One of my biggest goals over the past several years has been to obtain my R.F.P. designation. The R.F.P. is hosted by the Institute of Advanced Financial Planners, and it’s the highest Financial Planning designation in Canada for practicing financial planners. Currently there are only 293 listed on the IAFP’s “find a planner” search tool, including only 38 in Alberta. The CFP designation is a prerequisite, along with an intense six hour exam and a case study financial plan. I’m excited to announce that as of Monday my case study has been officially approved, and I proudly hold the R.F.P. designation beside my name!
One of the areas that was required as part of the case study is a section on property and liability insurance. Lacking experience here, I called on one of my broker friends for a cram session. I learned a lot of new stuff… Scary stuff.
Here are some scary things I learned about property and liability insurance.
What’s the use?
I don’t mean this as an expression of exasperation, it’s a literal question. What are you using your stuff for? Imagine a farmer owns a shop. The shop is on his personal land and is insured as part of his personal property. Seems simple enough. Inside the shop he keeps some tools, a yard tractor, and his combine. Then one day the shop burns down. Upon review it is determined that combine was ‘business’ property and since it was stored inside the shop the use of the shop itself was not properly disclosed. Claim denied.
This goes for cars too. Do you drive to the bank or the post office for work? Do you go and visit clients or pick up the office lunch? These may be considered business uses, and need to be disclosed to your broker. If they don’t know what you use your stuff for, they can’t fight for you.
Water, water everywhere!
Fun fact: the insurance definition of flood is based on salt water. Flooding is never covered in a property insurance policy, and neither is seepage as it’s considered the homeowner’s responsibility to make sure their lot is properly graded and their drainage systems are working. You can’t have salt-water flood protection, but you can buy-up your coverage with “over-land water protection” (fresh water) or optional sewer backup or wind & hail insurance.
What about these alarm company guys?
Door-to-door alarm company sales people will often suggest that their alarm systems can save you money on your house insurance. In actuality, the alarm will cost you $30 to $50 per month, but only save you $100/year on your home insurance. If you have an alarm system, definitely let your insurance company know, but don’t let the cost savings on your property insurance be a swaying factor.
A more practical discount you can get is from having good credit. Studies have shown that individuals with higher credit are less likely to make a claim, so if your credit has improved recently, ask your property insurance broker to see if are eligible for any discounts.
Fire takes everything
How many pairs of socks do you own? How many tools are there in your junk drawer? If you’re not sure, then it’s probably time to update your video inventory. A thief takes what they want, but a fire takes everything. A video inventory stored off-site will help ensure you recoup your standard of living after a claim.
Sorry, we’re not home to take your call
If you’re going to be away for a while, most brokers recommend having someone check your house at least every two days. Damage to a home can happen very quickly, so ask the person looking after your home to make specific notes each day on when they were over, what they checked, if there were any audible signs of water, signs of entry, and if the pilot light was on in your furnace. For a bit of extra protection, you can ask them to turn the lights on in a different room and make extra tromping paths through the snow every time they visit.
Beware the corporate-owned principal residence
Sometimes we run into situations where a client was told to own their home inside their corporation to take advantage of cheaper corporate-earned dollars. But focusing only on short-term tax savings can be dangerous, and long term consequences can be severe. In addition to the loss of your principal residence exemption and exposing your home to the creditors of your corporation, as a corporate property your principal residence would be insured under a commercial policy. Compared to a personal policy on your home, most commercial policies are “named peril” only, so unless it is specifically listed in your policy, it probably isn’t covered. In addition, the corporate policy won’t cover your personal belongings, so you’ll need tenant insurance as well.
Border crossing ahead
Hey there all my Saskatchewan readers! Ever wonder why government insurance costs less than private insurance? It’s because government insurance has specific caps on liability, such as $75K for a death, whereas private insurance do not. This cap only applies to the payout from the insurer; any accident would still be quantified based on the laws of the province/country where the loss occurs.
For example, if you have Saskatchewan insurance (payouts are capped) and caused a loss in Alberta (unlimited payouts), they you are likely going to be underinsured and at risk of a high-cost civil suit. Compensation awarded above the value that your insurance covers would have to be paid personally - meaning you could lose your savings, your land, or even your home. Brokers generally recommend that border-crossing Saskatchewan-resident drivers buy-up their policies to $3M liability (which is also the recommended base for Alberta-resident drivers).
Not only are accidents quantified based on the laws where the loss occurs, they’re quantified in that currency. If there is any chance of taking your vehicle to into the States, brokers typically recommend liability coverage at $5 million. At our current $1CDN:$0.76USD exchange, a $3M liability in the US would cost $3.95M in Canadian dollars.
As with all of your planning needs, your property and liability insurance should be reviewed regularly. If it’s been more than three years since you’ve sat down with your broker, it’s time to book a review. If you have questions on what kinds of questions you should be asking your property and liability broker, or for more information on insurance planning, speak with a Certified Financial Planner today.
Written by Meagan S. Balaneski, CFP, R.F.P CERTIFIED FINANCIAL PLANNER®
Advantage Insurance & Investment Advisors
Investment Funds Representative
Manulife Securities Investment Services Inc.
The opinions expressed are those of Meagan S. Balaneski and may not necessarily reflect the views of Manulife Securities Investment Services Inc.