RHP Market Talk

Property Insurance: An Important Part of Your Financial Picture

February 09, 2022 Royal Harbor Partners Wealth Management Episode 16
RHP Market Talk
Property Insurance: An Important Part of Your Financial Picture
Show Notes Transcript Chapter Markers

Nobody likes insurance. But like other other aspects of your personal finances, property insurance deserves an annual review. Coverages change. Pricing changes.

Royal Harbor Partners' Natalie Picha and her guest Kristin Jones of McKinney Insurance explain the difference between an independent insurance agency and a captive agency. Does an umbrella policy help high net worth clients? 

And if you live on the Texas Gulf Coast, there is no avoiding windstorm and flood insurance. 

We are sure you will enjoy this lively and informative discussion about something nobody wants but everyone has to have. Insurance!

Get to know us at: www.royalharborpartners.com

Natalie Picha:

Welcome to the RHP Market Talk Podcast, Episode 16. I'm Natalie Picha. And along with Glenn Royal and Michele Jones, we are the founding partners of Royal Harbor Partners Wealth Management. If you're a regular listener of our podcast, you know, that we often speak to current market conditions, but we also like to cover topics that can have just as big effect on your personal finances that is within the financial and estate planning realm. And today, we're going to talk about doing a full review of property insurance. Most people see January as a new beginning. Whether you think of this as a new fiscal year , or are considering a New Year's goal or resolution, it's generally a time for us to consider a fresh start during this season. It's a great time to also look at any items that touch your financial life. Such as reviewing your tax documents while you prepare for tax season, financial plan reviews, to see if inflows and outflows, are as expected. And if anything is changed, marriages, divorces, et cetera , could these prompt any updates to your will or powers of attorney? One item that I think many people neglect to review consistently, is their property insurance. So, today I'm super excited to introduce our special guest Kristin Jones, owner of McKinney Insurance, a branch of the Woodlands Financial Group. Kristin has been with McKinney Insurance for 14 years, purchasing the agency in 2021 to continue the commitment that McKinney has to serving their clients well. Kristin, thank you so much for joining us today.

Kristin Jones:

Thank you so much for having me, Natalie.

Natalie Picha:

So Kristin, let's start out. Would you like to share a little bit about your background?

Kristin Jones:

Sure. Well, I've lived in Texas all my life. Mostly a Houstonian. I did go to Stephen F. Austin in Nacogdoches for college. Graduated in 2006, and then started really adulting in 2008, when I got my property and casualty insurance license and began working for the broker that I work for now, which is McKinney Insurance.

Natalie Picha:

Awesome. That is awesome. Well, I have to say, I really like the front page of your website that says "nobody likes insurance." Let's be real. Right. So, I think that's why people avoid the regular review. They kind of set it and forget it. And I want to talk about why it's so important to really do that annual review with your insurance agent.

Kristin Jones:

Absolutely. We keep it real. I mean, nobody likes insurance. You're paying for something that you're hoping not to use. So, that's always fun. And , it's really not a good time to try to figure it out yourself . So, we try to do the hard part for people. We do the shopping for people. We go through multiple different companies, as a broker. So that they don't have to do the legwork of trying to shop for themselves and try to find the right coverages and make sure that they're getting a good policy through a good carrier.

Natalie Picha:

So, that's a great point. So, what's the difference between a captive agent and an independent agent? So obviously, if you work with a broker, you have the ability to kind of shop to other carriers. What does that mean for our listeners that maybe have a little, both, maybe they have a mix. I don't know. You know, what does that look like in your world?

Kristin Jones:

So, a captive agency is a company that only has one carrier that they provide insurance through. So that would apply to State Farm, for instance, All State , Nationwide. Those carriers only offer insurance through those companies. But when you go through a broker or an independent agency, which means the same thing. Broker or independent agency are synonymous. It means that we have the ability to shop through multiple different insurance carriers and try to find whatever is going to be the best possible policy for the best possible price for our clients.

Natalie Picha:

And does that hold true for, I mean , we work with a lot of business owners. Does that also hold true for the commercial...

Kristin Jones:

Absolutely.

Natalie Picha:

...insurance side? Okay. So there's captive for the commercial side. And there's independent for the commercial side as well.

Kristin Jones:

Absolutely. And you can really get into the weeds by saying, we're a broker, that sometimes goes through another broker, that has a bunch of different carriers. But the carrier is the one that is actually providing the insurance. That's the company that is providing the insurance. And then the agency or the broker is the one that is trying to shop through the multiple carriers. So we're a broker agency, that has the ability to go through other agencies. I don't want to confuse your listeners. Let's just say, let's just say, that there's a lot of options when you go through an independent insurance agency.

Natalie Picha:

Okay. So what are the pros and cons or do you see pros and cons between independent versus captive?

Kristin Jones:

If you go through a captive agency, you really don't have a lot of options, if your rate increases. So you can change your coverages. You can delete coverages. Lower coverages or increase your deductibles, in order to help manage costs. But if you go through an independent insurance agency, they can simply move you from one carrier to the other carrier. And what I've seen in my 14 years of doing this, is that you have to write through whoever's hot. So you have carriers that enter the market from time to time. And the thing is, you've got to figure out which carriers want the business, especially in this Southeast part of Texas, Houston area, where we're located. It's very difficult to get good insurance rates here. Because we're right by the water. We're right by the Gulf Coast. And so there's not many carriers that even want to offer insurance. Much less at a good price. But you have to play the game of which carrier is gonna be the most competitive policy for the price, right now. And so that's what we do for our clients. And it changes all the time. Sometimes the carrier comes in, they're smoking hot, they want the business. It's a very competitive prices. But then they go up the next year sometimes, you know, it's even bad enough to be what I've seen as more like a bait and switch, like we're offering dirt cheap prices. And we are certainly gonna go up next year and you have to warn clients about that kind of thing. Like, hey, this is a really good deal for this year, but we're probably going to have to shop this for you next year. Because this carrier's getting too much too fast.

Natalie Picha:

And what does that do, I guess, from a claims or loyalty type perspective, i n how, whether it's through a brokerage or it is a captive? A nd how they handle the claims process if you do have a claim? Does that have an effect on it?

Kristin Jones:

Not so much claims. Because any carriers that we write through at McKinney Insurance, TWFG is the main broker. That's my corporate office. I'm a branch of the Woodlands Financial Group. That's what McKinney Insurance is. A branch of the Woodlands Financial Group. And we only write through A Rated very financially stable, solid insurance companies, TWFG corporate does the vetting for us. And it's a trusted choice agency to only write good insurance. So I have all the confidence in the world that whoever insurance company I write you with, they're gonna pay a claim. It's not going to have an effect on claims. If a carrier , you know, is hot in the market and gets a whole bunch of business really fast. Like they're not going to be any less trustworthy when it comes to paying claims. But what typically happens is, if they come in so low, they're going to increase and rates increase around here regularly anyways. So you have to be suspicious if something is really low. Why is it really low? Is it just that this carrier wants the business? And sometimes that's what it is. And you have to take that deal for that year, when that happens, because it's a really good insurance policy for a really good price. So you have to take it, but you also have to take it with a grain of salt that, Hey, I'm probably going to need my broker to re-shop this for me in a year. And that's what we do for people.

Natalie Picha:

So more than price, I think a lot of people are looking for, do I have the right coverages? Do I have enough coverage?

Kristin Jones:

It's just as important. It's just as important, to get a good insurance policy, that is going to pay out in a legitimate claim situation. You have to be really careful, because there's a lot of frankly, fly by night insurance companies. I don't write through any of them. I think it's very unfortunate that they even exist. But if you're trying to do this yourself, and you're looking for the lowest bottom line price, and that's the only thing that you care about, you really might get messed over. In a claim situation. So we are shopping for not only good carriers, I mean, financially stable. Reputable. A Rated if we can, carriers, but we're also looking for what coverages do you really need. And basically, we're going to explain all of the different optional coverages to you. Any endorsement that we've added, we're going to tell you like, this is why I added it. You can do without it. It's gonna save you $75 a year. If you do, without specific water damage coverage or whatever endorsement it may be that we think is important enough to present to you. But you can always tweak your policy, to be whatever it is that you want. And you can listen to our recommendations. Which is very valuable for people. Like I trust you. I know that, you know what you're talking about, you've done this for 14 years. So if you think that this is an important coverage, then I do want to add it because it's $50 a year, $75 a year.

Natalie Picha:

So, let's go back to why an annual review of your insurance coverage. So, I mean a great example. We, we ask clients about these things, you know, when we're having conversations. One of the biggest surprises, that we found as you know, financial planners, around here and advisors was how many of our clients who have the means, did not have flood insurance for Harvey? So properties, that maybe they've owned for many years, again, not in flood zones, you know, so we're talking about very minimal annual cost, for flood insurance , that did not have any flood insurance during Harvey.

Kristin Jones:

It's such a shame. We were all humbled with Hurricane Harvey. To understand what could happen, because what could happen, did happen. And one out of four people that flooded during Hurricane Harvey were in preferred flood zones. So, that means that it was optional for them to carry flood insurance. And optional, meaning your mortgage company doesn't make you carry insurance. But from my perspective, after having done this for as long as I have. And seeing devastating hurricane events. Hurricane Ike. Hurricane Harvey. Even like the tax day floods a few years ago, it doesn't even have to be a hurricane event. To flood. Right. Everybody in the Houston area really needs flood insurance. And I don't just say that because I care about selling it. That's not what it's about. It's about protecting one of your biggest assets that you have. I mean, your home is probably going to be one of the more expensive things that you own in this life. And flood is a regular event that happens around here. So it's super important, but you let's get back to the annual review. You said, why is it important to have an annual review? And it's because of cost increases primarily why people have to look at it around here. Because insurance prices are so volatile. And they can go up hundreds, if not thousands of dollars in a year. And if you're not looking at it, you're not gonna see that. Right. And then all of a sudden you're paying more on your mortgage payment. And you're like, why am I paying so much more per month? Well, look at your insurance. Know your renewal date. And make sure that you're looking at your renewal and comparing that to whatever you p aid last year so that you're not getting, you know, a huge increase. But the other thing is, and we saw this with C OVID. Replacement co st i ncreased exponentially. And replacement cost means how much would it cost to rebuild your house, from the ground up, if you were to have a devastating event. So, if you had a hurricane or a fire, wipe out your house completely, would be the cost of materials and labor to rebuild? And with COVID both of those things went nuts. So you look at your renewals and say, wow, I may be w ay underinsured now, because what was $250,000 last year or $300,000 last year, due to CO VID n ow it's really like $450,000. For all the replacement co st o f my materials an d m y labor to rebuild my house. Stuff like that. You just have to look at it.

Natalie Picha:

So, what does that, how does that play into kind of the policy limits, right? When we talk about, I'm over-insured or I'm sorry, I'm underinsured. Underinsured or over-insured. Maybe that's a potential too. And how all coverages kind of fit together. Right. So, I think a typical thought process on coverages, is okay, my house, if I have rental properties, other estates, real estate investments, and then, obviously, autos. Do I have underage drivers? How does all of that kind of tie together when you talk about policy limits? And let's kind of tie into that because I know for most of our clients, from a liability standpoint, they also have, you know, umbrella policies. So h ow do you kind of break that out in a review? You know, and where do you start?

Kristin Jones:

Sure. Well, two separate things we are talking about here. So, policy limits, you can either be over-insured or underinsured. And you kind of want to get within a window of what is a reasonable amount per the cost of materials and labor at the time. And basically you don't ever want to under insure. Because that's a far bigger grievance than it is to over-insure. So, if my house is 2,500 square feet, and I'm trying to insure for a $100 a square foot, which is probably too low, by today's standards, you know, I've got $250,000 worth of coverage. I probably need to increase that right to $325, because if I'm looking at more like $125 to $150 a square foot, that's how we do the math in my office. That's how a lot of carriers will determine how to insure. It's going to be a cost per square foot. And you want to stay with a $ 150 , $ 175 if being safe. $125 is maybe the minimum that you should do. Anything less than that is probably under insurance. And that's just with home insurance. With auto insurance, I don't think there is such a thing as over insuring. Because maximum limit through most auto carriers are going to be $250,000 for bodily injury per accident. $500,000 for property damage. We live in a very litigious society. People want to sue. You know, sometimes you get into an accident with somebody who sees a meal ticket , especially for your clients. So having more insurance is always going to be better and you never plan for an at fault accident. You never plan for it. And I don't think the cost of over insuring on auto is going to be as bad as over insuring on home here. But talk to your agent. Make sure that your agent thinks that your insurance policy limits are correct. Because they're the ones that know and have experienced claims situations and work. If you have an independent agent work through all these different carriers. So they know which kind companies are wanting the $150 a square foot versus which companies are wanting to over insure a little bit versus which companies are kind of okay with, you know, writing the under insurance line a little bit. But you never want to under insure. It's just, it's not worth it. And you never plan for a claim situation.

Natalie Picha:

So, what is an umbrella policy? Because I think... so you talk about the auto insurance and then you tack on whether or not you're going to include that auto, I'm sorry, that liability on the auto... the umbrella on the auto. What does that...what does that mean?

Kristin Jones:

So, an umbrella effectively does what it looks like. Like if you picture an umbrella, in life it's over and above, whatever is underlying. So, the underlying home policy, and the underlying auto policy need to have maxed out limits, in order to have an umbrella policy that is over and above , those coverages. So, here I'm gesturing to you like people can actually see me doing this. I'm m aking...

Natalie Picha:

...by the way, she's making a sign of an umbrella.

Kristin Jones:

...a umbrella! I'm doing a little arc with my hand. But basically, the underlying policy limits of liability must be exhausted, before the over and above coverage comes into effect. So for instance, if your homeowner's insurance liability limit is $300,000, then there has to be a claim situation, where those limits are exhausted in order for an umbrella policy of usually it's 1 million or 2 million to go into effect. And so the umbrella coverage is over and above the homeowner's insurance liability or for auto insurance, same deal. If you have auto insurance where you have a really bad accident, that you are liable for, and you've caused more than $250,000 of bodily injury for a single person, or more than $500,000 worth of property damage. Like you get in a pile up on Highway 3 and you have jacked up a ...you know, a Mercedes and a Beamer and a person. Then you're going have to have that additional liability, over and above your underlying auto policy liability. Does all that make sense?

Natalie Picha:

It does. That makes sense.

Kristin Jones:

I hope I'm explaining it well.

Natalie Picha:

It makes sense. And I think really for our clients, you know, the high net worth , you mentioned it earlier, kind of the meal ticket. If someone sees that meal ticket, does the umbrella policy help?

Kristin Jones:

Absolutely.

Natalie Picha:

Is it needed?

Kristin Jones:

It could be. I mean, the deal with , umbrella is that you want to have it, if you have areas of exposure that typically go along with your clientele. If you have money, you know, you're probably gonna be getting toys. Is what we call 'em boats, you know, motorcycles, those fun things, classic cars. That kind of thing. And if you are a property owner that has money, you might have some rental properties. Maybe you have two or three rental properties. Well, in the insurance world, we call that exposure. You have additional areas of exposure for liability. So, m aybe y our renters throw a wild party and there's a liability claim. And your liability limits for that rental property do not cover what happened. And you're getting sued. You need that additional umbrella, right? Because your underlying policy i s not. And then if you have a boat. And you have a motorcycle. Or a secondary home, whatever it is that you've done to expose yourself to more lawsuit possibility. Then you really should consider getting an umbrella because, they're c heap. They're not very expensive. And for somebody that has multiple areas of exposure, they're worth it.

Natalie Picha:

Okay. Interesting.

Kristin Jones:

They're usually less than a thousand dollars a year.

Natalie Picha:

Oh, wow. Oh gosh. Yeah. Sounds like a no-brainer. Absolutely. So, let's talk a little bit about commercial insurance.

Kristin Jones:

Oh my favorite.

Natalie Picha:

What does that look like when we talk about policy limits and things like that? And I know it can get very complicated quickly. What areas do, do you see people maybe neglect or not review regularly or really keep updated?

Kristin Jones:

Commercial insurance is a lot more complicated than property insurance for residential or just the personal lines homeowner's insurance, it's gonna be a lot more complicated because there's usually more forms to fill out more questions to answer from underwriting. And so if you are looking at getting commercial insurance, you really have to give your insurance agent at least a week. You want to be looking at that before you plan to purchase, you need to give them time, to do what they need to do to give you a quote, especially if you're going through an independent agency. But , what was the question about commercial?

Natalie Picha:

So ,from a commercial perspective, I think that reviews...we talk about personal reviews, right? And how that touches your financial life. But if...because we do work with a lot of clients that are business owners. Multiple types of business. All kinds of business, why is it important to review the policies for your business on an annual basis?

Kristin Jones:

Same deal. I mean, you don't want to be underinsured. And you want to make sure that you're asking questions about, will this be covered? Will this not be covered? Because what I find with a lot of commercial policies is somebody tells me that they do, let's say it's a construction policy. And they do flooring. But what they neglect to tell me is that they also do windows. And doors, door installation, whatever it may be. And then they're also doing pools on the side. Or like wood decks on the side. Or whatever, but they don't tell me that. So, their policy is rated way less than what it really should be. But they're exposing themselves to claims in those areas that they haven't told me about.

Natalie Picha:

Right. So it's exposure. Again.

Kristin Jones:

It goes back to that exposure. It goes back to exposure. It goes back to, are you being insured correctly? Because people are so focused on price now days. That they may not understand, I want to get what I'm actually paying for. This goes back to what we said at the very beginning, you know, insurance isn't sexy because nobody wants to pay for something that they're not hoping to use. But when you do need to use it, you want to make sure that it's there for you. You want to make sure that you're gonna get a payout. So, you know, that's the thing to do with commercial insurance is make sure that you're communicating to your agent, all the different things that you do so that they can make sure that all of those they call them class codes. Are incorporated into your policy and that you will be covered for all the different areas that you work.

Natalie Picha:

Okay . We are, we've covered. Woo . We are covering a, probably a lot more ground than I thought we were going to cover today.

Kristin Jones:

Sorry everybody. Sorry. Doing this for 14 years, I get talking .

Natalie Picha:

This is really good. I think it's information that I haven't even considered. I appreciate you really digging into the details there for us . I do want to kind of touch on, things that are very specific to our Houston area. I know we have a lot of listeners. We have listeners that are all over the country. But we're kind of unique, in this Gulf Coast Area. We talked a little bit about flood. Do you want to touch a little bit on windstorm for me? B ecause I know that's a big topic. No, let's just n ot g o t here.

Kristin Jones:

Nobody wants to talk about that.

Natalie Picha:

Nobody wants talk about windstorm.

Kristin Jones:

Sure. I can talk about that. Absolutely.

Natalie Picha:

You know, again, we'll go back to , nobody really likes insurance.

Kristin Jones:

Nobody. And not even me. I own an agency . Call me! So that's a good plug, right? There, I don't like insurance either.

Natalie Picha:

So, windstorm. And I think that's kind of where we'll wrap up. Because that is pretty specific to our area. Okay. What do you think about windstorm?

Kristin Jones:

A lot of carriers are doing combination policies for properties in Galveston County. So, like League City area. But areas where traditionally it used to be that you could only get windstorm insurance through Texas Windstorm Insurance Association. You can still do that. And it's still a viable option for homeowners in Galveston County or homeowners that have their properties east of Highway 146. I'm getting very specific now. But, basically that's still an option. It may not be the best option anymore. Because there's a lot of carriers that have come into the market that are offering windstorm insurance included on the same policy with their homeowner's insurance . So that's really convenient, to have one policy and not have to worry about going through Texas Wind. Who... I don't want to bad mouth them. Because I have seen them pay out a fortune since 2008, Hurricane Ike. When I started working in the industry. But , windstorm should be the last option through Texas Windstorm Insurance Association because they're designed to cover windstorm insurance in an area where nobody really wants it. So it's better to go through a combination policy and have windstorm included with your homeowner's insurance. Most of the time. But like I said, I hesitate to say anything bad about Texas Windstorm, because they are a perfectly good carrier. I mean, I have seen them pay out a fortune. They are still sometimes the only option for clients. And sometimes they're the best option for clients, because the price, makes sense. The price for the policy makes sense.

Natalie Picha:

It is what it is in our area. Sometimes you just have to have the windstorm separated from the regular property insurance.

Kristin Jones:

Right. And it may be less expensive to have two policies than one policy.

Natalie Picha:

So, bottom line in this conversation has been, there's a lot to consider. A lot to think about. Most of our clients are probably not , experts in the property insurance field. So, from a financial planning standpoint, around here, we always talk about, all the nickels and times matter. And we talk about consolidation. We talk about knowing where everything is. And I think your insurance coverages, is an important piece to that puzzle. Like you said, nobody really likes insurance. We don't want to have to mess with it. And generally speaking, we hope we don't ever have to use it. But...

Kristin Jones:

You have to around here. You have to. Otherwise you, really will, end up paying way too much.

Natalie Picha:

And not just so much in what I think of in terms of the premiums on an annual basis, as the expense. But for so many of our clients that didn't have flood insurance , on their rental properties. Secondary residences. On their primary residences. We saw them have to tap into their investment portfolios to cover those losses that they shouldn't have had to cover.

Kristin Jones:

You shouldn't have had to do that. I mean, it's, you have to insure for flood in the Houston, Texas area. It's just a no brainer ,with how much the cost is per year, versus how much you stand to lose if we get hit.

Natalie Picha:

Yeah , exactly.

Kristin Jones:

And it doesn't have to be a hurricane event. I know we said that, but it doesn't have to be a hurricane event. It can be some random storm, that parks itself over your house for four days. Because we get that kind of stuff around here. Like I've been stranded at work a couple different times. Like, how am I supposed to get home? These, these streets are flooded. And this is not even like, nobody warned me about this one!

Natalie Picha:

Right. Just happened to be a spring storm.

Kristin Jones:

It was just run of the mill Houston.

Natalie Picha:

Exactly. Exactly. Well, Kristin, thank you so much for joining us today. And I really appreciate the fact that you gave us kind of an inside perspective of what it means to be a property insurance agent. And an independent. We appreciate your perspective on that, as we also are independents. And I hope that our listeners , had an opportunity to kind of gain some perspective and will reach out to their own agent and do that review at least on an annual basis. Of all their coverages to make sure that they are not underinsured. To make sure that they have everything that they should. That everything's connected. And everybody's kind of on the same page. So Kristin, thank you so much for joining us today.

Kristin Jones:

Thanks Natalie . This has been awesome.

Natalie Picha:

Thank you so much for your expertise and just for this conversation today. I hope our clients found all this information helpful. And I hope that they'll take this and do their annual reviews with their Insurance agent.

Kristin Jones:

Absolutely. Thanks.

Natalie Picha:

To our listeners out there. Thank you so much for listening to this episode of RHP Market Talk. If you have any questions or would like to discuss today's topics, please feel free to contact us through our website www@royalharborpartners.com. At RHP, we're passionate about planning for your financial future. We're devoted to our relationships with multi-generational families, for the creation of successful legacies and through our one-on-one conversations, we can help you navigate your personal wealth management and investment journey. How different will your life look with the right advice?

Disclosure:

Royal Harbor Partners is a registered investment advisor and the opinions expressed by Royal Harbor Partners on this show are their own. All statements and opinions expressed are based upon information iconsidered reliable. Although it should not be relied upon as such. Any statements or opinions are subject to change without notice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investment, or investment strategies. Investments involve risk, and unless otherwise stated are not guaranteed. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for any individual. Listeners are encouraged to seek advice from a qualified tax, legal or investment advisor to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance.

Introduction
Nobody Likes Insurance
Agents: Captive vs Independent
Having Enough Coverage
The Importance of Annual Reviews
Umbrella Policies
Commercial Insurance
Windstorm Insurance
Flood Insurance
Disclosure