Tips to Purchasing Homeowners Insurance
1. DON’T PURCHASE HOMEOWNERS INSURANCE SOLELY ON PRICE; DO PURCHASE THROUGH A REPUTABLE AGENT
There is probably no consumer product that is more valuable to consumers but is understood less than insurance. So the first order of business is to purchase insurance through a reputable agent. Obtain recommendations of at least two agents from relatives and friends. Do an internet search on these names to see if you come up with any lawsuits by their clients. In Florida, all insurance agents are regulated by the Florida Department of Financial Services, Office of Insurance Regulation. Licensed agents can be found on their website at www.fldfs.com . This common regulation does not mean that one is as good as another. Just as with doctors, lawyers, or any other profession, there is a wide disparity in the quality of insurance agents. Also check with the Better Business Bureau for any complaints.
Interview your prospective agents and ask questions such as their education and experience, and licenses and industry-related designations. There is an alphabet soup of titles that insurance agents hold so be prepared to ask about the criteria for achieving these additional designations. In your interviews make sure you tell your prospective agent you are relying on them for their expertise and you expect they will listen to your needs and address them. Also advise you expect them to explain what the policy covers and more importantly what it does not cover.
With regard to insurance policies, do not shop solely on price. There are differences between insurance policies. Some policies are “cheap” because they have more than usual exclusions, and/or lack additional coverages via endorsement. You can get started in evaluating insurance companies through AM Best ratings ( www.ambest.com) and Moody’s (www.moodys.com). Obtain multiple quotes and have your agent explain any differences in the policies. Your agent should give you a list of all the riders each carrier provides; bundling riders may earn you a discount. Ask how replacement-cost coverage is handled.
2. GO OVER THE QUESTIONS AND YOUR ANSWERS ON THE APPLICATION FOR INSURANCE
If your home suffers a loss, and there is an issue with the claim, the information of the insurance application will take on paramount importance. If there is inaccurate information with regard to an important fact on the application, the insurance company can rescind the policy. Yes, the company will return your premium but your claim worth thousands of dollars will be denied. Typically, inaccuracies on policies occur because: 1) the person applying for insurance either intentionally or mistakenly puts down inaccurate information; 2) the insurance agent writes down the wrong information; or 3) the insurance agent in a casual way tells the applicant to “fudge” the information. All of these can allow the insurance company to deny a claim that would otherwise be paid. The fact that the mistake was due to carelessness rather than an intentional “lie” does not matter. Similarly, blaming the insurance agent or one of his staff for preparing the answers on the application will not prevent the insurance company from denying the claim.The bottom line is to make sure you check the application for accuracy. Don’t just sign the application without reading it. If you see something wrong, change it.
There are readily available sources about your home’s repair history. When you purchased your home, your seller had a duty to disclose “material defects”. You can also check with the building department of your town to determine if construction permits were issued for repairs. In Florida, you can also determine if your property had been investigated for a possible sinkhole via the local building department.
As you can glean from the foregoing, the answers on the application are not simply based on what you knew but you need to check to make sure the answers are correct based on available records.
3. BUY REPLACEMENT COVERAGE FOR OLDER HOMES
Insurance is designed to rebuild the home you have. But especially with older homes, newer, tougher building codes can make an exact replacement impossible unless you pay more than the cost of your original home. If your home is less than 10 years old, 10% of dwelling coverage for code updates probably suffices — verify that your policy includes it.
For older homes, and in disaster-prone areas where codes change more rapidly, upgrade your policy to include 20% for “ordinance and law.”. The cost also varies widely by carrier; some price it high because some companies would prefer not to insure older homes. To help pay for this, you may want to increase your basic deductible. Going from a $500 to a $1,000 deductible will cut your homeowners premium at least 10%. Now that home prices are increasing again it is also a good idea to make sure you are not underinsured. If the policy coverage drops below 80% of the full replacement cost of your home, your insurance company may reduce the amount it will pay on a claim.
4. BE WARY OF TOO MANY CLAIMS
Because insurance companies track how many claims you file, be careful about making claims on your policy. (Insurance companies use information from “claims history databases” like Comprehensive Loss Underwriting Exchange (CLUE) to help gauge the insurance risk to potential clients.) A good rule of thumb is if your claim exceeds your deductible by $200 or less, consider not filing the claim. While you will pay for the loss out of pocket, the payments will probably be less than the premium increase you could incur later. This will he to maintain a good claim record and ensure your ability to stay insured for major or catastrophic losses.
5. BE RESPONSIBLE
Before you gripe about the insurance company, make sure you fulfill your responsibilities. Review the policy with your agent when you receive it to ensure it is what meets your needs. Keep a file of all paperwork you completed online or received in the mail and signed—as well as any other documents related to your insurance, including the policy, correspondence, copies of advertisements, premium payment receipts, notes of conversations and any claims submitted. Pay the premium on time. Most insurers don’t offer a grace period for paying the premium; the due date is the due date.
Make a household inventory. Go through each room; write down and take pictures or videos of everything in the room. Inventory everything, including valuable items such as antiques, electronics, jewelry, collectibles and guns. Store your home inventory in a secure place at another location, such as your workplace, a safe deposit box, a relative’s house or online. Annually review and update your home inventory, including your pictures/videos. Also update your inventory when you buy new items. Keep receipts with your home inventory for all repairs and new items you buy, for proof if you file a claim.