overall liability limit in the host’s policy. To protect against these situations, you can purchase additional uninsured/underinsured liability coverage as part of an umbrella policy from carriers who specialize in serving HNW families. Coverage typically starts at $1 million for as little as $100 in annual premium, with options up to $10 million. Considering the example of the deck collapse, you should check that coverage is not limited to vehicular accidents.