The Planner's Perspective: Hobbies Carry Risk, Too
By Paul Morrone CFP®, CPA/PFS, MSA
How do you spend your 168 hours a week? If you’re still working I’m willing to bet most of it is consumed between time at the office and sleeping, with a handful of hours a day devoted to family, friends and hobbies. If you’re retired, you may have some more time to do things you enjoy. Regardless of how you spend your time, having the correct insurance plan to mirror your lifestyle is a key component to any risk management plan. You’re probably thinking that your basic homeowners or auto policies are sufficient, but what if they aren’t? How about your life insurance or disability income insurance? Can you or your family recover from a loss? Can you insure against it? Let’s look at insurance outside of the box.
If you’re a frequent flier, you may want to review your homeowners’ insurance policy to see which of your assets you have listed as scheduled items. This may include your engagement ring, a pair of diamond earrings or that gold Rolex that was passed down to you from your grandfather. How does this relate to travel you may ask? Well, what happens if you’re on the road and you suddenly panic and realize that your priceless engagement ring is missing and you can’t ascertain where it is, whether it was stolen or whether you lost it. Does your policy cover the ‘mysterious disappearance’ of these valuable items that are often high in monetary value and usually even higher in sentimental value? What if you’re out of the country when this loss occurs? Are you still covered? While compensation from an insurance company in the form of a check may not be able to exactly replace an item of sentimental importance, the financial reimbursement may help alleviate some of the emotional pain.
For collectors, the considerations are similar. Whether its art, coins, clocks, antiques or stamps, have you had these items appraised and insured against the threat of theft, fire or other loss? Depending upon the value, quantity and specifics of the items in a collection, you may need to seek out a separate insurance policy to specifically address these risks. We also suggest revisiting the appraisals over time as the value of collectibles can vary materially from year to year depending upon the market for those particular items.
With hobbies involving sports, the potential for loss likely isn’t related to damaged property as most sporting equipment (motorsports and aviation aside) is of nominal value and can be easily replaced. The overriding consideration is whether the activities you engage in for pleasure can present a material or increased risk of injury or death. Depending upon your current health, financial status, day job and stage of life, you may find that participating in such activities may warrant a need for additional coverage or a different type of life, long-term care or disability income insurance.
Additionally, if you’re into extreme sports, you may want to understand the risks and limitations of your existing policies as there are often exclusions for damages incurred during motorsports racing, aviation or skydiving, to name a few. Depending upon your hobby, you’ll first need to determine if the activity represents an insurable risk, and if so, at what cost. If not, planning for a loss in this area may need to be specifically addressed in your financial plan should the worst occur.
State insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information