S4E5 Transcript: The Insurance Lady Answers Your Biggest Questions About Insurance
[00:02:50] Cathy Curtis: Ruth Stroup, thank you so much for being on my podcast, Financial Finesse. I can’t wait to talk to you about all things insurance.
[00:02:56] Ruth Stroup: I’m so glad to be here. Thanks for inviting me, Cathy.
[00:03:00] Cathy Curtis: So, Ruth, as you being an insurance person, and I know being a financial planner, that many times we prepare for one thing and then something different happens. And so we are gonna talk about things like that and what could go wrong.
[00:03:16] Cathy Curtis: And I’m gonna tell a short, personal story that we could start with. So I live up in the Oakland Hills, which is a beautiful woodsy neighborhood. Very quiet, peaceful. And, but the homes are separate from each other, lots of foliage around the homes, et cetera. And what we worry about most up here is fire.
[00:03:40] Cathy Curtis: And, but unfortunately, I was away on vacation recently and our home got burglarized. So of course we had to make a claim. And even though I am a financial advisor and I know a lot about insurance, when it happens to you, you realize that you don’t know everything. And one of those things is what is covered and what isn’t.
Ruth Stroup explains what’s covered and what isn’t covered by homeowner’s insurance if your home is burglarized.
[00:04:02] Cathy Curtis: So I thought maybe you could talk to that a little bit. I know you have a ton of experience in this area. And give our listeners an idea of what they can expect if this happened to them.
[00:04:14] Ruth Stroup: Great, Cathy, that’s such a great question. I find all the time that people think insurance, when we, when it comes to having a claim, we think insurance covers everything.
[00:04:24] Ruth Stroup: And when it comes to purchasing insurance, we’re trying to find all the ways to save money on our insurance. And those two things can be at odds. So when I work with clients, one of the things that’s the most important to me is to find out what matters to them. For example, if someone has a lot of jewelry or fine art or firearms for that matter, if they have things that they collect, they need special insurance for that.
[00:04:52] Ruth Stroup: And nobody really thinks about it because we don’t go out and buy the full collection at one time. We buy once, this birthdays, anniversaries, a special treat, a celebration of some sort. And so collections don’t come to us fully formed. They’re created over time, and we don’t think about how much they’re growing in value because we’re spending our cash flow on them.
[00:05:18] Ruth Stroup: Years ago, I had a client. This was back when I worked as an investment advisor over at Charles Schwab. He was in Castro Valley, he lived on a cul-de-sac. He was the survivor of three or four brothers, sisters, extended family members had passed away. And in his basement he had multiple sets of silver tea service, silver flatware, golf clubs, hobby things, tools. And somebody broke into his house, filled up the car.
[00:05:51] Ruth Stroup: He had parked in the garage with all the items that were in the basement. Drove away with them to sell them for 10 cents on the dollar, whatever else they were gonna do. He lived on a cul-de-sac. The neighbors saw his car come and go multiple times. But because it was his car, they never questioned it.
[00:06:12] Ruth Stroup: And I think, and he was talking about filing for the insurance claim. But in his case, in the world of what can go wrong around theft, which we’re seeing more and more of here in the east bay and in California, in general, all the items he had were sort of family inheritance. And it’s not like they got to be in the centerpiece of the dining room table.
[00:06:34] Ruth Stroup: They were in the basement. So if he had asked me as an insurance agent today, what I would think about insuring those items, I would ask him, did it have sentimental value? Which means I’ll be sad when it’s gone, but I won’t replace it. Or does it have financial value? Which means I’m gonna wanna replace this.
[00:06:56] Ruth Stroup: And when we have a fire, we have much more of a, of our things that we definitely want to replace.
How to insure different types of jewelry, whether it’s costume, gems and metals, or fine jewelry.
[00:07:03] Cathy Curtis: Yeah. Ruth, let me step back a minute. I wanna share my personal story on a collectible, a collection I had before we go into fire. So in my case, and a lot of women do this. I’ve been collecting jewelry for years and I’m not talking fine gold and gem jewelry.
[00:07:20] Cathy Curtis: I’m talking artisanal. Unique pieces that I find when I’m in Europe or on a weekend getaway in Sonoma or Napa or whatever. And I could tell you every piece I had, where I got it, and the story behind it. So I didn’t insure it because each piece was not a lot of value. And I didn’t worry as much about it as my fine jewelry.
[00:07:46] Cathy Curtis: Again, each piece was, every single piece of that collection was stolen. The thieves dumped out my jewelry chest and stole every single earring, bracelet, necklace that I had been collecting over the years. And that hurts. It really does. And I’m not gonna be able to replace it. It was probably worth about $15,000 in total.
[00:08:07] Cathy Curtis: And insurance doesn’t cover that. Cause I didn’t have any of it appraised. It, it wasn’t worth appraising any of it. So that’s a really good example of something you’re talking about. Now, if I had, if you were, if I had come to you and said, can I insure that? I really wanna insure that collection. Could that have been done?
[00:08:24] Ruth Stroup: It can. People don’t really, I, there’s a way I always ask the difference between is it costume jewelry, which is in the under $100. Is it fine jewelry? So $500 to $2,500. Or is it gems and metals? And I know people who insure none of it. I know people who insure all of it. There’s a way to insure them a little bit differently.
[00:08:49] Ruth Stroup: So a collective amount for smaller items and a, an itemized amount for larger amounts. But the jewelry company we work with. If it’s special enough to add it, it’s inexpensive to have, you can either have your most important pieces insured. Or if you collect stuff, you can insure it all. And then, and then you have to, the thing is to get replacement cost and insurance, you have to replace things.
[00:09:18] Ruth Stroup: And the items you have are more of a what’s the market value than what’s the replacement value. Because there are, they are all artisanal. But I see lots of ladies, I say, do you sparkle? And they do. Then I ask if they have special insurance for that. And most don’t, and then nobody knows what it costs.
[00:09:39] Ruth Stroup: So they don’t know what they’re saying. Yes or no to the men and their watches are exactly the same. Got a bonus, buy myself a $10,000 watch. My stocks vest, got myself a $10,000 watch. Had a baby, got myself a $10,000 watch. And over a decade, somebody might have 3, 4, 5 watches because they had occasions to, to mark with the watch.
[00:10:04] Ruth Stroup: Maybe one watch is not such a big deal, but $50,000, a hundred thousand dollars’ worth of watches. Many men have that much in their closet.
[00:10:11] Cathy Curtis: And it, and insurance does not cover watches. Is that correct?
[00:10:15] Ruth Stroup: It treats them as jewelry.
[00:10:17] Cathy Curtis: Yeah. Okay. What about silver sets of silverware? That’s not covered either, unless you have a rider.
[00:10:24] Ruth Stroup: Silver’s different because silver has limits on the policy.
[00:10:30] Ruth Stroup: But in the old days back when the flea market was the thieves market, what people went to buy back was their family silver. There was definitely a market for it. Today, grandma’s silver, every, every millennial’s, worst nightmare to have grandma’s silver delivered to them. To be the caretaker of dusted tarnished silver.
[00:10:58] Cathy Curtis: Oh man. Yeah, my aunt’s, my favorite relative in the whole world. I cannot believe that they took it because I know what you’re saying. You could find it in any consignment store, flea market.
[00:11:15] Ruth Stroup: And you can insure silver collectively without an appraisal.
[00:11:19] Ruth Stroup: It, it just the issue with the theft of silver, silver tableware, where it’s so much less. Your people either, they were either, they know, like when they get that personal on what they take. They’re looking for something or something bigger. That’s very malicious. And I’m so sorry that happened to you.
[00:11:39] Cathy Curtis: Yeah. I know it was strange to think some of the things that they took for.
[00:11:43] Ruth Stroup: Usually what they do is they go through all your drawers and all your closet and all the known, hiding places that people think that thieves don’t know about. And they look for cash, especially cultures that keep cash at home.
[00:11:59] Ruth Stroup: Yeah. They look for things that they can sell easily. So they like shoes and they like, they love handbags. They also like handbags because the handbags can hold stuff as they’re taking things away. Uh, I got broken in two years ago. They used my luggage to steal my stuff. Yeah.
[00:12:18] Cathy Curtis: Yeah, they, I got several bags stolen that were obviously used to carry, cart things.
[00:12:24] Cathy Curtis: But they knew to take my nicest bags though.
[00:12:27] Ruth Stroup: Yeah. These were designer shoppers. Oh my gosh.
What people can do to mitigate the damage if they get burgled or their home is destroyed by fire.
[00:12:31] Cathy Curtis: Oh, given that, let’s, what is some good? You can’t prevent everything, but what, what are a few things people can do to try and mitigate the damage if they do get burgled?
[00:12:44] Ruth Stroup: So in any kind of claim you wanna do almost like a fire drill for your claim.
[00:12:52] Ruth Stroup: And the first question is, would I replace that? So believe it or not, most people have more money in clothes than anything else and most of us could pair our closets down by half. The first thing to say is if the insurance company did not pay me for this, would my life be the same? Like I might be sad.
[00:13:16] Ruth Stroup: but would my, would I change? Would it, would I be able to pay my housing or rent? Would I be able to pay my taxes? Or would I be able to eat the same way I ate? Will I have enough cash reserve for the long term? And I get very existential about things because if your quality of life wouldn’t change, if you don’t have the item and if you would not replace.
[00:13:42] Ruth Stroup: It’s terrible that someone took it, but it doesn’t have any financial value. It only has very high sentimental value, like your silver set from your aunt. And so I tell people that I really focus my insurance dollars on things that I want to replace. Okay, because then it has real financial value.
[00:14:06] Ruth Stroup: So for example, most people’s wedding rings, they would really want to replace. But an inherited wedding ring, hard to know. A wedding ring that has value after a divorce, hard to know.
[00:14:18] Cathy Curtis: Let’s take example, eBikes, which mine was going by the way. So Rob and I love eBikes. And it does enhance the quality of our life in a big way.
[00:14:32] Cathy Curtis: We take road trips with them, et cetera. So those were stolen. We definitely wanna replace those. So that’s a good example. Whereas my leather coat collection, am I gonna miss it? Yes, but am I, do I have to have all those? No, it’s a really good distinction because a lot of the stuff is just material stuff that you’ve collected that is not gonna change your life in any way.
[00:14:58] Cathy Curtis: So I, I think that’s a really excellent way to think about what to insure and to use your dollars wisely when you’re buying insurance. Yeah.
[00:15:06] Ruth Stroup: And I segue then, Cathy, too, people who are having a hard time getting insurance because they live in a location that’s now difficult to insure due to the wildfires we’ve seen over the last five years, since 2017. And with those policies, what should I, my first question to the people is would you rebuild?
[00:15:26] Ruth Stroup: I’ve worked with lots of seniors who are 70+ years old. They don’t wanna build another house. I talked to other people, they’re like, we love where we live. We would absolutely wanna rebuild. And so we set up the insurance based on what they expect the outcome to be. So sometimes I ask people what’s your next house and how soon in the future is it?
[00:15:51] Ruth Stroup: And for somebody who lives, let’s say in a house with a couple of stories worth of stairs and their next house is something with no stairs, potentially in an area with much less fire risk or closer to family or closer to medical, then a fire might only accelerate that move. What you want in a fire insurance policy is replacement cost, but that means you replaced your home.
[00:16:20] Ruth Stroup: You’re not required to rebuild it.
What to do if your insurance policy goes into non-renewal because you live in a high-risk zone for wildfires.
[00:16:22] Cathy Curtis: Okay. Now the insurance world in California has changed a lot because of the fires. So what in, especially in areas like Napa or here in Oakland and other areas, and some people’s insurance policies have been canceled due to that. What do you, what do you do in that case?
[00:16:45] Ruth Stroup: In the insurance business, we call it non-renewal. Canceled is like when I don’t make a payment and then they cancel me midterm.
[00:16:53] Cathy Curtis: Okay. Thank you for correcting me. Non-renewal.
[00:16:55] Ruth Stroup: Super important distinction because of the timeframe. If the insurance company is going, the insurance cycle if a policy is issued.
[00:17:04] Ruth Stroup: The insurance company does an inspection in the first 60 days. And if they find deficits in the property condition, they give you 30 days to remediate that. And at the end of that 30 days, if you don’t show proof of the updates, then the policy will cancel at any time until the next renewal. The only reason the insurance company could cancel coverage is if there is a, is if there’s non-payment. So assuming the payments have been made, then when it comes up to renewal, that’s the only time the insurance company can evaluate the risk and decide if it fits their current profile or not.
[00:17:47] Ruth Stroup: And this will change year by year, carrier by carrier. And it’s con, it creates a lot of confusion and a lot of bad feelings.
[00:18:04] Cathy Curtis: But I brought this up because that is definitely a distinction. So policies cannot be canceled just one day. They say, sorry, we can’t insure you anymore.
[00:18:19] Ruth Stroup: Nope. Insurance companies have to wait till the renewal date, and they must give you 90 days to shop for your new coverage. So if they miss the win, so if this is not taken lightly, insurance companies are, they wanna grow just like any other business. And they have lots of masters. They have to have a certain amount of reserve to be able to issue a new policy.
[00:18:42] Ruth Stroup: And the regulators really watch the insurance company’s capacity to pay claims. And some of the way we get that capacity is we buy insurance on our book of business in the industry. We call this reinsurance, right, that’s a big business. The reinsurance companies for years, they would collect money every year.
[00:19:05] Ruth Stroup: And then once in about 20 years, something really terrible would happen and they’d have a big payout. They’ve had record payouts in four of the last five years, they have changed their criteria. And if an insurance company needs the reinsurance in order to have capacity to pay, we don’t just have to pay by the regulator’s rules.
[00:19:27] Ruth Stroup: Now we don’t have to just pay by trying to run a good business rules, our own internal things. We also have to pay by the rules of the reinsurance. And it’s that number of constituencies that get involved in things that make insurance complex and that make insurance companies sometimes have to change their guidelines more quickly than you might expect.
How reinsurance companies impact the insurance industry.
[00:19:51] Cathy Curtis: So the reinsurance companies are really dictating a lot of what’s going on.
[00:19:56] Ruth Stroup: They have a pretty big impact. But you have to understand that it’s not just, they don’t just pull a lever and say, hey, insurance company, make a change. It’s, we go to them to get capacity. We have to have capacity to pay in order to maintain a certain book of clients.
[00:20:15] Ruth Stroup: The regulators look at the reinsurance companies for years, it was a very profitable business on the idea that you’d pay out big every once in a while. But every once in a while has become every year. And so they’re looking for their, the comp, their clients, the insurance companies to qualify for reinsurance.
[00:20:34] Ruth Stroup: We have to do, we have to do things a little bit differently in terms of our, the big data. And what’s in our book of businesses and we have to pay more for it too.
[00:20:44] Cathy Curtis: Okay. So let’s, let me just give an example. Let’s say in your book of business, whoever does this, I identify five homes in your book of business that are fire, big fire risk.
[00:20:56] Cathy Curtis: And so you notify at the renewal date, you notify the homeowner. These are the things they need to do to mitigate fire danger?
[00:21:09] Ruth Stroup: No, sometimes it’s this location no longer qualifies, hard and fast.
[00:21:13] Cathy Curtis: Ah, okay.
[00:21:14] Ruth Stroup: So in, and it could be a client that just signed up last year. It could be a client who’s been with you for 40 years.
[00:21:21] Ruth Stroup: We don’t get to pick his agents.
[00:21:22] Cathy Curtis: Okay. So then that homeowner by law has 90 days to shop for new coverage.
[00:21:32] Ruth Stroup: Correct. And the marketplace is everchanging and every insurance company has their own data modeling for risk. So you might be with an insurance company that can’t shop for other policies for you.
[00:21:48] Ruth Stroup: So you need to find both a new agent or broker. And a new carrier. And then as well as a new policy, other people you might be with the agent or broker may be able to place you somewhere else within their suite of carriers that they offer. So the shopping experience is different for everybody.
[00:22:07] Cathy Curtis: I’ve had clients experience both of those ways that you’re describing. Okay, so that, and then what is the average rate increase in that case? Is it quite large?
[00:22:19] Ruth Stroup: It, when people are non-renewed due to wildfire risk, the new policy can cost between two, two times to five times more than the current policy.
Ruth Stroup shares the reasons besides wildfire danger that an insurance policy may be non-renewed.
[00:22:29] Cathy Curtis: Okay. Okay. Are there any other reasons besides fire danger that a policy would not be.
[00:22:37] Ruth Stroup: Absolutely. Okay. And unfortunately, and claims is a major reason that insurance companies will non-renew clients. So yeah, some clients like whenever somebody has a potential claim, I’m like, let’s look at this and make sure it’s worth it to file this claim.
[00:22:59] Ruth Stroup: And worth it means things like how much will impact my. And will it impact whether or not I can get insurance with you? And if I’m going to sell my house in the next five years, will it impact the new buyer’s ability to get insurance?
[00:23:16] Cathy Curtis: Oh, that’s really critical. So let’s dig into these a little bit. So do you know, you can tell how much more it will cost on the next renewal date. If they make a claim of so much dollars?
[00:23:32] Ruth Stroup: I have an idea. So every carrier has its formula for rate surcharges. And I get Farmers. We have a surcharge for a claim as well as we have a discount, if your claim’s free. So I tell, my formula for whether or not to consider filing a claim is your current deductible plus your current premium. And if it’s less than that, you shouldn’t file a claim.
[00:24:02] Cathy Curtis: Okay. All right. But that doesn’t sound like it could be, like let’s say your deductible’s $2,500 and your current premium’s $3,000.
[00:24:12] Ruth Stroup: You wouldn’t even consider reporting it until it’s $5,500 or higher there.
[00:24:19] Cathy Curtis: Okay. All right.
[00:24:20] Ruth Stroup: Now, a lot of people, the number one, you know, we’ve talked about theft. We’ve talked a little bit about fire. But the real, most common claim we see in the home insurance industry is water damage. And water damage is one of those things, like what was the source of the water?
[00:24:38] Ruth Stroup: How long was the water damage? How long, was it a slow leak or a burst pipe? There are so many variables in water damage that I invite all my clients to call me if there’s anything going on with water in their house. Because just like that example where I said, even a former owner can impact the insurability of the house.
[00:24:58] Ruth Stroup: It’s those water damage claims. And what happens is someone calls to say, oh, we need to get the house ready for the market. So let’s send it to Oz and get, give it a good fluff and, and a contractor. Will we need to replace his pipes or here’s this old leak? And they tell the owner, who’s usually a retired person downsizing.
[00:25:20] Ruth Stroup: Oh, let’s see if your insurance company will pay for some of this. But oh, it’s wear and tear, old routine maintenance. So the homeowner calls the insurance company. And the insurance company declines the claim, but it’s water. So it’s given a red flag to the next insurance company that there’s a water, a potential water loss at this property because somebody called in and had a concern about water damage.
[00:25:47] Ruth Stroup: And since water damage is the number one cause of loss, some insurance companies won’t even touch a $0 claim.
[00:25:56] Cathy Curtis: Whoa. So I’ve often I know this, that you have to be really thoughtful and careful about when and why you call your insurance company. This is a perfect example.
[00:26:06] Ruth Stroup: And you also have to understand who you’re speaking to at the insurance company.
[00:26:12] Ruth Stroup: So I’m an agent. If somebody calls me and says, hypothetically, how will the policy respond? We can run through all the hypotheticals, but if you have insurance with a company where you call directly into an 800 number all in, they say, let’s have you talk to claims. Every claims call is recorded.
[00:26:32] Cathy Curtis: Okay. So am I right on this, that you as an agent and not just you, even though I know you’re great are an advocate for the client.
What Ruth can and can’t do as an insurance agent when helping her clients navigate claims.
[00:26:45] Ruth Stroup: I’m a navigator. So I can’t tell claims to pay or not to pay. I can’t tell them how much to pay. I can’t do any of that, but. And every carrier has its rules. In my carrier, Farmers, I’m allowed to review hypotheticals with anybody, any time. Will it make, how will the insurance company respond to this set of circumstances?
[00:27:09] Ruth Stroup: And I cannot tell them not to file. Like I sometimes I’m like, I personally think that the insurance company is likely to decline this claim. But the only way you’ll know if it will be declined is if you, it’s up to you. People are regularly asking me in the name of optimizing their insurance. What’s that little magic dollar limit where yes, I absolutely should file a claim.
[00:27:34] Ruth Stroup: What I find is many people think that they won’t file a claim until it’s say, over $50,000. And it might be in their best interest to file a claim for $20,000. And so in this market where insurance rates have become so high, the folks sometimes just give me the highest deductible. But the price difference between the highest deductible and something that’s a little more user friendly may not be very much. So in the sales process, when reviewing the coverage and getting ready to purchase or to renew, I use this formula I call bank the difference.
[00:28:08] Ruth Stroup: And so if there’s a difference in deductible, let’s say between I’m gonna use numbers so I can do the easy math. Between $5,000 and $10,000, right? That’s a $5,000 difference. Now let’s say I save $500 for taking additional $5,000 of risk. It would take me 10 years, $5,000 divided by 500, to bank the difference if I took the savings.
[00:28:39] Ruth Stroup: In the difference of the cost of the insurance policy and put it in the bank every year. It doesn’t in my world. My, I tell people in home insurance, the average claim is about once a decade. So if you can bank the difference in five to, and under five years, absolutely take the higher deductible.
[00:29:00] Ruth Stroup: Five to seven years, maybe seven years or more, consider the lower deductible. Ten years, absolutely. The lower deductible is giving better value. And in car I have a little shorter timeframe, three years for absolutely take the higher, three years where you absolutely take the savings. In about five years where you probably are be, get better value with the lower deductible.
[00:29:28] Cathy Curtis: I love it. That you have all these formulas you use. I’m sure you’ve developed those over the years of being.
[00:29:35] Ruth Stroup: I’m terrible at math. It’s what I call chunky math. It helps me. Describe a concept without getting too technical.
[00:29:44] Cathy Curtis: Yeah. Ruth let’s, I wanna just segue just a tiny bit and just ask you, you’ve been doing this for a long time.
[00:29:50] Cathy Curtis: Just talk a little bit about yourself for a minute.
[00:29:53] Ruth Stroup: Sure. I am 16 years in the business now. My agency is with Farmer’s Insurance. We do Farmer’s Insurance, and then we broker things that Farmer’s doesn’t offer. So that’s one of the reasons why we’ve become such experts in the high fire risk. Because farmers doesn’t offer that.
[00:30:12] Ruth Stroup: So I’m not in a compete situation. This is my third career. I was a cook for a decade. I worked for Charles Schwab for a decade. And now I’ve been doing insurance for longer than anything else. I love it because the insurance is pretty much the same day in and day out. You could think it was boring, but the people are all special and unique and different.
[00:30:36] Ruth Stroup: And I just love all the different people I get to meet when I was at Schwab. We slowly but surely, we’re only serving the more and more affluent. It’s a great American dream to own a home and more people participate in that than might use services like yours, Cathy, like a financial advisor. Because it’s just a more ordinary thing people do.
[00:30:57] Ruth Stroup: So I serve a much broader clientele than I had exposure to at Schwab. Which means that I get to work with a much more diverse clientele and I get to be Oakland-based and really serve this community. We serve the entire state of California, but the lion’s share of our clients are here in Oakland.
[00:31:16] Cathy Curtis: Okay. Well, I wanna make one comment about the insurance thing as far as I’m concerned as a financial advisor. I am an investment advisor, but I’m also a financial planner, and insurance is absolutely the bedrock of any good financial plan. And yes. People, I think people make a mistake thinking it’s boring. When I talk to you about it, it certainly doesn’t seem boring.
[00:31:37] Cathy Curtis: And it is so important to know all the different layers of your insurance policy. And I think people, when they’re talking to their agent, like you, they’re getting the information they need and their questions answered. But then they get the policy, they file it away. They never read it. And they’re not really aware of their coverages until they have to make a claim.
[00:31:57] Cathy Curtis: And maybe not, all of them have good insurance. You called it navigator. So I’ll call it navigator. I like to think of it as an advocate too, but they may not have that.
[00:32:08] Ruth Stroup: So most people, their first insurance, they buy on the internet or an 800 number where they don’t have anybody that advises them.
[00:32:17] Ruth Stroup: And then from watching your own clients that most people, especially if they’re planning and they have goals, their life expands and they have more money and more at stake. And sometimes they also have more in terms of debt because they use debt in order to build their assets, especially if they’re investing in real estate.
[00:32:37] Ruth Stroup: So. We, I regularly see people who have just the bare minimum limits for liability on their car insurance, because they bought it when they had nothing, and they just renew it. And nobody says, hey, what is your job today? What do you earn today? Do you have savings and money in the bank? Do you own real estate?
[00:33:00] Ruth Stroup: And so people will have just the bare minimum limits and not think twice about it because it’s a bill they pay. It’s not a policy they count on.
Cathy asks Ruth Stroup to give a mini tutorial on liability and umbrella insurance.
[00:33:11] Cathy Curtis: Let’s talk liability now that you’ve brought it up. In particular, buying an umbrella policy. Can you do like a mini tutorial on that? Because I have to explain umbrella quite often.
[00:33:22] Ruth Stroup: Sure. So with umbrella we see that the most common misunderstanding about umbrella is that people think it covers gaps in their coverage for their own personal property. And that’s the one thing it doesn’t cover is your personal property. What umbrella does is it provides money for a legal settlement.
[00:33:46] Ruth Stroup: And the attorney that comes with it in the event that you’re sued usually for an injury to a third party, the most common use of the umbrella policy is a car accident. For a business, the most common use for any kind of liability coverage is just a simple slip. And there are, what people don’t realize is that they can host a social gathering in their home or in a restaurant or a rented facility, like a country club or a social hall and their guests.
[00:34:24] Ruth Stroup: Any one guest could have a terrible accident on the way home. And if they had alcohol at your event, you can be added to the number of people who are named in a lawsuit for the person who was injured. That’s big. So the four categories I look at for where your money is to see, do you need more protection for your money?
[00:34:48] Ruth Stroup: So the umbrella insurance impacts, it protects your assets. So the first is anything not in a retirement account. So if you’ve got somebody at a company that’s getting company stock, if you’ve got somebody that’s always saved and has a couple of CDs that, no matter what it is, the non-retirement. Stocks bonds, mutual funds, CDs, bank accounts.
[00:35:12] Ruth Stroup: That’s the first layer of things we wanna make sure we protect.
[00:35:15] Cathy Curtis: That’s all the non-retirement things that I call them. Taxable accounts. They beat people’s brokerage accounts, things like that. Okay.
[00:35:24] Ruth Stroup: And then the next thing that people have no idea about is that their wages could be garnished.
[00:35:29] Ruth Stroup: So you can be fresh outta school, have a big student loan, have a big career in front of you. And maybe you’re making $150,000 a year, but you’re still driving on minimum car limits, like $15,000 per person injured. And if you had an accident that you couldn’t pay for, they could garnish your wages even for as much as a decade.
[00:35:53] Ruth Stroup: And that would change your quality of life forever. So even people who don’t have stuff, if they have wages, they need better coverage. And I really like the umbrella policy for them.
[00:36:04] Cathy Curtis: Okay. Let me clarify something. Are IRAs at risk to judgment, to creditors in California?
[00:36:11] Ruth Stroup: They are not technically, nothing in the retirement suite is technically at risk of creditors.
[00:36:18] Ruth Stroup: How I always look at the OJ Simpson case, civil case. OJ’s money was primarily in the NFL pension, every pension payment could be garnished. Every, like it’s not technically at risk. But if that’s where your money is and you have to pay a settlement, you may end up taking the money out plus taxes, potentially plus a penalty in order to do that.
[00:36:48] Ruth Stroup: So I always round up. And if a person has significant retirement assets, I wanna at least think about them. And then I feel the same way about home.
[00:36:59] Cathy Curtis: It’s up to the judge in some cases, right?
[00:37:01] Ruth Stroup: If they, or they might say the judgment is half a million dollars and you have a hundred thousand in coverage.
[00:37:08] Ruth Stroup: So now you have to figure out where to get the other 400, and you make an arrangement with the, I will liquidate assets and pay a hundred thousand. I will accept wage garnishment for this period of time. I will this or that. And the insurance company wants so much to settle within your policy limits, but you have to give them some tools to be able to do that.
[00:37:33] Cathy Curtis: Is this a really common claim? What percent?
[00:37:37] Ruth Stroup: It’s not a, so this is one of those funny insurance things where it’s, you don’t wanna play the odds. You don’t wanna gamble with it. If you have the assets at risk, you want to have coverage. Because here’s what happens. An attorney in the bay area costs about $500 an hour.
[00:37:57] Ruth Stroup: A $1 million liability policy with the attorney coverage that comes with it costs, depending on what you have to cover, plus or minus $500. So it’s like having an attorney on retainer, right? It’s some of the best, and it’s inexpensive because it’s rarely used. But do you wanna be the poor soul who needs it and doesn’t have it?
[00:38:22] Cathy Curtis: I sure don’t. Now let me ask you this. There are some technical things like you have to have so much in your liability limits on your auto and home before you can add umbrella. Is that correct?
[00:38:35] Ruth Stroup: That’s correct. So one of the reasons umbrella is expensive is because the small things are handled by the underlying policy. The cars, the motorcycles, the boats, the houses, the income, the rental property, the vacation house. All of it needs to have a certain level of coverage.
Ruth Stroup shares what she believes is the best kept secret in the insurance business.
[00:38:54] Ruth Stroup: And it’s normal to, to like to have those coverages. It’s not high coverage. And then for my high earners, I like to add an, I have the opportunity to add an additional $1 million, uninsured/underinsured motorist coverage to their policy. And this is the best kept secret in the insurance business.
[00:39:22] Ruth Stroup: Most of my clients who are going to be in a terrible accident. It’s not going to be their fault. They’re not going to be the one paying. They’re gonna be the party that’s injured. And the person who injures them is likely to have terrible insurance because they’re expensive to insure. They’re a new driver, bad driving record, possibly a DUI record, maybe even uninsured, maybe stolen car they didn’t have a right to drive.
[00:39:53] Ruth Stroup: And your policy can, the uninsured motorist pays when your loss is above the amount of coverage available in that other party’s policy. So if that other policy is only paying $15,000 per person, or maybe the boiler plate policy is paying a hundred thousand per person, but your combination of medical loss wages and lingering effects is more than a million dollars.
[00:40:27] Ruth Stroup: It makes a big difference to have uninsured motorist on your umbrella policy. And it’s very inexpensive and it’s a really good protection for people who have a high income, because it’s that wages piece.
[00:40:43] Cathy Curtis: Yeah. That’s so important. Now, why is this such a secret?
[00:40:44] Ruth Stroup: Because it’s inexpensive. I regularly see policies where the insurance companies sold the client, less uninsured motorists from the regular liability.
[00:40:56] Ruth Stroup: Maybe a lease required 100, 300 limits of liability, the person was trying to control costs or cut a corner. The agent sold them $30,000, $60,000 and the insurance company only has to pay out if your coverage is greater than that, of the party that injured you. So it’s a very inexpensive coverage.
[00:41:19] Ruth Stroup: It’s misunderstood if you’re in a car accident and you’re a pedestrian. A bicyclist. A passenger of any vehicle or a driver of any vehicle. And it’s another driver’s fault. You can use this coverage if their insurance is inadequate for what your needs are.
[00:41:38] Cathy Curtis: Do all carriers offer this option? Do you know?
[00:41:41] Ruth Stroup: It’s required by law to, it’s required by law to offer it. And we have to make, you have you sign a disclosure if you take less than what we give, the way people DocuSign these days that do it blind. They don’t even know they’re being offered less.
[00:41:55] Cathy Curtis: No, it’s true. Thank you. That is an awesome tip, Ruth. Thank you so much for that one.
Cathy and Ruth talk earthquake insurance.
[00:42:02] Cathy Curtis: Let’s talk earthquake insurance. Now, most of the people I think that listen to this podcast are in California. They may not, but everyone knows the risk of earthquake in California. So what could go wrong there?
[00:42:15] Ruth Stroup: Most people don’t buy earthquake insurance. And they don’t realize what their responsibilities might be to their lender.
[00:42:25] Ruth Stroup: And in order to, if their house has severe damage from earthquake coverage, most people also don’t realize that they can shop around for earthquake coverage. That there’s more carriers than the earthquake authority. And lastly, most people think the earthquake authority is part of the California state government and receive funding from the state.
[00:42:46] Ruth Stroup: And they do not. They receive funding from policy holders and insurance companies. And then lastly, many people have the belief that FEMA or some other federal organization will help them after an earthquake loss. And they do not realize how limited those funds are and that they shouldn’t be relying on them.
[00:43:09] Cathy Curtis: Okay. So, what do you advise your clients to do in California?
[00:43:15] Ruth Stroup: There are several profiles of clients who I feel really need to buy earthquake insurance. What we learned during the mortgage crisis back in 2008 to 2010 is many people walked away from a mortgage, took a break and restarted their lives.
[00:43:34] Ruth Stroup: And they did not. If anything, they, they didn’t experience a big financial loss. They may have hurt their credit for a while, but it wasn’t impossible in our agency. The people we see who really care about having an earthquake policy are people who have over a quarter million dollars in home equity. For a lot of people, that’s a down payment the bank would not let them walk away from.
[00:44:06] Ruth Stroup: Their loan, even if the house was severely damaged and uninhabitable, that’s. People, if your income is so high there, you’re not gonna be able to do, to just walk away the way people walked away in the mortgage crisis. Because the people who walked away in the mortgage crisis didn’t have that much skin in the game.
[00:44:24] Ruth Stroup: They like, they may not have had the high paying jobs.
[00:44:29] Cathy Curtis: Well, yeah, they may not have had income. You didn’t have to document income on a lot of those loans that were done in those days.
[00:44:36] Ruth Stroup: But today’s buyers go in and buy a house over a million dollars very often and with 20% down or more. So they start with quite a bit of skin in the game.
[00:44:47] Ruth Stroup: Many of those people to afford their mortgage have a very high income. Too high to be able to justify a quick claim on a property that still owes hundreds of thousands of dollars. The third is a category that has more to do with you and me, Cathy. There are some professions where you could pick up and move and go live somewhere else.
[00:45:11] Ruth Stroup: But if you don’t have good credit, you can’t get a job. So we both work in financial services, and if I hurt my credit rating, because a bankruptcy or a quick claim on a house after an earthquake, I might not be able to be employed. Some people in the federal government have the same issue. So people who need to keep clean and good whose employment requires good credit.
[00:45:37] Ruth Stroup: They absolutely wanna make sure with an earthquake policy that they won’t lose their credit because they had to walk away from a house that was badly damaged in an earthquake. And so those are the three money reasons. And then there’s site specific issues. There’s some houses that the type of construction they are, they’re top.
[00:45:58] Ruth Stroup: And the more top-heavy your house is, the more you need really good retrofitting so your house doesn’t come separate from your foundation. And the more potential you have for damage. So the earthquake carriers set the rates based on the site specific risk, proximity to fault lines, and then the, the configuration of the house and the age of the home.
[00:46:23] Ruth Stroup: If the policy is expensive, the bad news is you probably need it because you’re a higher risk client. Or your property, your location is higher risk. And I have clients who do one of the three following things, they retrofit and skip the insurance. They feel like they’ve done enough site improvement to feel safe and secure.
[00:46:47] Ruth Stroup: And that’s what they, how they wanna spend their money by mitigating risk. Some people buy the insurance and don’t do the retrofit because they have insurance. Some people do both. The majority of people by and large don’t buy earthquake insurance. And the challenge we’re gonna have in the bay area is if we have a serious earthquake, we will have very local, highly localized changes to our economy.
[00:47:16] Ruth Stroup: The bay is one of the largest economies, not just in the country, but in the world. Being prepared for an earthquake is really important.
[00:47:25] Cathy Curtis: Yes. One of the arguments I hear about buying earthquake or not is, oh, the deductible’s so high. It just doesn’t make sense to buy it. What is your response to that?
[00:47:33] Ruth Stroup: I always, whenever anybody says something’s expensive, I always say compared to what? Right?
[00:47:37] Ruth Stroup: And then you could even plan for a high deductible, and people will take money from places they might not ordinarily take money from if they need to pay its deductible. So for example, you won’t be able to get a home equity line. If your home is badly damaged from an earthquake, but you would be able to borrow from cash value, life insurance, maybe take an unexpected 401k loan. Maybe take an actual withdrawal from your, from an IRA account.
[00:48:10] Cathy Curtis: Or a margin loan on your investment portfolio.
[00:48:12] Ruth Stroup: A margin loan on the investments. People will have money from places they didn’t expect. You might get a family loan.
[00:48:18] Ruth Stroup: So the question I have for people who have, let’s say a hundred thousand dollars deductible, is what they still will have up to $700,000 of insurance. After they exceed the deductible, what’s their plan to access a hundred thousand dollars? And the people have money in their house.
[00:48:40] Ruth Stroup: Have good incomes who need to keep good credit. Those people have more access to money than they might realize if they sat down and thought about it. And people like you, Cathy, will be super important to those folks when it’s okay. If I had to come up, if you’re like, what could go wrong? Let’s find out like, where do we have a hundred thousand dollars squirreled away for an emergency?
[00:49:05] Ruth Stroup: Is it a margin loan? Is it a loan against cash value life insurance? Is it a family member? Let’s just assume it’s a not a traditional source.
[00:49:14] Cathy Curtis: Yes. So I, what you’re saying about earthquake, and I agree with you a hundred percent is again, like a lot of things. You look at each person’s situation, financial details, and you determine whether financially it makes sense.
[00:49:30] Cathy Curtis: The risk/reward to buy earthquake or not, basically.
[00:49:34] Ruth Stroup: Well insurance doesn’t have a risk reward, Cathy. It never gets you a reward. It only gets you back to where you were at the time of loss. So we don’t think about it this way. I think about it very simply in terms of what would your life look like if this asset wasn’t contributing to your long-term financial goals?
[00:49:54] Ruth Stroup: And if you’re comfortable not having that, then insurance is less of an issue for you than the next person.
[00:50:03] Cathy Curtis: Yeah. When you’re putting it that way, in the case of a total loss of a house in an earthquake, it’s pretty clear the decision you should make.
[00:50:13] Ruth Stroup: And what people wanna do is they wanna negotiate with the possibility of the risk or the potential loss.
[00:50:22] Ruth Stroup: I have a friend who lives up in Napa and he said his neighbor just bought earthquake insurance the month before the earthquake. Didn’t that guy get lucky. He only had to pay for a month of insurance before you actually got a payout.
[00:50:39] Ruth Stroup: The day people buy the earthquake insurance or any insurance is the day when the thought of loss of the entire asset is a, puts a bigger pit in their stomach than the guaranteed loss of writing a check to the insurance company and maybe never getting that money back.
[00:50:51] Cathy Curtis: Okay. Gosh, Ruth, great info on earthquake. What other, is there anything else that you’d like to add to this podcast thus far?
[00:51:01] Cathy Curtis: Important things that could go wrong? Any gems that you like? You’ve already shared with us a few real gems on insurance. I’ll give you the floor.
[00:51:12] Ruth Stroup: Sure. My, the thing I know the most about insurance is that you have to have a policy in force to be able to make a claim. That’s car insurance, home insurance, life insurance, business insurance.
[00:51:26] Ruth Stroup: So you want to test drive that insurance. And say, how will this benefit me at the time of loss? You’d never base this on return on investment. I think about it a little bit like the way I think about when I go to a casino. Will the money I put in that I spend in this casino provide me enough fun that I won’t be sad that I don’t have that money at the end of the night?
[00:51:55] Ruth Stroup: And so the money I spend on insurance needs to me, give me the confidence that if something happens, I have financial support to solve problems. And so I would say most people underinsure. Most people see insurance at, we hear all the time. People think insurance is just a racket. And I’ve lived a life where I’ve seen large claims fade out and where insurance made a meaningful difference to somebody.
[00:52:26] Ruth Stroup: And that’s been, insurance does its best work when it’s able to make a meaningful difference in your life or the life of your family.
[00:52:39] Cathy Curtis: Okay, Ruth. That’s great. And like I said earlier in the podcast. I really believe that having the right insurance is the bedrock of any good financial plan. And Ruth, you’ve offered an amazing amount of great information.
[00:52:55] Cathy Curtis: Can you share with the listeners where you can be reached and whether you write a blog or any information about you that we could share? And I’ll put it in the show notes.
[00:53:06] Ruth Stroup: Fantastic. So I serve the state of California. Most people reach me with a simple phone call at 510-874-5700. If you Google Ruth and the word Oakland, you will find me.
[00:53:25] Ruth Stroup: I am not hard to find. And on purpose, we are working on a soon-to-be-released newsletter that will be called Tuesday Tidbits. It will be 100 to 250 words of a sort of insurance focused life hack, really focusing on people who are looking to, who are in a growth mindset and wanna make sure that they have the matching protection to their assets as they grow.
[00:53:52] Ruth Stroup: It will answer those simple questions. Do I have to take the insurance with the rental car or is it a waste of money? And then it will also talk about things like creating legacy with life insurance, thinking about, you know, how philanthropic you want to be. What does your, I’m 60 years old. So I think about, I think a lot more about legacy and meaning. But I still think a ton about growth.
[00:54:12] Ruth Stroup: So we’ll have that. And I have a team here that works with me. I spend the majority of my day training my team. And so if you can’t reach me for any reason, I have great people who work with me, and any one of them would be happy to help.
[00:54:29] Cathy Curtis: Okay, Ruth. Thank you again for taking the time to talk with me on my podcast.
[00:54:34] Cathy Curtis: It’s been an invaluable discussion.
[00:54:37] Ruth Stroup: Thanks, Cathy. It was really fun.
[00:54:38] Cathy Curtis: It was fun. I’d love to do it again.
[00:54:42] Ruth Stroup: Okay. Thank you so much. We’ll talk to you.
[00:54:43] Cathy Curtis: All right. Okay. Bye bye.