©2015, College for Financial Planning, all rights reserved. Session 3 Property & Liability CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION.

©2015, College for Financial Planning, all rights reserved.

Session 3Property & Liability

CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAMFinancial Plan Development Course

Start Recording

This class is being recorded so you may review it at a future time.

3-2

Property & Liability Basics: Planner’s Role• Most planners are not

experts or licensed in P&C

• Need to understand and identify potential threats to client’s financial security

• Some states don’t allow advising on P&C issues; you can raise questions and refer

What is the real threatwith an auto accident?• Car Value: $30,000

• Personal Injury judgment: up to 5–15x annual income and/or net worth

• Generally not the property loss; it’s the liability from others that destroys financial security

• #1 job is to find uncovered areas of liability

• #2 job is to identify property loss potential

3-3

Risk Assessment Considerations• What is maximum loss possible?

• What would be the impact of loss?

• What is the maximum probable loss?

• What is the typical loss?

• What is the maximum frequency of loss?

• What is the typical frequency?

• How can we address these?Catastrophic consequences shouldbe addressed using four methods of mitigating risk.

3-4

Methods of Managing Risk: Examples

3-5

Property & Casualty Discussions

Do you question clients to uncover potential risks?• Volunteerism

• Hobbies

• Attractive nuisances

• Pets

• Uninsured “toys”

• Hired household staff

• Unusual property

• Art/collectibles/physical assets

• 2 homes

• High risk job

• Team sports

• Teenagers & Internet

• ?

• ?

You can be held liable for what you don’t do in addition to what you do for a client.• Do you o represent yourself as being

comprehensive?o offer recommendations to meet

with agent or get reviews?

• What are your state laws about advice on P&C?

• Most likely you can identify risks and refer clients to an agent for discussion and advice.

3-6

Clients’ QuestionsDudellas ask:• Is their home insurance adequate?

• Are there gaps in their personal property coverage; what should they do?

• Do they have the right amount of liability coverage on the various policies?

• Do they have all the policies and coverage they should have?

• Should they change deductibles?

Dowlers ask:• For a second opinion about

property & liability coverage.

• What are the critical components of coverage so they can talk with an agent?

• Are there gaps in their current plans?

3-7

Dudellas: Homeowners

• Nancy and David live in a 2,000 square foot home on a five-acre lot with an unattached small outbuilding along with two horses and sheds for the horses and hay.

• You find out Nancy gives riding lessons as a side business to cover the cost of the hay. Their neighbor buys the hay in exchange for lessons and use of the horses by her kids.

• They are not considered in a flood zone, but they are in a high wind area and on a mountainside riddled with streams.

• Issues?

• Red flags?3-8

Dowlers: Homeowners

• Jim and Anne live in a nice upper middle-class neighborhood with good schools. The estimated replacement costs for a residence similar to theirs from a reputable online valuation site is $320,000, and the land is valued at $120,000 for a total value of $380,000. Building costs in the area are high and increasing at around 4.5% this year.

• Replacing personal property would cost $125,000, but they don’t have an inventory. (Hint: Maybe you should suggest one?)

• Jim and Anne own two snowmobiles and a fishing boat. Since their boat or the snowmobiles are not worth much, they did not mention them to the insurance company or cover them in their policies.

• Issues?

• Red flags?

3-9

Liability: Added Risk – Covered?

3-10

Critical Factors: Homeowners

3-11

Plan Development #6

3-12

Your Clients’ Coverage

• Replacement value of building: $320,000

• Cost to increase: $3.50 per $1,000

• Inflation protection option: $20

• Boat and snowmobiles: $3003-13

Plan Development #6 continued

Discuss advantages and disadvantages!3-14

• Property damage (comprehensive/collision)o Insured driverso Uninsured driverso Other carso Other property

• Liability & medicalo Non-family memberso Family memberso Passengerso Pedestrian/bicyclisto Insured or uninsured

• Personal Injury Protection

Auto: Understanding Coverage

3-15

Auto Coverage

• Your clients and mine have the same coverage! (Nice!)

• Do you know what uninsured/underinsured motorists covers?

• This is not a “stackable” policy. Do you know what that means?

• Issues?

3-16

Plan Development #7: Auto

• Discuss among yourselves now• Pros and cons – strategies?

3-17

Plan Development Box #7

Besides costs, what are disadvantages? What stops clients from acting on these recommendations – raising it in plan can diminish road block. Client hates taking time to talk with P & C agent? Hard to understand? Paperwork? What are the blocks? 3-18

Umbrella Coverage

• Two types – Excess Coverage and Umbrella

• Excess just extends underlying contracts to higher amounts (more restrictive, less costly)

• Umbrella incorporates more but you must read policy to be clear; some cover volunteer board activities and extend uninsured motorists, some do not.

Which is greater risk to wealth?

• 5% drop in portfolio

• Teenage child causing serious injury or death to others

• Business owner hosts an after-hours business connections party on his personal yacht; it crashes, causing serious injuries

3-19

Umbrella Coverage: Determining Amounts

• 5–15 times income and/or net worth• The higher the income and net worth, the

more important this becomes.• Higher risks and higher returns may

indicate covering both net worth and high multiple.

What should your clients have for umbrella coverage? Why?

3-20

Plan Development #8 - Umbrella• What are you

suggesting and why?

• Explain your case!

• Questions?

3-21

Dudellas: P & C Issues

• No umbrella policy

• Additional risko riding lessonso horses, snowmobiles, and jet skis

• Personal property (ring, antique, computers, guns) not covered

• Deductibles low

• Missing cost savings from combined policies

• No appraisals on guns

• Now that basement is finished, may change valuation/taxes/coverage, impacting premium and home equity possibility

• Need home inventory

• Recommend a full insurance review with P&C agent

3-22

Possibilities/Options

3-23

Building Your Executive Summary

• Total net cost increase $125 – maybe up to $300 for removing several potential catastrophic issues.

• Is it worth it?

3-24

Next Class

3-25

©2015, College for Financial Planning, all rights reserved.

Session 3End of Slides

CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAMFinancial Plan Development Course