Ithaka Financial Planning | Financial Planning for the Journey of Life

Ithaka Financial Planning Blog posting February 2018

How does Umbrella Insurance work to mitigate your risk?

Beth and I recently met with Mitch Freedman of Freedman Risk Management Partners, LLC. Mitch puts together comprehensive property and casualty insurance solutions for high net worth clients. His focus is making sure insurance policies work to protect clients’ true financial risk in the most cost effective manner. He is excellent at explaining insurance concepts and risk, so we thought we would share his thoughts on Umbrella Insurance.

Beth and Carolyn: What is Umbrella Insurance?

Mitch: Personal umbrella insurance is an extra layer of liability coverage that sits over your homeowners, auto, boat and other personal (non-business) asset coverage. A serious auto accident or injury to a visitor at your home can turn into a large claim against you. Umbrella liability insurance steps in to provide this added protection.

Beth and Carolyn: Who needs Umbrella Insurance?

Mitch: Just about anyone who owns a home or car should consider umbrella insurance. In our litigious society, anyone can be sued for injury or damage to someone else, especially when it causes severe injury or worse. Those with significant assets should be even more diligent about protecting themselves through umbrella liability coverage. They are the proverbial “target” with deep pockets.

Beth and Carolyn: How much coverage should you have?

Mitch: There is no perfect answer to how much coverage one should maintain. Net worth is often a starting point but other factors such as a client’s tolerance for risk, risk profile (number of homes, cars, boats, youthful drivers, etc.) and premium. Ultimately it’s a judgment call made by the individual.

Beth and Carolyn: What are a few key things to keep in mind when buying Umbrella Insurance?

Mitch:

Umbrella coverage tends to be very affordable. For a couple hundred dollars per million dollars of coverage, you can typically buy coverage up to $10MM. This small cost helps you sleep at night knowing you’re protected in the event of a serious claim.
Make certain all of your underlying assets are listed on your umbrella policy.If a home, vehicle, or boat is not listed, and an accident occurs the policy will not provide the coverage it’s meant for.
Understand the growing frequency of personal injury suits stemming libel, slander, or defamation. This is a growing area of personal injury claims in our world of social media. Take particular care if you have kids online.
Understand that the insurance company has a duty to defend you, even if the suit has little merit.Defense costs are covered by the insurer, and are outside the limits of the policy, so they don’t eat into what is available to pay a potential settlement.

Beth and Carolyn: Thanks Mitch for shedding some light on this oft misunderstood area of insurance!

Carolyn and Beth

Questions for Mitch?

Contact him at: mitch@freedmanrisk.com

www.freedmanrisk.com

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Beth and I recently attended the Financial Planning Association conference and learned more about the research of Positive Psychology and its applications to financial planning.

We learned about “Wellbeing Theory” which states that wellbeing and happiness are a function of five core elements (PERMA):

1. Positive Emotion
2. Engagement
3. Relationships
4. Meaning
5. AccomplishmentIt is believed that these five elements can help people achieve a life of fulfillment, happiness, and meaning. How does this relate to money? Well, you can promote greater wellbeing by aligning your spending with these 5 elements. The idea is that “if money doesn’t make you happy then you probably aren’t spending it right.” (Dunn, Gilbert, and Wilson, 2011).

Discretionary spending priorities that promote wellbeing include:

Buy more experiences than things.
Spend money on others.
Buy many small pleasures versus a few large ones.
Delay consumption, buy it now and consume it later.
Be cautious of comparison shopping
Pay close attention to the happiness of others.

Of course, it is not just about how you spend. You can do a lot to foster wellbeing without spending a dime. Enjoying the outdoors, reading a favorite book, spending more face to face time with friends, and volunteering are all free.

Here are two exercises you can do if you would like to promote more wellbeing in your own life. Research has shown that they increase happiness levels over time:

Exercise 1: What Went Well

For one week write down 3 things that went well every day and why they went well.

This exercise is especially useful for major life transitions and when you are trying to change your behavior.

Exercise 2: Gratitude Visit

Select an individual who has positively contributed to your life and write a brief but specific letter to that person.
Arrange a meeting with that person and have a conversation with that person about this topic.
Then read the letter to them.

This exercise is especially useful for promoting positive relationships across multiple generations.

If this topic intrigues you, go to the University of Pennsylvania’s website on Positive Psychology: www.authentichappiness.sas.upenn.edu for more information!

Thanks,
Carolyn Nunez, CFP® and Beth Remick, CFP®

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