I have been an insurance agent for 34 years and I have never seen the marketplace more competitive than it is today. There are more outlets to purchase and more coverage options than ever. Of course, this can be both good and bad for the consumer. Good because you have more options than ever.
Bad because serious mistakes can be made if you do not purchase the coverage you need. It can be a daunting task to wade through all the options and make the right decisions. That is why using an Independent Insurance Agent is more important than ever.
I see consumers making the same 5 mistakes daily. Don’t be one of them.
Insure to Replacement Cost
Call five different insurance agents and you are likely to have five different limits proposed for your dwelling coverage. In order to be insured correctly and assure your claim is fully paid you must insure your home for the cost to the insurance company to rebuild it!
How do you know what it will take the insurance company to rebuild your home? Every insurance agent must complete a replacement cost estimator before insuring your home. Make sure you receive a copy of the completed replacement cost evaluator from the insurance agent.
Then check it for accuracy! Is the square footage of the home accurate? Does the evaluator state you have a builders grade kitchen and/or baths when you have granite countertops? Is your attached deck included? Is your basement finished but the evaluator states you have an unfinished basement?
If any of this information is incorrect, then the dwelling limit will be lower than what it will cost the insurance company to rebuild your home. This could cost you thousands of dollars in the event of a major loss.
Guaranteed Replacement Cost
Every homeowner should purchase guaranteed replacement. It eliminates problem #1 listed above. This coverage takes all the worry out of a claim in the event of a total loss. The name of the endorsement explains the coverage.
If your house is destroyed then the insurance company guarantees to rebuild the home no matter the cost, even if it exceeds the insured amount of your home. Another name for this coverage is unlimited replacement cost. There are only a few companies that offer a true guaranteed replacement cost policy.
Typically it is packaged with their HO-5 policy.
HO-3 versus HO-5
Guarantee the replacement of your home.
Again, not every company offers an HO-5 policy. The HO-5 policy offers the most comprehensive coverage. Until recently, most companies only offered this policy to high end homeowners. Now, it is available to all homeowners and the additional cost is minimal.
What is the difference between the two policies? Who must prove the loss is covered is different between the two policies. This may sound like a subtle difference but it can make a huge impact on whether a loss is even covered!
With the HO-3 policy the insured must prove the loss is covered and under the HO-5 policy the insurance company must prove the loss was caused by one of the 12 named exclusions.
As an example, suppose water has flooded your home theater in the basement. this is one of the most common claims here in Indiana. Water has seeped in through the walls (a named exclusion) and backed up through your sump pump. Under the HO-3 policy you must prove the water that backed up through the sump pump caused the loss. Impossible! Not covered.
However, it is also impossible for the insurance company to prove the excluded water caused the damage so the claim is covered! It is obviously better to place the burden of proof on the insurance company.
Purchase Water Backup Coverage
Water causes a huge amount of damage. This coverage starts at $5,000 but the average water backup claim exceeds $7,000. You need this coverage even if you do not have a sump pump. The amount of coverage needed varies based upon what you have in your basement.
If your basement is unfinished what is the value of your belongings in storage in the basement? Could your water heater or furnace be damaged? If you have a finished basement, you need even more coverage and need to shop this coverage carefully. The price for this endorsement varies widely between insurance companies.
Flat Deductibles versus Percentage Deductibles
Bonus! Independent Agents Have Choices!
Water damage is the #1 homeowners claim.
Warning! This is one mistake many homeowners do not even know they are committing. Many prominent insurance companies have changed their deductibles to a percentage of the homes insured value or have a separate deductible for wind/hail damage.
The insurance company notified the insured with their renewal paperwork (how many of you actually read all that stuff!) and the insured was completely unaware of the change!
Or, even if the insured knew of the change they did not think to do the math. If you insure your home for $350,000 then your 1% deductible will cost you $3,500 when hail damages your roof! PLUS, the deductible increases every year as your homes insured value is adjusted upward each year for inflation.
Assuming a 4% inflation rate, your deductible on the same $350,000 house skyrockets to $4,200 in 5 short years! What’s worse?
The premium savings for the consumer is negligible or even non existent! Insurance companies that have the percentage deductible are out to pad their bottom line, not make sure you are covered for the most common claim in Indiana, wind/hail damage to your roof!
Independent insurance agents represent YOU, the consumer and our service does not cost you any more!
Many consumers do not understand the difference between and independent agent and a captive/direct agent. The captive agent sells policies for only one company. Most times they are an employee of the insurance company.
If the insurance company makes a change to their policy like the percentage deductible cited above, they have no choice but to convince you it is not a big deal.
Otherwise, they lose your business and they lose income! On the other hand, most independent agents are small business owners. They represent you and can offer coverage from multiple insurance agencies.
I find it interesting that most of the direct/captive companies are pushing the percentage deductible while very few of the independent agent driven insurance companies are pushing the percentage deductible.