Is your house covered against flood damage? Are you protected if your dog bites someone? If you fall ill, who will pay your mortgage? If you are unsure how to answer any of these questions, listen in. In this episode of The Agent of Wealth podcast, host Marc Bautis is joined by Jason Street, President of Allegiance Insurance Brokers. Together, they discuss how to ensure you have proper insurance coverage for a variety of different cases.
In this episode, you will learn:
- Why it is important to know how much coverage you currently have.
- How an insurance broker helps you identify the right coverage for you.
- What an umbrella policy is, and why it may be the right coverage option.
- Why disability insurance is important.
- And more!
Today’s guest is Jason Street. Jason is the president of Allegiance Insurance Brokers. When it comes to wealth management, there’s two things you want to focus on
- Growing your wealth
- Just as important is protecting your wealth
Jason, on the insurance side, comes in with protecting my client’s wealth.
Marc: Jason, welcome to the show. How did you get involved in the insurance world and give us a little background on Allegiance Insurance Brokers?
Jason: Allegiance Insurance Brokers is a small, family-owned business and we actually cover anything from property and casualty to life insurance to commercial insurance and health insurance. I came into the business back in 2013 after working for Liberty Mutual and broke off into my own practice about three years ago.
I spend a lot of time working with families. I enjoy working with families and helping them protect their wealth. I work hand in hand with financial planners on a daily basis. I know insurance in general. Specifically on the auto and home side, it’s confusing and doesn’t seem very transparent.
Marc: Everyone needs home and auto insurance, but their agent or the broker will ask them a couple questions and all of a sudden they’ll come back with policy, that the consumer doesn’t really understand what’s in it.
Let’s start on the auto side:
How does an engagement with someone start?
Jason: I would say with about 95% of the individuals that I work with, the first question I ask is: what do you currently have for coverage? Do you have 100-300-100 or 250-500-100 and they’re like: what does that mean?
It’s very common for a lot of people not to quite understand what they currently have for coverage. I think it’s very important as a financial advisor to help them understand and point them in the right direction with an individual to review their risk with their auto and their home. A lot of times, individuals don’t know what they have and they’re under-insured because they tend to call a 1- 800 number and say: “I want the cheapest coverage I can get.”
Marc: What is a 100-300-500 or 250-500-100? What do those numbers represent?
Jason: The first number is per occurrence and the second number is aggregate in a policy. Per occurrence, meaning if I get in an accident, that is the amount the insurance company will cover for that particular accident. A lot of times I’ll see individuals, even attorneys and doctors or people that are very successful; they’re so busy running their practice, that they don’t understand what they have in coverage. A lot of times, they’ll have the state minimum coverage because they call up -for example- Geico or Progressive, and they’ll say: “I want the cheapest insurance I can get.”
The guy or gal on the other end, or the gal on the other end, is going to give them the cheapest insurance they get in order to bind that coverage. Somebody like myself, working as an independent broker, we’re here to help you find the best coverage. As a broker, we work for our clients. We don’t work for an insurance company. Whereas if you call the 1-800 number, they are working as if they’re an employee of that company and that’s where you are going to get your insurance from.
So the first number covers per incident. The second number is aggregate. In one year, if they have three accidents, that’s the comprehensive number. Let’s say you have two separate lawsuits. That’s technically a per occurrence. So it could be one accident, yet it could be multiple occurrences. The third number would be the property damage. If you’re driving down the road and you actually run into somebody’s fence, run into their house, run into a telephone pole, PSE&G (the public service company) or the state of New Jersey is going to bill them for that property damage. That’s what the property damage covers.
If there are medical injuries, is that in separate limits or is that included in those three numbers that you gave?
That would be the PIP medical. PIP medical is going to cover the medical coverage, and that’s another number too that tends to be stripped down. If you called up and asked for the cheapest insurance you can get, a lot of times they’ll bring it from $250,000 worth of coverage all the way down to $15,000 worth of coverage and mark the auto insurance as a secondary coverage and the health insurance will go as a primary.
I never recommend for my clients to go anything lower than $250,000 in coverage. A lot of times, to get cheap insurance, a lot of agents will end up stripping that coverage down to a lower limit, lower than the 250,000. That’s one way of getting your costs down: just strip the coverage.
What’s the Right Amount of Coverage Someone Should Have?
Jason: Well, that’s why I think it’s important for individuals to have a good relationship with a great wealth management expert. It’s very important for them to understand what their net worth is, know exactly what they have if they were to liquidate everything and put all their money in a bucket.
A lot of times people have 100-300-100 coverage. As I had mentioned before, the 100,000 is a per occurrence. Unless, God forbid, somebody ends up injuring somebody seriously or killing somebody. We live in a very litigious society. What do you think the lawsuit’s going to be? More than that. It’s going to be more than $100,000 and that’s going to cover our legal fees.
There might be doctor’s bills for the individual you might injure. That’s why it’s important to have the higher coverage and then put an umbrella policy over to match your net worth and then some.
The umbrella policy is one thing I definitely wanted to cover because like you said, it’s once you get past those limits they can come after you personally, correct?
Jason: Absolutely. That umbrella policy comes in to protect your personal assets. I’ve had individuals say: I don’t own anything, so let them sue me. And at the end of the day, even if you don’t own anything, you can actually still have your wages garnished up to 25% for the rest of your life.
You’ll have that accident following you for the rest of your life if you’re not properly covered. Umbrella policies are relatively inexpensive, based on the risk. If you have younger drivers, let’s just say any family that has any young, youthful drivers driving should have an umbrella policy.
It happens all the time. A prime example: my relationship working with you, Marc, we actually know the story of Hulk Hogan and his son; you brought that up many times before and it’s true because if you don’t have an umbrella policy to cover you and if your minor child that’s living under your roof gets into an accident, you as the parent are liable.
One of the stories we were talking about offline was someone we know, that their son wasn’t on the policy and they didn’t even realize it for a period of time.
I had somebody two weeks ago, a close friend of mine that we do a lot of business with, I reviewed his coverage and I think this is one thing I can throw out there for everybody. Take the 10 minutes and find an insurance professional that you trust that’s going to look out for your best interests. If you don’t know somebody, ask your financial planner; they’ll point you in the right direction and have them review the coverage because it doesn’t cost you anything to have somebody review it.
Working hand in hand with your financial planner, you can make sure you’re properly covered, but this individual didn’t realize that his son, who got his driver’s license two years ago, was never listed on his policy. So, he drove two years without being covered.
What happens in that case? If he gets in an accident, are the parents on the hook? Yes, the parents are on the hook. If, God forbid, there was a $500,000 judgment against them for something that their child did, the parent would be liable to pay those damages.
Why It’s Important to Review Your Policies Every Year
Marc: You mentioned reviewing your policy, and it’s one thing I promote to doing annually. People change,their lives change.
Do insurance companies raise the premiums each year. And if you don’t say anything or shop your policy, will they just continue doing that?
Jason: I always have a rule of thumb that every three years you should be seriously looking to shop your insurance. A lot of the initial discounts that you get are gonna roll off over time. Slowly you realize that you’re paying a lot more than I used to pay.
I don’t believe in jumping year to year because just like you have a credit history, you have an insurance history. The insurance companies know if you’re jumping from carrier to carrier, and they take that into account as far as rating the premiums.
What Factors Go Into Determining Your Premium?
You mentioned credit history. What else goes into determining what your premium is. They look just like any other type of insurance, they want to measure you as a risk and determine, how risky you are to insure.
Even though you wouldn’t think credit would relate to insurance it does matter. Another rate factor would be, uh, any type of a small frivolous claims like to say, if somebody got into an accident and they have a $500 deductible on that $1,000 accident and they put a claim in, I always try to coach my clients that if you have a small claim, sometimes it’s better off just paying it out of pocket.
Because that’s claim is going to count against you for at least at least the next three years. Right.
On the claim side, if someone gets in an accident, what do they do? Do they call the insurance company. Do they call you, handle it themselves?
Jason: I have a lot of my clients that I work really closely with and have strong relationships that they will call me if they are in an accident I’ll coach them through what they need, put them in contact with a claims adjuster, …
If somebody rear-ends you or somebody hits you, it’s a he said, she said, and that person that hit you technically can go to the police department and file their own complaint after the fact saying that you hit them and then it’s a arguable. An accident that most likely will end up being a 50/50 responsibility.
It’s best to take the time, but do the claim the right way.
Switching onto the homeowners insurance, what do you see some of the most common things that people don’t understand about homeowners insurance?
Jason: A lot of times individuals likes to say if they have a pool in the backyard, having the.$300,000 worth of coverage is great. As I said earlier always have that umbrella policy to cover over the home. As well. So you would have a must. For example, if your net worth is $2 million or 1.5 million. I would put a $2 million umbrella for the $300,000 or $500,000 underlying coverage and making sure you’re properly covered.
Should the amount of coverage someone gets be based off of the replacement cost of the home or the market value of the home?
You never want to cover the home value. It’s always based on a replacement cost and there’s a replacement cost calculation to figure out what that should be.
It’s done by the insurance company or myself and it calculates what the cost would be to rebuild that home. A lot of times you’ll see some carriers that will, let’s say houses market value is $575,000 you’ll see sometimes the lender would say that they want $575,000 worth of coverage, and they’re just doing it based on the value of the home.
You want to cover it for replacement costs, rebuild that home, and it’s usually a per square foot type scenario or an average. Here in New Jersey, you’re going to average between 175 to 275 based on what the fixtures and what the finishes are that you have within the home, whether it’s a contractors grade materials, or if custom built with granite countertops.
All those factors are involved in coming up with the proper, proper value.
Let’s say for example if you don’t have replacement cost coverage on a home and you’re insured for $480,000, but it cost you $580,000 to rebuild your home, because costs have gone up over the years.
Just like inflation and almost everything else, those replacement costs probably go up. Again it’s the importance of doing an annual review on your coverage to determine if you need to increase your coverage.
Sometimes I’ll see individuals that had been with a carrier for 20 plus years and their numbers are way out of whack. A lot of times there is an automatic increase rider that’s put on the policy where it will go up 3% to 4% or 5% a year on the coverage A and also their personal property. If you don’t have that automatic rider you’re going to be under-insured over time as well.
A question I get all of the time is what’s covered, what’s not covered by the policy. What if there’s a hurricane and it damages the roof. It depends on the coverage that you have. Some carriers will have a fixed deductible. It could be $1000, 2500, 5,000 for hurricane coverage. Some it will be a percent. The biggest factor is that some carriers will have 3% or 5% of coverage.
For example, if you had 5% of coverage, or 3% of coverage on a $500,000 home, you’re putting out technically $15,000. So the damages on that home would have to be much greater than $15,000 in order for you to even put a claim in and coverage on floods.
If your hot water heater breaks and it floods the basement, is that covered? Versus if a hurricane causes a flood, that would be considered water backup. If you had a sump pump that backed up or sewer that backed up into the home. A hot water heater type issue that that burst that would be covered under a water backup under your regular policy.
As far as the flood policy, there will be water coming in from the outside coming in, whether it’s up through the ground or int through the windows or any openings that the water can get in. A lot of things have changed recently with flood insurance.
I do a lot of business helping individuals, bringing them to the private flood market. As an example I have an individual that I’ve been working on in the past two days that he was paying $4,300 a year for flood insurance, I was able to get him a private flood policy for $2,700. Previously you were required to go through the federal government to get to the national flood insurance program. Now that’s changed. A lot of banks now are accepting private flood policies, and you can save on average $800 to $1500 on their flood insurance because there is now more competition out there.
How does someone determine if they need flood coverage? Of course if they are in a flood zone their lender is probably going to require it. But do you see people outside of flood zones purchasing flood insurance?
I recommend it, because it is cost effective. I have flood insurance on my home and that covers me. If any water comes up through the basement floor or in through the side I’m covered. I have a lot of stuff down in my basement. My kids’ toys are down in the basement. I’ve got gym equipment in the basement, and for me it cost about $400 a year. It’s worth it for me to have that flood coverage because I know that my contents are going to be covered and if any of the walls or floors need to be replaced it’s covered.
In terms of insurance carriers,, every carrier is different in terms of what they cover, what they don’t, what their prices are, …..
Yes, that’s how I operate as a broker on my end. I was an agent. Now I’m a broker. I like helping individuals. I like helping protect their families and helping them find not only the right coverage but the right price too. Also by being a broker, I work for them, so I actually spend a lot of time consulting them.
When doing a comprehensive annual risk review is there anything else you wanted to cover or think people may not understand?
I think another factor which you can relate to on a financial plan is that everyone should have some sort of an income replacement tool in place to cover them.
God forbid that you have two breadwinners in a home that are paying the mortgage. And people think about life insurance in case one of the breadwinners dies, but disability insurance is just as important. A lot of times individuals don’t even pay attention to disability insurance. Our number one asset in our lives is us, ourselves, being able to earn income. If we can’t work anymore because we’re disabled. Yeah. It would be nice to be able to know that my mortgage is going to be paid. So that way my family can stay within their home.
Disability insurance is called the forgotten insurance. Yeah. Disability insurance should be in that conversation as well. I ask my clients when I sit down and do the comprehensive risk review, one of the main things I ask them is if you had a box in your basement that can print $100 bills all day long. Would you do something to protect that box? Definitely. If we’re injured or sick we still have to pay our bills. Yeah, so I tie in the life insurance as a mortgage replaced mortgage coverage. To back the mortgage if one of the other spouses passes away. But I also put disability insurance on my clients. I at least have them understand that if they can no longer do their job, they know they can stay within their home.
Jason, what’s the best way someone can get in contact with you. My direct line is 973-477-4269 or my email address is [email protected]
Aric: Jason, thank you so much for being a great guest. I learned a few things today, and number one, I have a pool. And I have a bull Mastiff, who at this point, sleeps 22 hours a day. So the chances he’s biting anybody really slim. However, I need to revisit my umbrella policy because I probably should boost that up a little bit. So thank you for the info. And Marc, thank you so much for bringing Jason on.