What you NEED TO KNOW about Homeowner’s Insurance
Everybody who owns a home and has a mortgage has to have home insurance—but understanding the policy in it’s entirety? Well as your agent and insurance adviser we know you’re not wizards at this stuff and that’s why we have such an important job. It’s truly about education.
Here are seven things that smart homeowners need to understand when shopping and comparing policies.
1. Insurance companies look at replacement cost, not market value
Did you get a ‘good deal’ when you bought your current home? Did it appraise for $325,000 but you only paid $305,000? Do you think your home insurance policy should list the coverage on your home for exactly $305,000 then since that’s what you just paid for the house? Not so fast, my friend. In the event of a claim what do you want your policy to do? The answer of course is to REPLACE/REPAIR the damage whether it was to the structure or your contents after your deductible is met.
When you buy a house here are factors that affect the house value: age of the house, size of the lot, school district, local neighborhood–just to name a few.
There are a myriad of factors that go into determining a homes replacement cost including but not limited to: age of the house, square footage, style of the house, number of bathrooms, if there’s a basement and if the basement is finished, number of garages, square footage of the deck. I think you get the idea.
2. You should never, ever ignore water or flood risk
Planning to skip flood coverage because you’re in the middle of the high plains? Think again. Lakes, rivers, and oceans aren’t your only watery concerns. Forgetting about your sump pump or sewer can be a catastrophic mistake.
Back up of sewer or drain is NOT COVERED under any company’s base home insurance policy. You have to select additional coverage (typically from $5,000-$25,000) and pay and additional premium for coverage. The #1 cause of this type of claim is a failed sump pump. Even brand new ones can fail if you have heavy rains for several days or if you lose power during a storm.
If there is a power failure and it causes the pumps to fail and you have flooding in the basement this is the ONLY way that you’ll have coverage; otherwise you’re on your own to clean up the mess and repair any damage.
3. Don’t use insurance for maintenance issues
Making a claim on your home insurance will likely cause your premium to rise. That’s no fun for anyone, so unless you have a major catastrophe it’s always best to contact the agent first to discuss the situation to see if it merits filing a claim.
Also, too many claims could result in cancellation of your policy. So keep your claim activity to a minimum. As a general rule of thumb I would suggest not turning in a claim unless the total amount of damage is twice your deductible or more.
Gone are the days of using your home insurance for maintenance issues that arise from daily wear and tear. Insurance should only be used for larger claims or catastrophic incidents. If you do have multiple claims in a short time period (2 claims in 3 years; 3 claims in 5 years) it will be very difficult to move your insurance when you choose to shop. No insurance carrier wants a client who is “claim happy.”
Want another way to think about your home insurance? Here is another thought– When you use your home insurance, it should be with a sense of “Thank God I have insurance.”
4. Tell us before remodeling your home
Very seldom do our clients tell us about home renovations until well after the fact. But letting us know what you thinking or planning on doing can help eliminate some surprises down the road. If you don’t, otherwise you might find yourself paying some big bucks in either premiums or lack of proper coverage down the road.
Not only do you want to ensure any possible mishaps are covered under your policy, but your insurer likely will need to reassess your property, especially if renovations affect the value of your house.
Some renovations—like a new roof—can lower your premiums by as much as 25%. But others, like putting in a pool or trampoline, can cause your premiums increase due to liability concerns. In fact some insurance carriers will cancel or non renew your policy if you have an unfenced pool or unfenced trampoline. Double check with us before finalizing construction plans.
5. Buying insurance isn’t “like shopping for gas”
Understanding the intricacies of your policy can be immensely overwhelming, tempting many homeowners to shop exclusively for the lowest price. But being more methodical can make a huge difference.
Don’t view buying insurance like shopping for gas. You are buying coverage for the MOST EXPENSIVE possessions that you own. Make sure to ask plenty of questions, such as ‘Is this replacement cost policy or actual cash value?’ and ‘what are limits on my personal property (jewelry, guns, etc)?’
Go through your policy with us every 1-2 years, asking questions whenever you’re confused. We do this for all our clients; it’s called a Farmers Friendly Review. Don’t feel bad about asking questions, that’s what we’re here for.
Insurance can scare even the most educated consumer. So take your time, ask questions, and don’t just go with the cheapest price because seldom is that the best decision.
6. Insurance is not a conspiracy theory.. No, seriously.
Believe it or not, we (your insurance company) don’t set out to smash your dreams of reimbursement with an iron hammer. And we are not the type of company to cancel your insurance if you have a claim or two.
One area that makes things very difficult as an agent are people who think the insurance companies are out to deny every possible legitimate claim. There is not a vast conspiracy against the clients.
You might not want to believe it but we (the insurance company) do want to keep you happy. And sure, we also want to protect the bottom line as well.
7. Don’t get frustrated about increasing premiums
As your agent and adviser of choice we are your ally. Remember: We are not the ones setting the rates or raising your premiums. You might be upset, but just give us a call to understand what exactly is happening with your policy.
Remember we are NOT the the insurance company, but we understand that we are your liaison between the insurance company and yourself as the client. We understand that increases are difficult on you as the insured.
If you have an issue with your coverage or rate, remain calm during discussions. What we do is to go over the coverage line by line and see if you’re eligible for any new discounts or if dropping a coverage or raising a deductible might be a good fit for your situation.
If you’re a client and it’s time for a review call 816-795-5977 or email email@example.com.