How to choose the Best Homeowners Insurance, Before You Really Need It!
Introduction
Most individuals don’t really know if they have good insurance coverage until they need it. Unfortunately, that’s the worst time to find out! The avg person doesn’t look forward to choosing an insurance company and so, it is ultimately approached as a “task” in which the sole purpose is to acquire the necessary documentation to stay compliant with your mortgage company. You may pay your premiums for years, all the while thinking you are fully covered in the event mother nature strikes. Unfortunately, this may not be the case! When you set out to accomplish the “task” of finding insurance, rather than the “goal” of making a well-informed decision, it will almost always end up costing you much more down the road. Trying to understand an insurance policy is a tedious task and may not seem like such an important decision, but try and tell that to someone whose been on the receiving end of a bad policy. You’ve heard the term, “hindsight is 20/20” right? Obviously, we don’t expect you to quit your day job, or feel the need to learn the entire insurance industry. That’s why we wanted to provide some insight to get you started on the path to protection.
Get Quotes
For this I’d venture to say, 90% of people get competitive quotes to accomplish the “task” of choosing insurance. In these modern days, it’s not uncommon to use a 3rd party source to obtain these quotes. Some may request quotes individually from companies they’ve been referred to or have used in the past. Either way is viable. This being said, if no further consideration is given, it becomes a game of price shopping as opposed to smart shopping. Have you ever shopped for a computer, or maybe a tv? Then I’m guessing price wasn’t the primary consideration and you ended up doing a little homework before making your decision. With that in mind, remember you are shopping for protection! For peace of mind! Putting in the extra effort NOW is paramount to making the best educated decision and can save you tens of thousands of dollars. Now, I’m not saying you need to have the highest premiums and deductibles to receive good coverage. What I am saying is, what’s in the policy (or not in the policy) is equally important as price. Getting competitive bids is only step 1. You must then know what questions to ask each provider, so you’re truly comparing apples to apples.
Deductibles
When discussing the cost of your options with an agent, many will choose an option solely by evaluating the potential of needing to file a claim in the future. Why? Because the amount of your deductible influences the cost of your premiums. The odds are, if you have a larger deductible, then your premiums will be lower (and vice versa). This is a natural process of selection when choosing the right option for you and your budget. However, did you know the amount of your deductible can change with many different providers based on the reason for your claim. Let’s say you’ve opted for a $3k annual premium with a $1k deductible per claim, and you suffer a loss due to storm related damage (i.e.. Hail, Wind, Tornado). Your carrier or policy may state that you owe a higher deductible for particular causes of damage, and your deductible for that incident is now anywhere from 1% to 5% of your home value. That means, if your house is valued at $200k and sustained hail damage, your deductible could be as much as $10k!!! Not the $1k you thought you agreed to.
How to Read Your Policy
The main portion of the policy will outline what they will pay for & what they won’t pay for. As tedious as it may sound, you must read your policy. We recommend reading it 1 clause at a time. Don’t expect to read it straight through! Read each clause slowly and repeatedly until you either understand it, get a general understanding, or can formulate questions or concerns regarding it. Have a highlighter and pen on hand when doing so. You will want to identify particular areas and write questions or notes throughout. As you read, make sure you try and envision how each clause may relate to you and your home. By doing this, you will gain the much needed insight you’ll require to begin addressing your questions/concerns with an agent. We want to reiterate, there is no stupid question, no limit to the number of questions/concerns you may have, no limit to the number of calls you can make, and no time limit. As you are reading your policy, pay particular attention to the word “not”. For example, phrases like “we do not cover”, “will not apply to”, “will not include”, etc. These types of phrases will automatically help you focus on specific areas where you may not have adequate coverage. Polices may not be written with the intention of confusing you, but they are certainly not written to make it easy for you to understand! Just keep in mind, You Can Do This!
How to Customize Your Policy
Each provider has their own general “policy”. This is their standard policy and basically the building block of your coverage. If you asked 20 of your neighbors to see their policies, at first glance they’d basically all read the same way. However, they may all be different! This comes down to 1 thing, Additional Endorsements/Riders;
Additional Endorsements/Riders typically call for added protection. For example, many standard policies do not automatically account for the increased costs associated with meeting the required building codes. This is where you would opt to add a Building Ordinance endorsement, also referred to as Ordinance or Law Coverage. Let’s say your roof was damaged by a hail storm and requires replacement, but the current ordinance states your decking does not mean code. The additional cost to add new decking would be an out of pocket expense to you without the added endorsement. My policy states:
“payment will not include any increased cost due to the enforcement of building codes, ordinances, or laws regulating construction……”.
Well, the Extended Roof Coverage endorsement I had added to my policy says; Yes, it is covered!!
Ask your agent to outline additional endorsements you may want to consider.
Beware of the Roofing Exclusion
Roofing exclusions can save you a considerable amount on your premiums. However, this only benefits the insurance company when it’s your turn to file a claim! Roofing is one of the most expensive repairs you could incur with home ownership and the insurance companies are keenly aware of this. Any clause pertaining to less than full coverage of your roof should absolutely be addressed and corrected. Not only is the roof cost a considerable one but your roof protects everything below it! Here’s one example of a roof exclusion:
“In consideration of no change [or reduction] in premium, it is hereby understood and agreed that this policy does not cover the roof of the dwelling described herein against wind or hail damage, nor shall it cover any direct or indirect interior damage caused by, resulting from, or contributed to by rain, snow, sand or dust entering through the roof and causing damage”.
Here's how the clause above can affect you. Assume your roof sustains considerable damage from a peril such as wind or hail. Not only does the Insurance company NOT owe for the roof, but they WON’T OWE for any interior damage that may be incurred. If you think roofing is expensive you don’t want to know what new insulation, drywall, paint, flooring, framing, personal property, etc… will cost in addition to that roof! Here’s another example of a roof exclusion:
“Building structure reimbursement will not apply to: roof surface(s) when the loss is caused by windstorm or hail”
This clause is easier to understand. It obviously tells me I don’t have full coverage for my roof. Remember the word “not”, and the phrases I mentioned earlier? As you can see in the examples above, two different variations were used (“does not cover” & “will not apply”). Fortunately, endorsements/riders can be added to the policy that can correct exclusions such as these.
Know The Company Your Dealing With
Let’s assume you’ve found a few companies who have addressed your concerns. All of which, appear to be on an even playing field regarding policy and price. There may be a way to choose. Consider this; Will they be difficult to deal with if I file a claim? How would I know? My best advice is to call a contractor that commonly handles insurance restoration and ask them! Some insurance companies are much more difficult to work with than others, whether it be approving a claim or how they pay out on claims. We deal with insurance claims on a daily basis and have extensive experience working with most Insurance Companies. The insurance industry is commonly implementing changes to the way they conduct their business, but we get to see those changes day in and day out. And, we see how it affects the customers we work for, both positively and negatively.
(see my article titled, “Have Allstate Homeowners Insurance………”)
Final Words
I was literally on the phone with my Insurance company this morning, and it took about 45 minutes of rephrasing the same question before I received a clear answer. I then called back 2 hours later and was on the phone for well over an hour addressing concerns with my own policy. I can’t say it was the most joyous thing I’ve done today, but I am SO much better off because I did!!!
Just remember, nothing worth doing is easy. Take the time, make the extra effort, and take back the reigns with your Homeowners Insurance. In the end, it will all be worth it!
(see my upcoming article; “What I Found Out About My Homeowners Policy!!”)