Episode 8: Ask the Insurance Experts featuring the Boer Insurance Twins

On this episode, we're hosting special guests and Insurance Twins, Brian & Derek Boer to discuss common mistakes made when it comes to Property & Casualty Insurance and how to avoid them.

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On this episode of the Life & Finances Together podcast Roger and our special guests, Brian and Derek Boer, the Boer Insurance Twins of Boer Insurance located right here in West Michigan, address common mistakes and misconceptions about home, auto, and umbrella insurance coverage. 

We’re eager to introduce our insurance experts. Brian and Derek have been working in the insurance industry full-time for about 10 years, and the Rinvelt & David team have known them since they started at Boer Insurance! Rob Rinvelt knew Dave Boer, Brian and Derek’s dad, and introduced him to Roger back in the early 2000s, after Dave purchased Boer Insurance from his own father back in 1998. 

The brothers followed in their father’s footsteps to Michigan State University where they obtained their undergraduate degrees in accounting and then pursued their master's in tax.

And then for the first time in their lives, the brothers separated! Derek went to New York, Brian went to Toronto, and both worked at Ernst & Young in the tax accounting departments. 

They returned to Michigan in 2015 to join the family business. Dave had been in charge for quite some time and was thinking about what his succession plan was going to be. And sharing a last name did help them fit nicely into that plan. So there weren’t many interviews needed to join the business and start taking over in that respect. 

As a personal client of Boer Insurance, Roger has always been impressed by their high level of knowledge, integrity, and service. And in addition to their quality work, They do an excellent job of educating. There are many great people in the insurance industry. They do a really good job and they're professional, but the one thing that they're lacking is the education and explanation that goes along with it. The Boers are happy to educate. 

Roger begins by asking what are the common mistakes that have been made within the realm of homeowners insurance and how can we educate people to avoid them? Premiums are going up and there can be additional restrictions added at renewal time, so what should we be watching out for? 

Derek compares the frequent mistakes folks make to the idea of feeling like we might be sick or might need some sort of medical care. We decide we're just going to punt it, right? It's a little bit easier not to know than to have to go through the doctors visits and tests and find out. A lot of people do that with their insurance. They set it and forget it, just put it on auto pay and just be done, right? And he says that’s what leads to some of these instances where the insurance got so out of line that when it was time to use it, it just was not appropriate by any stretch of the imagination. 

Brian shares the example of understanding the coverage amount on your home. Because that coverage amount dictates how much is on the table to rebuild your home if you have your worst day. And that tornado rips through your neighborhood. You're up north and you get the call from your neighbor that your house is on fire. None of us are planning on that. 

And thank God, most of us will never go through that. But that coverage amount makes all the difference in the world in terms of how your home is going to be rebuilt and whether you're mortgaging or liquidating investments to cover the gap to rebuild your home. 

“One thing that often gets overlooked is additions or improvements to a home. Many people don't think about letting their insurance agent know that they just put $200,000 into the kitchen, or put on a $300,000 addition. And when we do an insurance checkup with our clients, we'll sometimes find that that was recently completed, never thought about making any notice of it.” 

Unfortunately, that home insurance policy is way understated at this point. That's nowhere near appropriate for your home as it sits today. So confusion comes over not only the coverage amount that's on the policy, but also that it's designed from a rebuilding standpoint, not from market value. 

It really depends on the extent of the remodel as to whether the insurance company is going to come take a look or not. And if they don’t, it's up to the client and the agent to determine what's the appropriate coverage revision that's needed. 

In some instances, you had an unfinished basement, and you put $50,000 into drywall and studs and flooring, and it's fairly easy to determine how much coverage needs to be added to the policy. 

But in other instances, you remodeled the kitchen. You stripped out the old cabinets, the vinyl countertop, the tile floor, all the old appliances and everything. Remember, the policy should be designed to rebuild the home with new materials. So, what does it take to rebuild this home with these nicer, higher-end materials versus what was being used before, and making that determination is very challenging. The good news when it comes to the cost of insurance is when someone spends 200 grand to remodel their kitchen, it doesn't necessarily dictate a $200,000 increase in the coverage on the home because 25 grand of that will be for demolition. 50 grand of that will be for regular permits and some of the other labor costs associated with putting in the flooring and the cabinets and everything else, regardless of what the quality was. The remainder is probably going to be an increase in the quality of the materials that were used. So, in a lot of cases, you might see maybe 40 to 50% of the cost of that improvement to the home warranting a coverage increase on the homeowner's policy. 

“We met with a construction company earlier this week, and the gentleman works mostly in West Michigan, and he said he doesn't think that any home, regardless of the quality of it, could be rebuilt for less than $225 per square foot. If you look at the purchase price for most homes in West Michigan on Zillow, you're going to see a purchase price of somewhere between $150 and $200 per square foot. 

Why is that the case? Well, a lot of times the roof is 20 years old, the mechanicals are 15 or 20 years old, there's some depreciation or some wear and tear on this house, right? So, the purchase price of a older used house is not going to be what someone would pay for that same house brand new. But if that home is destroyed, you can't go and find a 15-year-old furnace to put in it. You can't find 40-year-old siding and a 20-year-old roof. You can't “Frankenstein” it together with used materials, it's got to be brand new. So that home that someone might have paid $225,000 for might cost $350,000 to rebuild brand new, and so the home insurance policy should reflect that because if it's in a pile of rubble someday, you're going to have to rebuild it brand new and pay those new construction costs. 

When the policy is first created, the coverage should equal what it would cost to build that home brand new, regardless of whether the home is 10 or 50 or a hundred years old, it should be what does it take to build that type of home brand new today. And then most insurance companies are going to apply an inflation factor to that coverage amount at each renewal. 

So five years ago, that inflation amount was three or 4%. The past three years, it's been anywhere between 9 and 19% because of what construction costs have done post pandemic. So hopefully the insurance company is automatically adjusting that coverage amount and you shouldn't necessarily need to do too much to it unless you're putting an addition on, making improvements to the home, doing that type of thing.” 

Brian points out that another source of confusion or mistakes is regarding a trust. If you’ve worked with an estate planner, established your trust and you’re doing all the right things for your estate, you may have been advised to deed your home to that trust. And usually it’s the family trust, right? It's Bob and Jane Smith Family Trust. Well, that wasn't such a big deal until a few years ago when there was a court case in Michigan where the courts sided with an insurance company for denying a home insurance claim, stating that the home was legally deeded to a trust, not to the individuals. And it was only the individuals shown on the insurance policy. 

So the insurance company said, “hey, that's great that you have this big claim. Show us the insurance policy for the trust.” 

The couple explained that it was their trust. Their names were on the trust and it was their home. They ended up in court, and the court said, “no, we're with the insurance company. If the trust isn't listed on the insurance policy, coverage does not have to apply.” 

That was a huge earthquake through the industry because suddenly something that didn't really matter very much, now was critical. 

It’s as simple as checking a box. It doesn't cost anything. It's just a disclosure and it doesn't really change the policy, but it is very important that when a home is legally deeded to a trust, the trust needs to be disclosed on the home insurance policy to ensure that coverage applies.

Roger transitions the conversation to auto insurance and asking about mistakes made and things to be aware of to stay safe when we’re driving.

“There have been a lot of changes in Michigan, especially concerning liability and who's covered and who's not when you're driving with somebody else.” Roger experienced this when his daughter got into an accident, and he needed the help of the experts. “Even though I do what I do for a living on the financial side, I don't do what you do every day on the insurance side… That's why we send clients to you. Because when are we calling you guys? When something bad happens, or maybe we don't like the premium, but when something bad happens, right? I need some help. I need your expertise.” 

Derek begins by addressing PIP coverage. If you're hurt in an auto accident, whether you have the health insurance or not, there's going to be a lot of medical expenses that are unlikely to be covered by anything other than PIP, Personal Injury Protection coverage. Some of those expenses are going to be things like specialized rehabilitation, in-home care if you need someone to live with you and help you go about your day. Maybe you need to be in an assisted living facility or a nursing home. Maybe you're paralyzed from the waist down and you have to modify your home and your vehicle to be handicap accessible. Those types of things are very unlikely to be covered by any type of plan other than PIP on the auto insurance. 

“So, what a lot of people are doing, and I would say it's a mistake in most cases, is they'll say, well, I've got health insurance through work so I don't need to have PIP coverage on the auto insurance.” 

Well, the health insurance is going to do okay in the event of minor injuries from an auto accident, but if you or someone in your family was seriously injured to the point that they needed care for the rest of their life, your health insurance is not going to pay that. You need the PIP coverage and hopefully an unlimited amount of it to care for that person for the rest of their life. 

“So that's a huge exposure that a lot of people have that I'm not sure that they're entirely aware of that they could entirely eliminate by choosing unlimited PIP coverage on their auto insurance, which in a lot of cases would cost just a couple hundred bucks a year.” 

Brian adds that on a lot of those auto insurance claims, you're not even in a vehicle when the accident happens. You're a pedestrian, you're riding your bicycle, you're in a crosswalk, you're rollerblading. A lot of those claims, the poor person who's been injured wasn't in a vehicle, but they were struck by a vehicle. That PIP coverage applies. 

“One of the biggest claims that we have in our office is from 20 years ago, where a kid on his bicycle was hit by a vehicle. He's still alive, but he needs a lot of care. He's going to need care for the rest of his life. They've paid out over 13 million for that care since that accident. And they'll continue to pay that until he's either recovered or is moving on.” 

Your PIP coverage applies for your lifetime of care as long as you have the coverage on the date of the accident. So when you have kids away at college, they might not have a car, but they're walking, they're biking, and they need to be covered. 

It does happen that people choose less than unlimited coverage and it’s usually because of unwarranted advice from an uncle or a cousin, someone trustworthy, but perhaps not always fully aware of your situation and what is best for you. Of course, we all hope it will never be needed. And if you do choose to take less than unlimited PIP coverage, put a couple hundred bucks in your pocket and cross your fingers. But if you ever do need that coverage... only about 33% of what's paid under that personal injury protection would also be paid by health insurance coverage. So there's a huge gap between what's covered by your health insurance plan versus what gets paid under personal injury protection. 

A lot of people think it's one and the same and wonder why they would pay for the coverage in their auto insurance if they have health insurance or Medicare. But there’s really not that much overlap. There's a lot that's paid by personal injury protection coverage that would never be paid by your health insurance plan and certainly not by Medicare. 

Switching gears to getting insurance online, Roger is curious about these offerings. It’s a popular option for many people. Online insurance services are all over the place, they claim to be easy to use, and they're selling inexpensive coverage. What are some of the common mistakes that are made for people that are trying to do it themselves?

One of the biggest things that happens when somebody is doing insurance themselves or maybe using an agent that is a little bit green to the industry is they're insuring vehicles that they don't have any financial interest in. For example, grandma is insuring her granddaughter's vehicle, but her granddaughter lives in Illinois or Florida. Grandma is insuring it because granddaughter doesn't have a very good credit score and maybe has a bad driving record. And as long as the policy shows that that vehicle is insured, grandma and granddaughter think that that vehicle's got coverage, right? 

That's not the case. There are so many rules that come into play when you're crafting an auto insurance policy that dictate who can be insured by this policy, what vehicles can be insured by this policy, and how can those vehicles be used. 

20 years ago, you could play the game about not disclosing your 16-year-old driver and storing a vehicle. Maybe you have someone that keeps their vehicle in downtown Detroit, but they say that they’re keeping it in Novi. That really cannot happen anymore. 

Even if you try to play those games, insurance companies have crafted the language in their auto insurance policies that they can deny a claim if you have not appropriately disclosed all the relevant information on that policy. So not disclosing your 16-year-old because you don't want to pay for them, well, the insurance company is not going to cover them. 

It’s really important that people insure vehicles that they legally own, that they've got the people in their household appropriately disclosed as drivers on the policy, and that they're making sure that they update those things when it's warranted. 

Remember the insurance policy is a two-way contract. It says, “we will do this so long as you do that.” So you have to comply with the terms of the insurance contract in order for that contract to be valid. And a lot of insurance policies have a duty to report clause, which simply says, “if these type of things happen, you have 30 days to notify us of that.” One of those is, of course, changing drivers in the household, changing of the address where vehicles are kept. 

Brian shares a story, “a friend of one of our clients moved from Michigan to Colorado, totaled her truck 32 days after moving to Colorado, filed the claim on her auto insurance policy, which was still in Michigan, and the claim was denied.” So with a totaled truck and some medical expenses to go with it, the insurance company said, “sorry, you didn't comply with the terms of your insurance policy, coverage is null and void.” 

You need to update the information on where you're at. But people don't think to do it. They think that since they already paid for six months of coverage, they’re good until the renewal date. That policy is not good, because it has terms and conditions that you probably don’t meet anymore. 

Roger asks the pressing question regarding those who spend part of the year in another state. What about those who go to Florida or Arizona and bring their vehicle for months at a time. They’re Michigan residents, but while in their warm weather second home, they have an accident. What should they do?

That gets very gray. In most cases, your auto insurance should follow where your primary residence is. So if you are filing a tax return as a resident of the state of Michigan, you're generally going to have your auto insurance here, your umbrella insurance here, et cetera, et cetera. 

But those policies need to make sure that they apply in other states. And they've got to have the appropriate coverages that are going to coordinate with the laws of another state. 

So there's a coverage, for example, on an auto insurance policy here in Michigan. It's called property damage. It only applies outside of the state of Michigan. That coverage will never be used within our state. Because of that, it's very, very inexpensive. But people don't recognize it, so they choose the minimum amount of it. 

Now if you happen to take a trip down to Chicago for the weekend and you rear end a brand new Escalade and you push that into a brand new Range Rover, you might be paying a couple hundred thousand dollars out of pocket for the repairs to those vehicles because in that state, they can sue you for that damage and you chose a very, very small coverage amount for that type of occurrence because you just didn't know about it. 

This brings up another good point. In Michigan, even if you're not at fault, you can be sued. Michigan is a no-fault state, but what does that actually mean?

We’ve beat the drum about that very question over and over. While Michigan is a no-fault state, that doesn't mean that no one is at fault. There is still someone who was at fault in that claim. But you're right that even if you are not considered at fault, you still may be deemed a little bit at fault and you still may be served a sizable lawsuit. 

What you'll find is that the attorney filing the suit will put something together that says, “Roger, we know you're a good driver, but those tires on your car, they have 60,000 miles on them. And your brakes, those haven't been changed in six years. If you were taking care of your car, I bet you could have avoided that drunk driver that ran through that red light if you were just paying better attention.” 

And then they're going to take those injuries to that other party, their lost income, their pain and suffering, and they're going to say, “you weren't 100% at fault, but you were 30% at fault.” And that's valid in Michigan. 

So what helps cover you in the event of a lawsuit? That's the umbrella policy.

The umbrella policy is going to say that whether you're 10% liable or 100% liable in an accident, you will be provided with coverage for that lawsuit against you. That's why it's so important. 

And in the state of Michigan, if you hit a pedestrian, you're automatically going to be deemed at least 50% at fault. 

They could be in the middle of the road at night with no reflective gear or lights on. They could be on drugs and alcohol or even be suicidal. If you hit them, you're going to be deemed at least 50% liable here in the state of Michigan. 

That's why you have to have an umbrella policy because even if you're the best driver in the world, there may be times where you don't have any chance at avoiding that pedestrian. 

Avoiding lawsuits in the state of Michigan used to be easier because of the “open and obvious” defense. Why aren’t we seeing that used anymore?

The Boers met with one of their clients who is a personal injury attorney just a few weeks back to get the information and the download from him about that. The open and obvious defense has been overruled by the courts. What he said is that the number of lawsuits being filed in Michigan is up dramatically since that court ruling. 

In the past, you could use open and obvious as a valid defense for negating a lawsuit. So, for example, Roger goes over to Brian’s house to watch the Monday night football game. There’s a big snowstorm; there's ice, and there's snow all over the place. When Roger falls in the driveway, Brian could say as a valid defense, “look, Roger drove over in a snowstorm. He knew it was going to be icy in the driveway. He can't possibly hold me liable for him falling and breaking his arm, right?” And the court said, that's valid. That's open and obvious. You should know that there's a risk being taken there. 

Well, they’ve thrown that defense out now. So no longer does open and obvious count as a valid defense, meaning there are going to be many more lawsuits in Michigan, maybe not good for much money, but it's going to be a lot of defense costs that insurance companies are helping pay. 

And so if you happen to have a trampoline or a pool with a diving board or a slide, previously you could say, “hey, so-and-so broke their neck diving off my diving board, but they knew they were diving into a pool that was six feet deep. It says right on the side of the pool.” That can no longer be used as a defense in a lot of cases. Or that trampoline, everybody knows that trampolines are dangerous, right? That also cannot be used as a defense. So umbrella insurance is, number one, becoming more important than ever, but number two, it's becoming a little bit more expensive than ever. 

How do you coordinate this umbrella coverage along with the auto liability? Do I ramp up on the maximum liability on the home and on the auto? And then ramp up even more to the highest possible on the umbrella?

That’s a really tough question to answer because at the end of the day, how much liability coverage do you need? You need it to equal the largest lawsuit that's going to be filed against you during your lifetime. 

Hopefully that's zero, but it could be your net worth. Hopefully we're never using this type of coverage, but in buying enough umbrella insurance to cover your entire net worth is what you're going to see if you just Google “how much umbrella insurance do I need.” 

How practical is that? Well, if you have $50 million, it's going to be really challenging to get $50 million of umbrella insurance. If you happen to wipe out a school bus with 30 kids on there, that insurance company is probably going to go belly up if they're paying $50 million for that significant lawsuit against you. So when you're considering the cost of the insurance, think about number one, what the underwriting challenge is, number two, the availability of it, and number three, how much do I think I would I need to give that other party to have them go away? Take the insurance money and just be done with it. 

Let's say you're worth $10 million, but you have a $5 million umbrella policy. Well, when somebody sues you because there was an accident and you killed their spouse, they have to pick a dollar figure for that lawsuit. And a court's going to value things like the lost income.

So you don't want to kill a doctor or an attorney or a business owner. They're going to look at things like the children growing up without a father or a mother, whichever spouse it was, and, as odd as it is, there's going to be a financial reward assigned to that. 

There's going to be pain and suffering if that person maybe had to go through some horrific surgeries before they passed away. But at the end of the day, the court is going to have to say the value of that person's life, the deceased person, is X number of dollars. Now, if you Google “what's the average human life worth,” you're going to see that it's more than a million, but it's unlikely to be 20 million dollars. So when it’s all said and done, a court has to determine what that lawsuit is worth. And you're hoping that your umbrella insurance is enough to cover that entire lawsuit against you. So once you get up into the five, six, seven, ten million dollar lawsuits, those are relatively unlikely and infrequent. 

So when you're deciding how much umbrella insurance to buy, you're thinking about that price? Can I get it? How hard is it to get? And how much am I really worried about that really significant lawsuit? The important part is that you've got enough coverage that the other party will settle for it. 

If they sue you for $50 million but are willing to settle for $3 million and you've got a 3, 4, 5-million-dollar umbrella policy, you're good. You're going home. So the more money on the table via the umbrella, the more likely that other attorney and that other party is going to be willing to say, that's enough. Let's settle. Let's go home. Because it's very expensive and it takes a lot of time to pursue someone personally on top of the insurance coverage. So you want to have enough coverage on the table to incentivize that other party and their attorney to say let's take the easy money via the insurance policy and we'll call it a day. 

But do you still maximize the liability on the home and on the auto then? Yes. The Boers like to max the home and auto liabilities out and then add the umbrella.

One more question, Roger asks about is coverage on your roof. It's not like it used to be. 

It is a different environment today than it was five years ago. What's happened over the past few years is roofing companies have learned that homeowners' policies in general are going to have replacement cost coverage for a roof. So, if there's hail damage or wind damage in an area, they're going to go and they're going to peruse the entire neighborhood and go door to door saying, “hey, let me up there and inspect your roof, see if there's damage.” And if there is, the homeowner will file a claim and that roofer is going to go to the next house in the neighborhood, et cetera, et cetera. You get this chain reaction. 

But the challenge is if somebody's got a 27 or 28- or 29-year-old roof that they should be replacing at that point anyway, they have a huge incentive to work with that roofing company to say, “hey, my policy's got replacement costs. I can get a brand-new roof and I was going to have to pay, 10, 15, 20 grand to replace it sometime in the next year or two anyway.” They're going to push really hard to get that roof replaced and covered by the insurance policy. And they're also going to have a little bit of incentive to steer the roofer in a certain direction to get that covered. 

So what insurance companies are doing today is providing actual cash value coverage for a roof, which means depreciated value. If your roof is 29 years old and they're 30-year shingles, there's really no value to it. If that roof is destroyed, you're not getting a brand-new roof. You only lost one year of life of that roof. So that claim payment's next to nothing. So that's what some insurance companies are doing.

Another alternative the insurance company might do is apply a wind or hail deductible. So instead of having a thousand or a $2,500 deductible, like a lot of people do for burst plumbing or fire or vandalism, they're going to have one or 2% of the coverage on the home if the claim is for wind or hail. So if you've got a $500,000 home and that's the coverage amount, if you have a 2% wind or hail deductible, that's $10,000. With this in mind, if the roof is only 10 years old and it's kind of damaged, but it's not really going to compromise the life or cause further harm to the home, do you really want to file a claim and have to pay a pretty good portion of the replacement cost, or just live with the fact that there is a little bit of damage and ride out the lifespan of the roof? This coverage makes homeowners less incentivized to file that claim because now they’ve got a pretty significant out-of-pocket payment to get the roof replaced rather than having just a low deductible with a brand-new roof put on the home by the insurance policy. So it's a big change. 

And it's the insurance company that's changing the way that their policy works. Their regulations, their rules. They've all been going down the same highway for the past… forever, providing replacement cost coverage on roofs with a normal, typical deductible. Well, now you've still got some on the highway that haven't exited yet, but in the next couple of years, they're going to be forced to exit. They're either getting off on the left side, which is the depreciated value coverage, where they're only going to pay for the remaining life of your roof, or they're getting off on the right side of the highway, which they're still going to provide replacement cost coverage, which is great, but they're going to charge a higher deductible. 

It may sound scary, but most of the states in our country work like that. It's just new to Michigan. It’s not favorable for homeowners other than allowing the home insurance industry to stabilize itself. It had to do something. 

And the do-it-yourself insurance is becoming really, really challenging because insurance companies don't want to provide coverage in a lot of those situations upfront. Some of the biggest insurance companies in the country will now tell you if your roof is more than 10 years old, the only way we're going to provide a policy is if you pay for and obtain a full home inspection, send us the report and give us 60 days to review it. And then they’ll get back to you on whether they want to provide coverage for you or not. 

It's basically a quick and dirty way to say, “we have no interest in providing coverage in these types of situations.” So if your roof is getting old, it's getting more and more challenging to find a new home insurance policy. 

Roger thanks Derek and Brian for shedding some light on some of these common insurance challenges and some of the mistakes that people make. He further stresses that this really illustrates why you've got to have somebody like Boer Insurance to say, “we're going to get you the coverage and we're going to tell you what you need. We know what these companies are going to do.” They have provided this service for Roger, and he really appreciates the service of a team who knows the industry so well. 

He goes on to point out that, “so many people will say, well, I bought this thing through an online insurance company, and I haven't looked at it in seven years. Well, man, a lot of stuff's changed in seven years. I mean, you can really be in big trouble.” 

Brian agrees. “You can. And, and the insurance industry, you know, is probably in the toughest position it's been in, in the past 50 years. And so we would tell you it's more important than ever to work with an insurance agency that is ahead of the game and is doing some planning for you and knows what's going on. Right. Whether that's us or someone else, there's some great insurance agencies all over the place. But now it's just the most important time to work with somebody that can help set that up and make sure you know what you've got going on. You might not like some of the results, right? Nobody wants to see their roofing coverage deteriorated. They don't want to use higher deductibles, but it's important to know about that ahead of time.” 

You want to have that foresight so that you can plan accordingly, because guess what? It might impact your financial plan! Those things are all a piece of what Rinvelt & David is doing for our clients of setting everything up to have the best long-term results. 

And you need to know what's going on in the nitty gritty so that you can plan accordingly for that.

Thanks so much for reading and for learning more about the common mistakes to avoid regarding home, auto, and umbrella insurance with us today. If you have any questions about your insurance, our financial services, or finances in general, please send us an email, give us a call. And of course, please like and subscribe to our podcast and stay tuned for the next episode.