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Personal Finance for Young Adults: Risk Management with Property and Casualty Insurance

Halsey Schreier

December 09, 2020

What if you’re in a car accident? What if your house or apartment burns down or is broken into? What if a tree falls on your roof?

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Do you have tangible things in your life that you want to protect? Do you want peace of mind, knowing that you’ll be able to recover from a loss if the unexpected happens and that you’ll be able to rebuild your life?

If you’re like a lot of young adults, you’ve worked hard to build a solid financial foundation and it is only natural to want to protect everything that you’ve worked for. However, accidents and disasters can and do happen. And because there’s nothing you can do to prevent the unexpected from happening, it is important to make sure you are adequately protected.

Protecting the important things in life

Insurance makes it possible for us to hope for the best and prepare for the worst by protecting the things and people that matter most in life.

Insurance allows individuals and organizations to manage risk in a way that can help reduce financial uncertainty. While insurance can’t stop the accident from happening or put out the fire, it can make accidental loss manageable and help protect the investment in your car or home.

The basic  function of insurance is the transfer of risk to an insurance company. The insurance company assumes the risk of a large potential loss in exchange for smaller periodic payments, known as premiums. By transferring your risk of loss to the insurance company, you reduce the amount that you will be financially responsible for in the event of a covered loss. The terms of coverage, compensation and/or other benefits are laid out in a legal contract called the insurance policy.

Property and casualty insurance

For a lot of people, a significant portion of their net worth is in physical assets, such as a home, furnishings, or a car, for which property and casualty (P&C) insurance is essential.

  • Property insurance
    Property insurance helps protect the things you own and is often bundled together with liability insurance.
  • Casualty insurance
    Also known as liability insurance, casualty insurance provides protection if you are legally responsible for an accident resulting in injury to another person or damage to someone else’s property.

Types of property and casualty insurance

Property and casualty insurance is often used as a bucket term to describe several different types of insurance policies. Below are some of the more common types of P&C insurance.

  • Homeowners insurance
    Homeowners insurance helps protect your home and your belongings against covered events, such as theft or fire. Homeowners insurance policies also typically include liability coverage, which means not only does it protect your home, which for many people is their biggest investment--but it may also protect you if someone is injured at your home or you injure someone else or their property.
  • Renters insurance
    If you rent, your landlord probably has an insurance policy that protects their building and their personal property, but it most likely does not cover your belongings. For the things you own, you need renters insurance. Renters policies often include liability coverage that may help provide protection for visitors injured at your apartment or any accidental damage to the rental. Some renters policies also help cover medical payments, legal fees if you’re sued and property damages that you’re legally responsible for.
  • Car insurance
    Car insurance helps protect you and your vehicle. Most states require drivers to have some form of liability coverage. Additionally, comprehensive and collision coverage may be required by your lender. Many insurers offer bundling discounts, which means purchasing car insurance from the same company that provides your renters or homeowners policy could result in significant savings.
  • Umbrella insurance
    Umbrella insurance provides extra coverage on top of your basic auto, renters or homeowners policy. Generally, in those policies liability protection is capped at a certain amount. In some circumstances, you could end up with liability expenses that exceed your basic insurance coverage limits and umbrella insurance helps protect against that risk. Deductibles for umbrella policies are generally high, because they are designed to be met by your other policies.

Other considerations

  • Personal property
    Personal property are the items you own, such as furniture, electronics and clothing. Whether you own or rent, insurance policies typically include personal property coverage that helps cover the cost to repair or replace your belongings after a covered loss.
  • Replacement cost vs. actual cash value
    A replacement cost policy typically covers the amount it will take to buy a new item at the time of the claim. An actual cash value policy provides reimbursement based on the current value of an item, factoring in depreciation.
  • Coverage limits
    Property and casualty insurance policies have limits on how much they will pay, which is why it is important to make sure you have enough coverage to provide peace of mind. If there are gaps, you may want to look into increasing your limits or adding an umbrella policy for an additional layer of protection.

There are a number of different insurance options and it can be difficult to know the type and amount of coverage you need. A trusted financial professional can be a valuable resource to help you navigate the process and help you choose the protections that are right for you and your situation.

 

Our Wealth Your Way podcast series is an educational offering for clients and their children, and demonstrates our commitment to developing the rising generation.

Halsey Schreier is a senior wealth strategist for CIBC Private Wealth Management. In this role, he works closely with high net worth clients in New York, the Mid-Atlantic and the Southeast to provide integrated wealth management services, including comprehensive estate and financial planning solutions, multi-generational legacy planning and fiduciary administration for trusts and probate estates.