Many of my clients want to know if we should look for another home insurance company in order to save them money. In order to best answer the question I believe it is important to look at some of the variables related to a home insurance policy before switching simply for a lower premium.
It should not always be about the price.
It’s understandable in these tough economic times that we need to save money where we can. And very often the first thing people look at to save money is to shop their home insurance. But not all home insurance policies are the same. You may have coverage features which could significantly benefit you that you might not be aware of. Simply shopping for a better price could end up costing you thousands of dollars. Here are some things to look for when you are thinking about changing your home insurance or purchasing a policy for your new home.
What is the percent of coverage for Ordinance or Law? Ordinance or Law coverage is a tricky coverage provided in the home insurance policy. Generally speaking, this coverage will pay in addition to the coverage amount shown for the Dwelling (Coverage A) for circumstances where an “ordinance” or a “law” causes additional costs in a covered claim. The amount of additional coverage provided is reflected as a percentage of the amount of coverage shown for the Dwelling (Coverage A). Most home insurance companies offer options of 10%, 25% and 50% where it is up to the insurance purchaser to make this choice. Since insurance agents are not typically privy to the ordinances of the local towns or communities of the home they are insuring, it can be risky to assume only the minimal amount of coverage will be needed. Oddly enough, I see quotes where 10% has been selected. The homeowner usually does not know why 10% is the coverage amount on their quote or policy and they do not even understand what the coverage is for. If Ordinance or Law coverage is provided or offered with limits of 10%, ask the agent why they chose that amount of coverage for you.
Are there limitations in the policy for water damage? More and more insurance companies are changing the policy language and adjusting how certain coverage may be provided. Certain home insurance companies are either excluding or limiting the amount of coverage the policy will pay for damage caused by water. Check your policy or quote to see if there is a limitation or exclusion for damage caused by water.
Is the amount of coverage on the home adequate should you encounter a catastrophic loss? When people are price shopping their home insurance the range of coverage and cost can vary greatly. The primary reason for this is typically due to the amount of coverage that has been quoted for the Dwelling (Coverage A). The coverage associated with the dwelling value reflects the maximum amount of money that will be paid to either repair or rebuild the home. The Dwelling value should equal 100% of the cost for reconstruction. This is not the same as the purchase price, loan amount, appraised value, taxable value or the amount for new construction (new construction and reconstruction are not the same). The reconstruction value is typically determined by the insurance agent who is preparing your quote by using a reconstruction calculator. If the insurance agent is properly representing your home when the dwelling value is being determined, most quotes will have similar coverage and the consumer can then look at the pricing scenarios based on an “apples to apples” comparison. Unfortunately this is not always the case. Ask your insurance agent for a copy of the valuation report they conducted to determine the dwelling value and see if they properly represented your home.
How long has the home insurance company been in business? The Florida market place is very competitive right now. There are many newer companies in the market place that saw an opportunity after the hurricane event(s) in 2004 where many insurance companies fled the State which created a void and a need. So the question that remains is; how will these “new” companies perform when the next hurricane event happens? Since these companies have not been literally tested, the ability for them to properly respond to a catastrophic event is questionable. This does not mean they won’t be able to handle the claims and it does not mean they will all certainly go insolvent but it is something to consider as a consumer. Before making a decision on your home insurance company, look at when the company was formed, before or after 2004.
Once you understand what you have, you might think twice before taking the “cheaper” policy or perhaps you might realize that it makes good financial sense to pay a little more for a more comprehensive policy. After all, you are only protecting one of your largest financial assets.