Ruth In Conversation With Personal Insurance Expert Susan Ott

Ruth: Hi, Susan.

Susan: Hi Ruth. How are you?

Ruth: I’m great. Thanks so much for joining me. I have with me Susan Ott, who is an outstanding insurance broker. We happen to be in the fabulous Mastermind group together and she oftentimes works with people who have quite a lot of money. When I first met Susan, she told me one of the insurances she provides is kidnapping insurance and I was like, “Oh gosh, I’m glad that’s not something I feel I need. No one’s out to kidnap me right now:)”

I had a great AAA agent that I really trusted, a few years back, who set up my personal policies. Susan was nice enough to review these for me, and then made some recommendations that I took back to AAA to fix, for my safety. That got me thinking: how many other people out there think they are insured, but actually have big gaps in their coverage? I thought Susan could share some things with you that she commonly sees, so that you guys can check your policies to ensure they are okay. The changes I needed to make were super easy– I just emailed a few people and had a few things changed. All in all, I probably spent 25 minutes on it. So, with that I’ll let you start, Susan.

Susan: Thank you, Ruth. Before we get started, I want to delineate what Personal Insurance pertains to, and that is coverages such as Homeowners and Auto. Sometimes people lump in Life and Heath with all of that, but that is completely separate. We’re just talking about the Personal Insurance aspect of things here.

One of the top five mistakes I see when doing reviews, is people price shopping and using that as their driving decision making factor. You get what you pay for, so if you end up trying to get the cheapest program, you’re going to have a cheap settlement. We try to say, “Yes, premium is important, but let’s not make that the overriding factor of everything we do.”

We want to make sure the dwelling values are appropriate for both primaries and rental properties. A lot of times we see insurance agents try to lowball that dwelling limit to get the premium down. We see policies where people are insured for $200 or $300 a square foot to rebuild, and that’s not going to get you anywhere, especially in the Bay Area. We have a really good replacement cost estimator, where we can put in your address, square footage, year built, and some other information about your home, and get a really good general feel for what the dwelling limits should be, so that you’re not caught surprised after a major loss. One thing that we make sure of, is that any dwelling, any other structures, and anything detached (detached garage, swimming pool, barn, etc.) also have separate limits. What we learned from the California wildfires over the past couple of years was that people didn’t have enough money to rebuild. All of a sudden, these people were left with nothing and they’re fighting with their insurance carrier while trying to rebuild their biggest asset– their main home. So you need to make sure that everything is properly covered.

Ruth: That is a confusing thing. I just went through a big remodel myself, so I was pretty familiar with what we spent on the extension part of my home. When I called to have my coverage increased for the new addition we added, I remember asking that question because my insurer had it at about $300 or $400 per square foot and being in real estate, the lowest I would ever see is around $600 per square foot in the Bay Area. But when I asked my insurance broker, they said that wasn’t how it is calculated. So how does it work? Is your insurance supposed to be equal to what it would cost you to go hire a builder to come in and build?

Susan: Exactly. Worst case scenario, a wildfire comes through and it’s down to the ashes. You’ve got to have enough money to lay the grade, lay the foundation, and go ground up. It’s not the market value– that’s a completely separate valuation; that’s a real estate valuation that includes the land. People also mistake that and the answer is, “No, it’s really what it would cost to rebuild the structure.”

Ruth: Okay, got it.

Susan: Another takeaway from the wildfires is that people had a difficult time recreating all their personal property that they collected throughout the years. We recommend that people do a video inventory of their home. Get out your cell phone and start in the front of the house, work your way back, and narrate if you can. For example: “This is the grandfather clock that my parents had, and this is the roll top desk that my grandmother has had for generations.” It doesn’t have to be an elaborate thing; just capture all your spaces and open up every closet. You’re already traumatized if you have had a big loss, and this is a tool stored on a cloud to make sure that you have the ability to say, “This is what I had.” Include your garage, include your golf clubs, your skis, etc. You don’t want to wait and come next winter say, “Oh, we didn’t claim our skis. Oh, we didn’t do this, we didn’t do that.” We also recommend taking out all your jewelry, putting it on a dark surface, and doing a quick video of it. That’s a big help if there is ever a big loss, even if it’s a theft loss.

Ruth: I was just thinking about that. In light of COVID-19, I’ve actually pulled out my trust for the first time in many years, to review and update it, and I was thinking about adding my jewelry. I feel like I need a list of all the things I need to insure. Because the average person probably does this stuff once, but you probably need to do it every year.

Susan: Definitely every couple of years. Or, for example, if you’ve had a situation where you’ve gone on vacation and added jewelry pieces, or whatever the case may be, put out a dark cloth and lay the pieces out and document them. For more expensive items (i.e. your wedding set, anniversary necklace, etc.), get them appraised every three to five years and make sure you think about getting a collections policy separate from your homeowners for things like jewelry, fine art, and wine (now we even have people who have whiskey collections to insure, that’s become a big thing). A lot of times people don’t realize that there are theft limitations within the homeowners policy. Most policies won’t pay more than $5,000 for theft losses to jewelry. If you have your house ransacked, everything taken, and max you’re going to get is five grand, that’s going to be a sad day. So make sure that you have your collectibles under control. I like the fact that you’re making sure you’ve got the inventory written out for your family, Ruth, because they’re not going to know every little thing.

Another big thing we see is people carrying low liability limits and low auto liability limits. Driving is the biggest exposure for any of us, by far. You’re typically not going to have a defamation of character suit or somebody trip and fall at your property, but our cars? That’s where we’re going to have a big deal. We are potentially one accident away from wiping out all of our assets.

If you’re at fault in an accident where there are multiple cars, injuries and/or fatalities, God forbid, and you’re only carrying $300,000 of Auto liability, they’re going to come after the majority of your assets and your future earnings to pay for the judgment.  In most cases you can’t file bankruptcy and walk away. The courts will follow you and garnish your wages until the judgment is satisfied. So it’s important to make sure you’ve got a solid Auto policy.

This is a great segue into a personal umbrella policy, personal excess liability, or umbrella liability. This is the additional amount over your homeowners and auto insurance, so that if you do have a catastrophic loss (like I just mentioned with the automobile accident) and you’re at fault, you’ve got this extra money to come and protect your assets, so that you’re not in financial ruin. You don’t want to be in a situation where you’ve worked for 30 years to build so much, only to have it suddenly taken down to practically nothing.

A lot of times when we’re doing these reviews, people say, “Oh yeah, I’ve got an umbrella. I’m carrying a million.” But that’s not going to take you very far. There is no magic formula for what the umbrella limits should be, but a good rule of thumb is that you take the value of your current assets and future earnings and say, “this is what I could be taken for,” and then add some to it. Because the judge isn’t going to care what you do or don’t have, the judge is going to say, “This person is never going to be able to walk again,” or, “this person is dead,” or whatever the case may be; and there is going to be a judgment that’s going to have to be fulfilled.

We recommend a minimum of $5,000,000 for even the average bear. And if you have teenage drivers in the house, if you have rental properties, if you do a lot of driving for work, you’re on the road often, etc., $10,000,000 is probably not a bad idea and it’s not super expensive. Liability is something that we can’t stress enough, to help protect your financial world. Again, you’ve worked all these years to build all that up, so you want to make sure you’ve got a cushion around it to protect it.

Ruth: That’s a really good point about the car. I mean, $300,000 doesn’t go anywhere, right?

Susan: No.

Ruth: It’s not the case in every state. I guess California is special that way. Right?

Susan: We’re special. New York, California, Florida. Something to think about there.

Ruth: I always sleep so much worse at night every time we have one of these conversations!

Susan: Another mistake I see is people splitting their auto and homeowners insurance with different carriers. Maybe they can get the cheapest auto rate through AAA, but they’re going to put their homeowners with Farmer’s because that’s the cheapest premium, but they don’t realize that if you bundle them together you can get really good multi-policy discounts, which are sometimes 15% or 20%. The discount takes away any kind of savings you would get by going the cheap route. Then that carrier would typically be able to offer you a $5,000,000 umbrella; a lot of times they won’t do this if they don’t handle both your home and auto insurance. So, this is something we recommend as well — bundling your package so that you get the discount and have a way to get the umbrella.

Ruth: I realized a few years ago that there is insurance to cover things like if your car gets hit by a rock, so I started getting that. What’s that called?

Susan: Comprehensive.

Ruth: Comprehensive. The deductible on mine is like $100 bucks.

Susan: Yes, about $50 or $100.

Ruth: I increased my comprehensive dramatically since I sell houses and I like the exterior of my car to look really nice all the time. I had my whole Tesla repainted this year because there were a few scratches on it, and it cost about $100 bucks. I thought, “Oh my God, this is such a great thing to have.” To clarify, there needs to be an event that occurred; in this case, something fell off of my home’s roof during construction and onto my car. It scratched it enough that I decided to paint the whole thing.

Susan: Now that you bring up construction, many people don’t realize you need to notify your homeowner’s insurer if you’re going to undertake a big construction project.

Ruth: Yes, I did not know that.

Susan: If you’re just painting your kitchen or doing a minor thing, that’s no big deal. But once people do what you did and start adding square footage and ripping out cabinets, etc., they need to notify their carrier, because sometimes their homeowners policy has to be changed to either course of construction or course of renovation, or you might end up with greatly reduced limits. A lot of people are remodeling in the Bay Area, so they have to make sure to notify the underwriter in advance.

Ruth: I didn’t think about that until we were fully under construction. Then all of a sudden I thought, “Oh my God, we don’t have insurance on this whole addition.” I called my carrier and they said, “we can’t insure you now, your house is already torn down.” So I said, “Oh my God, I pray to God nothing happens,” and their response was, “Oh yeah. The chances of something happening to your house right now are really high.”

Susan: That’s the problem, because during construction you do have an increased risk. A couple of things on that are: you want to make sure to vet your contractors and make sure they are insured, including excess liability, and that they name you as an additional insured on their policy. Make sure you get a certificate of insurance because you don’t need to be with “Joe Bob fly-by-night” who is only carrying $1,000,000 of general liability only because he needs that to keep his license in force.

If you have a nice home and the contractor is at fault, they’re negligent. Also, don’t sign a waiver of subrogation with the contractor. I had a situation years ago with somebody who had rebuilt this gorgeous craftsman home in Berkeley, with all the shingles on the outside. He spent a year remodeling every little detail. But he went on the cheap towards the end because they ran out of money, and all that needed to be done was the shellacking of the wood shingles outside and to seal them up. So he had the cheap “fly-by-night” contractor go in and do that for him, and that person left the proverbial pile of rags in the corner that combusted overnight and burned the freaking house down.

Ruth: Oh my God.

Susan: It was “Joe Bob, the fly-by-night” contractor who did it. He had either no coverage or some bare minimum limit, and this poor homeowner was left going, “Oh my God, what am I going to do?” Thankfully, he was in insurance so he knew to have course of construction, but I think there was an issue that the contractor who was doing that piece of the work wasn’t exactly up to snuff. So it’s very important to make sure you vet everyone.

Ruth: Because not everyone is going to remember all of this: call your insurance agent before you do construction.

Susan: Yes, absolutely. 100 times.

Ruth: What are the other triggers that should tell me to call my insurance agent?

Susan: Like I said, anytime you get a nice anniversary gift, or you have an inheritance situation where you might be getting fine art or something coming in, anytime you have a change in your world, etc. The other thing is, sometimes people want to make Airbnbs out of some of their homes. If they have secondary properties, it’s a big thing to do Airbnbs. Some carriers won’t insure those because you can’t get enough rate. It is one thing to have a rental with the same person in there for six months or a year, but because anybody can click on the internet and go in there at any time, a lot of carriers will not write this year for Airbnb and VRBO rentals, etc.

Ruth: What happens if you have a rental that is an Airbnb and your insurance doesn’t know that it’s an Airbnb and something happens?

Susan: There could be a question if there’s coverage or not. You have to really look at your contract. They might have an exclusion for that, that you’re not even aware of. And because you didn’t disclose the exposure change, they could say, “We didn’t know that you were doing this and we would’ve gotten off the risk or we would have charged a higher premium.” It has become more prevalent where people are having to disclose the Airbnbs, and sometimes the only place we can plan coverage for is with Lloyd’s of London. Because a lot of carriers are just saying, “We can’t get enough rate for this.”

Ruth: So I know you cover brands like Lloyd’s of London and Chubb and different things like that. But for the person who owns an average $1.5-$2 million house in the Bay area, would they need that? What’s the difference?

Susan: It was funny, the last time we had a Masterminds meeting, I had to say to everybody, “By the way, I don’t just insure the billionaires (granted, I love them).” We also have regular folks in the Bay area with one house, one car, one dog, or whatever it may be, and even then you need a good insurer. You don’t have to be a millionaire or billionaire to be sued like one. We have nice properties here in the Bay Area–  you can’t just click on the AAA website and go on your merry way. That’s just not going to work anymore.

Ruth: I know you said rule number one: don’t be a price shopper, you’ll get what you pay for. But people want to understand what they’re paying for. So, what is the price difference between a homeowner’s policy on AAA or Farmers versus a higher-end policy that will have better coverage.

Susan: It depends on your world. Our proposals will typically say, “Here’s what you have now,” and we’ll give option one and option two. If you’re currently insured at $800,000 and you secretly need to be insured for $1.1 million, we’ll show the AAA premium at $800,000 and then we’ll show at $1.1 million with a Chubb, Travelers, Safeco, PURE, or AIG etc., and try to show the differential. But every characteristic is different with each home. We try to encourage people to get central station burglar and fire alarms, and keep the premiums down. We give them options for discounts. I want to make sure they are looking at things holistically.

A lot of times it’s apples and oranges because you’ve got the bare stripped down program. It’s as if saying, “Well, here I’ve got my Honda Accord,” and there’s nothing wrong with Honda Accords, but if I’ve got that in one column and I’ve got my Tesla next to it in another, I’m taking the Tesla, dings and all.

You have to recognize that when you have a simple kind of program, which was probably fine when you were a new homeowner, newly married, and while everybody was still trying to watch their money, but people outgrow that. People outgrow their policies, they’re busy, and they don’t think about it, so they just sign the renewals thinking they’ll deal with it later. And when disaster strikes, they will be stuck asking themselves, “Holy moly, what am I going to do now?”

I’m a big proponent of disaster recovery and I’d be remiss if I didn’t bring up disaster recovery plans right now, as we’re sitting here and sheltering-in-place with the COVID-19. I have what I call my “earthquake box,” but it could be an earthquake, it could be a terrorist strike, etc. But since we live in earthquake country, that’s a good example to use. We need to make sure that we have cash, food (i.e. beef jerky, peanut butter crackers, stuff that won’t go bad), water, emergency medicine, and warm clothes for at least a week. As we’ve seen with this COVID-19 pandemic, FEMA has been cut quite a bit, they don’t have a lot of resources, and we’ve been told that we have to make sure we can take care of ourselves and our pets for at least a week. You’ve got to be able to shelter in place for a week (not even go to the grocery store), and include some of these rules for your car. An earthquake might happen, you could be on the freeway, and you could be sitting there for a day or so. For your car, make sure you’ve got cash, a flashlight, a warm coat, and a power bar or something to eat. The Red Cross has a good site for emergency communication plans and a list of things you should talk about with your family.

Ruth: This is a good thing to work on right now while people have more time.

Susan: This is the perfect time to do a video inventory of all your personal property and get your earthquake box together. I use the spring forward and fall back timing twice a year as a reminder. I also recommend getting a little emergency radio for your emergency box; preferably one that includes a light on it, as well as TV and radio stations.

Ruth: I think we have one from KQED:)

Susan: Put your batteries in there so that in case of an emergency, you can at least be tuned into what’s going on and get the latest alerts and updates so that you’re not completely cut off.

To wrap up, the bottom line is: Don’t consider price alone. Look at your overall asset protection, make sure you can rebuild your home, because it’s your biggest asset. Don’t scrimp on your auto liability. Make sure you get an umbrella policy, because you don’t want to be in financial ruin if the unthinkable happens. Try to package everything together. And lastly, if you can, take this time during shelter-in-place to make your disaster recovery plan and your video, because it will make you feel better.

Ruth: I love that. Thank you for bringing up the earthquake stuff because what good is insurance if you are stuck and unsafe somewhere? When the fires were going on, you said something that stuck with me. You said you had an insurer that had special fireproofing things they had done to houses. Is that common?

Susan: That has become more and more common now, and most carriers have what is called, “the Wildfire Defense System.” You have to enroll in it– they won’t just roll up to your house because you’re insured with Chubb or because you’re insured with Travelers. It’s not just the high-end carriers who have it, middle market carriers are doing it, as well. You should ask your agent if that’s available, because it’s free. During the wildfires up North over the last couple of years, we had trucks deployed to homes for this. For example, Chubb has wildfire defense that will come and spray the house with this Phos-Chek gel, which is a foam-like substance that goes around the house to insulate it so that if the fire does go through, hopefully it’ll go around that house and move on.

Ruth: Did you say, free?

Susan: It’s free. It’s all part of your premium.

Ruth: What’s it called again?

Susan: Wildfire Defense System. But you have to enroll in it and make sure you’re on their list so they’ll come in and move flammable things. For example, if you’ve got firewood stacked up next to your home, they’ll move that away from your home, or they’ll move deck furniture, etc. The things that can easily catch fire are things they’ll move. I would definitely ask your agent if they are a part of the Wildfire Defense System program.

Ruth: So they will come now? They won’t wait until the forest is on fire around you? They may come now and do an audit of your house and say, “These things are flammable?”

Susan: The carrier will typically do that when they do the appraisal and say, “Hey, you should do x,y,z. You should trim these trees, etc.” They will come when there is a wildfire going on and they’ll alert you. Obviously, it behooves the carriers because they have less homes that are lost, but it behooves the client because you have the ability to have some chance of saving your home. If your carrier doesn’t have it, you might be able to contract a different company for a fee. They keep all the zip codes listed and they keep track of all the wildfire notices, and they will deploy it when they know there’s a wildfire approach.

Ruth: That’s a great tip. I’m going to call about that.

Susan: You should. I’d be curious to see if your carrier offers that. Let me know.

Ruth: I will.

Susan: This has been really fun. Thank you.

Ruth: This has been great. I learned so much. So the big things are: Don’t price shop. Call the wildfire defense system and check in enrolling. Don’t skimp on your car coverage. And most importantly, make sure you have an umbrella policy that’s large enough; $1,000,000 is not going to cut it, more like $5 or $10 million. I recently found out that the highest AAA will do is $5,000,000, so we may need to figure out how to increase that. Lastly, taking video inventory is a good tip.

I need to come up with an all encompassing checklist of things that I need to do. Because there’s things for your home that need to be done, and then there are things for your trust. And at the end of the day, unless there’s a COVID-19 event (which hopefully never happens again) nothing ever gets done. Right?

Susan: Right.

Ruth: These are good tips for people to work on right now, while they’ve got extra time on their hands with Shelter-in-Place.

Susan: We’re going to do a silver lining with this COVID-19, and get some of these pesky things done.

Ruth: Thank you so much for your time. I really appreciate it.

Susan: Thank you. Appreciate it Ruth. Take care, be safe.