Home insurance is expensive, what do I need to know?
So you own or you’re buying a home, congratulations! Now you have to have homeowners insurance, and that can be very frustrating indeed.
Home insurance has a lot of pieces on each policy with many forms and coverage types, so it’s important to learn a little about each to know where you stand. Each policy form includes some basic presets that are pretty much universal to every company and they are:
- Dwelling– This is the coverage for the structure of your home and it includes fixtures like cabinets and shelving as well as your roof, walls and flooring.
- Separate structures– This is for any structure that is separate from your home but on your property. This includes tool sheds, fencing, or your garage if it is detached.
- Personal Property– This is for your belongings, I like to say if you took the roof off your home and dumped it out, anything that falls out is personal property. If it stays in the home that is typically covered under Dwelling.
- Loss of Use– This is one not many people understand. It covers the additional living expenses you would incur to live somewhere else if your home were to be unlivable from a covered loss. In other words if your home had a fire you probably couldn’t live there until the repairs were completed, but this can cost you. Extra cost for living in a hotel, eating out more, driving further to work and various other things can all be paid for by this coverage.
Those are the most common you’ll see, but not all companies include every one. Obviously the less coverage the less cost to you, so if you want to reduce your premium you could think about removing certain parts that may not be useful in your situation. It’s really about looking at the big picture and adjusting the policy for things that concern you the most.
Most of the mainstream carriers don’t allow taking these four coverage’s off (and usually include a butt load of other additional coverage’s you may not need), however if you’re really keen on reducing premiums there are some companies out there offering “cafeteria” policies where you can select what you want. Just ask them if they offer this option when you’re shopping or go online and search for home insurance with plan customization.
My homeowner insurance renewal is really long(and boring), what does all this stuff mean?
There is thousands of endorsements and exclusions available on home owners insurance so the combinations are endless. Every carrier is different and most do exclude coverage for earthquake, flood, and terrorism, along with a slew of other things that will probably never happen.
If you really want to know what your policy excludes, ask your carrier or agent to go over that with you. Also you may want to ask what policy form your coverage is. This determines the general policy guidelines and exclusions of coverage.
Most companies write on a HO-3 form but some write HO-5. If you are looking for the best price and not the best coverage HO-3 is the way to go, if coverage is more important HO-5 is definitely what you want. Essentially the two forms are like buying a Chevy compared to a Cadillac. The Chevy is less expensive and will probably get you where you need to go, while the Cadillac has all the bells and whistles but will cost you your first born child. Not really but you get what I’m saying.
If you think you will use your homeowners insurance a lot and you want to make sure you’re covered, find a carrier with an HO-5 type policy. If coverage is not as important and you’re the type that doesn’t file many claims, than HO-3 could save you thousands of dollars a year.
Deductibles and additional coverage you might want to look into.
One of the biggest ways to reduce your premiums is through deductibles. A deductible is essentially what you agree to pay as a portion of a loss. Raising that amount means the insurance company accepts less risk, so they will reward you with lower premiums.
In my state of Colorado we have major issues with hail damage. Every year we have huge storms rip through siding and roofs which causes our insurance to be pretty expensive. On average most people pay upwards of $2,000 per year, with many higher end homes costing over $5,000 per year. Due to this I always talk with my clients about carrying a split deductible. This would give them a standard $1,000-$1,500 deductible for all claims except for damage caused by wind and hail. Wind and hail claims would carry a higher limit, usually anywhere from $2,500 up to over $10,000 based on the age and factors of the home.
There are quite a few options in this category so if you live in a state where wind and hail is frequent, you may want to find out. I especially recommend this if you have a newer home or roof. With a new roof the chances of a large claim are slim to none in the first 5 years. For my clients that like this option, we will add a high wind and hail deductible and re-asses if we should change each year when we meet. It may not be a large amount of savings in certain states and areas, but it’s something to consider if you’re trying to save money.
Deductibles are not the only thing you want to pay attention to, endorsements can make a huge difference in a claim occurrence. An endorsement is just an addition to the policy that may modify or add new coverage. Some of the big ones I usually address are adding coverage for sewer and drain back ups, Mold, and special personal property such as jewelry and collectibles.
Every policy typically has a set limit of coverage, or no coverage at all, for these categories. You definitely want to address your concerns about these things when you renew or purchase homeowners insurance, if not you could be left holding the bill.
I need to file a claim….I think…
With the insurance landscape in today’s world, companies are cracking down on guidelines and restrictions. I know this because Colorado is also one of the worst places to have claim issues. If you file more than two claims in a three year period, you have a chance that your policy will not be renewed. What this means is that your company basically says “you are too risky for us, go somewhere else!”. Somewhere else is usually a high risk carrier where premiums can be astronomical, be sure to think about this when you are looking to start a claim.
It won’t matter how long you’ve been with them and how good of a payment history you have. They really don’t care if you are costing them money. If you find yourself in a situation where you think filing a claim might be a good idea here is a few things to ponder:
- Can you afford to pay for the damage out of pocket? If you have a $1,500 deductible (which is pretty common) and the total damage is $3,000, is it worth having a claim on your record for $1,500? If you are hard up for cash and don’t have $1,500 it may be worth it to open a claim, but also consider if you have filed or opened any other claims recently.
- When you call your carrier or agent about a claim speak in hypothetical terms. One huge problem I see everyday is opened claims with no payouts. Many agents or companies will just start a claim when they hear the word, instead of assessing if it will be worth it to open. Unfortunately insurance companies do look at zero pay out claims, they are not weighted as heavy but they are included in claim frequency. If you have a question about a claim say it in terms of “I was wondering if a tree fell on my house what would the coverage be?”. Also if you do have damage, get a repair company or contractor to get you an estimate before you call. If you know the cost and your deductible you can determine whether or not it will be a good idea to start a claim
- During the claims process ask lots of questions. If the assessment of the damage seems low or inadequate don’t accept it! Adjusters are humans just like us, and they do make mistakes (sometimes more times than I can believe). Pay attention to the details of your claim. Many times an adjuster will send a low estimate hoping you will just accept it without looking it over, once accepted the claim is final. Make sure you get multiple bids or use a contractor you trust. Have them be there when the adjuster comes to look at the damage. If you have issues with the adjuster ask for their supervisors information and talk to them. You can request a new adjuster be assigned to you if you really have issues. You always have the right to dispute damages and payouts if they seem unfair, don’t let them take advantage by being uninformed.
As a whole, homeowners insurance gives you a lot to think about. This is just the tip of the iceberg when it comes to coverage and policy options you can have, so be sure to talk with your agent or carrier if you have specific questions. As long as you keep up on your policy and ask about the things that worry you, you should be able to feel good about your coverage.
I hope this information helps and stay proactive in reviewing your homeowners insurance. Many time it is paid through your mortgage so you won’t even know when the price changes if you’re not looking.
Keep learning, keep asking questions and kick insurance butt! If you liked this article please share it with your friends and leave me a comment in the links below.