Often overlooked in our mad scramble to pay bills and build wealth is the role of property and casualty insurance in a comprehensive financial plan. Financial losses in the stock market can be regained over time, with prudence and patience, but casualty losses, inadequately insured, often cannot.

Natural and man-made disasters can steal our hard-earned wealth in the blink of an eye. It is these losses, infrequent but of great cost, that require insurance. That is why a well thought out property and casualty insurance program should be part of any financial plan.

Insurance of property is easy to take for granted. Buy a new car and with a simple call to an insurance broker we bind coverage and drive away. Buy a house, and at closing all we need is an insurance binder with the mortgagor named as the additional insured in case the place burns to the ground. Start a business and little thought is given to the use of the home for business purposes.

Generally, it’s not the loss of the property that is the real concern in the above instances; rather it is the potential cost of liability claims that accompany property or business ownership.

Liability comes with property ownership and personal and business activities, and can be easily overlooked in personal insurance plans. For example, it is not uncommon for me to review client insurance files and see automobile liability insurance limits of $50K per occurrence, while the same client has a homeowner’s policy with a $300K liability limit.

Neither of these policies will be sufficient to pay claims if the client is at fault in an automobile or property accident and the injured party wins a 7-figure settlement. To guard against this risk our client should purchase a low cost umbrella liability plan that offers a high total coverage amount, usually $1M or more.

Umbrella policies for liability are “stacked” on top of automobile and homeowner policy limits. The insurance is not expensive because the automobile or homeowner’s plan must pay the first dollar of claims, up to that plan’s limits. However, these two plans must carry high enough liability limits in order for an umbrella policy to be added.

In addition to high enough limits, a good automobile policy will have adequate uninsured and under-insured motorist limits. It will provide coverage in the event someone borrows your car.

Too often, homeowner’s and automobile plans are purchased with cost in mind and not the coverage required. A common mistake is to pay for a lower deductible and a lesser liability limit. When buying insurance, keep in mind that the greater loss is not the deductible amount; rather it is the much higher liability or property damage potential. Therefore a better idea is to pay for increased liability limits and keep the deductible limits higher. In this case the total cost of the insurance will stay about the same, but the potential big dollar loss will be covered.

A good homeowner’s policy will insure the replacement cost of the home and not the home at market value. This is particularly important for older homes where the replacement cost may greatly exceed the market value due to changes in building codes and the difficulty inherent in replicating older construction.

Finally, the small business owner who elects to use their personal residence for business purposes should consult with their agent to obtain coverage for their business activities and equipment that are specifically excluded from most homeowner coverage.