From the August 2014 issue of Investment Advisor • Subscribe!

Bike Safety: Why Some Clients Might Need Additional Insurance

Do you and your clients know all you should about insurance coverage for bicycles before those long summer rides?

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With some bikes going for $20,000 a pop, bicycle insurance isn't a frivolous expense. With some bikes going for $20,000 a pop, bicycle insurance isn't a frivolous expense.

Yes, you read that correctly. Bicycles. If you or your clients are under the impression that an auto, renter's or homeowner's insurance policy is an adequate way to cover today's bikes—particularly the sleek and expensive models favored by serious enthusiasts—think again.

There's a certain amount of liability or theft coverage available on an existing home, auto or renter policy for bicycles. However, exclusions and limitations—not to mention deductibles—can take a real bite out of any settlement check.

Worse yet, exclusions and limitations could mean that the hobbyist or weekend road warrior could find herself stranded in case of an accident or theft, or have to fund the cost of equipment replacement or medical bills. Even if coverage for a given incident is adequate, what about premiums? A claim for a bike-related loss could drive up the cost of coverage or even result in a policy not being renewed.

Depending on the company, policies in the niche market that caters to cyclists offer everything from roadside assistance and rental bikes to repairs, theft and liability coverage. Options available vary from company to company and depend on the specifics of the insured's bike and circumstances, but cyclists now have options they may not have considered unless trouble occurred and they learned the hard way.

One such company is Velosurance, which was, according to the company, “founded in 2012 by Dave Williams and Denis Voitenko, both serious cyclists who set out to fix the problem of substandard insurance coverage for bicycles.” The pair partnered with A.M. Best A-rated Markel American Insurance Company to come up with coverage that can protect cyclists not only at home, but around the country and even in other countries.

While policies are not available in all 50 states, the company is nationwide and partners with bike shops across the nation so policyholders have somewhere to turn in case of loss. For clients who need legal representation, the company has a national list of attorneys who are also cyclists.

According to Williams, the company's CEO, the typical demographic is males between the ages of 35 and 50 who are buying bicycles that can cost between $15,000 and $20,000. Of the more than 15 million bicycles sold each year in the United States, Williams said, four million are of higher value, averaging perhaps $2,000–$2,500 in price. High-end bikes can cost more than $20,000.

Suppose your clients are not convinced about the need for separate cycling coverage. Williams cited one client whose experience with homeowner's coverage was definitely negative. His $2,000, 5-year-old bike had been stolen from his garage, and after the claim was filed and depreciation and the deductible taken, he was sent a check for $182. To top it off, four months later at policy renewal time, his premiums increased by $400. Other pitfalls cited on the Velosurance website include being covered only for limited use of the bicycle—counterproductive if your client is a racing enthusiast or takes cross-country bike trips—and high deductibles on claims.

With cycling being touted as “the new golf” among enthusiasts from London to Australia, and the groundwork laid for business deals on such long-haul events as Cycle to Cannes, the 3 Peaks Challenge and Portland to Portland, it's more likely than ever that your clients could be hitting the road—in which case you should make sure they’re adequately protected.

Policies from Velosurance are not one-size-fits-all, so the bike enthusiast can pick a level of coverage according to his needs and budget. A cyclist can select coverage against uninsured motorists and medical coverage, subject to policy limitations, and even transport of a bike by air (if, for instance, the cyclist is riding along with the pros in the Tour de France). Should the airline lose or damage the bike en route, the cyclist will not be dependent on getting the airline to make good.

While professional use of a bicycle is not covered—bike messengers, unfortunately, are out of luck—racing, even professional racing, is covered, since it is “not considered commercial use,” according to the company website.

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