Have you recently found your homeowners insurance increasing at each renewal? Do you struggle with what is covered and what isn't, like run off water? Do you understand when someone tells you that the market value of your house is not the same as replacement cost of the same home? Have you had a claim where the insurance company simply charged you back for that claim over the next few years only to wonder what that was all about?
Well if you have wondered about these issues you're not alone. Almost all homeowners do not totally grasp what they have with homeowner's coverage, so let's do a short tutorial.
Homeowner's pricing has been steadily going up over the last few years for most insurance companies, due to claims from weather related losses. You don't have to look at the news long to realize that there are strong storms occurring frequently around the country; hurricanes and tornadoes, hail and straight line winds. In the winter heavy snow collapses and ice damage can result. The typical insurance company operates by bringing in premium and paying out administrative costs and claims. If those don't balance properly they need to increase their premium volume. On a positive note, if they make more money than they expected over a year or so, then prices often stabilize or the company decides to get more aggressive in their pricing to maintain clients and attract new business. Recently, we have had a series of tough years for not only the insurance companies but those homeowners who have had claims. This usually cycles and eventually premium stabilizes or decreases.
What is covered and what isn't, is another matter. Most homeowner policies are written on standard forms and so there is very little variance in basic coverage from company to company. However, that doesn't prevent our ignorance. The best and shortest way to know what is covered is to read the list of not covered items or exclusions in your policy. You can gain a lot of knowledge by just reviewing this list in your policy. If you not prone to reading policies (which many of us aren't), make sure you are asking your agent at each renewal any questions your may have. The most misunderstood coverage or lack thereof in the homeowners policy is runoff water, or more simply Flood. It can come from any source but if it is external and running into your house, it is not covered under the standard homeowners policy.This pertains to both the home and personal property or even other coverages such as lose of use. You therefore need flood insurance which most agents can quote for your review. Sewer backup is also misunderstood and you should make sure you have some extended coverage on your policy for that peril. Finally, know that the most you will get on a total loss is the face value of your policy. So if you want your same home back after the loss make sure you are insured for the correct value. The insurance companies try to assist with that number but your agent can also run a home evaluation for you to provide some guidance. You aren't necessarily saving money by keeping that number as low as you possibly can, especially when you have a policy limit less than the replacement cost of your home. Then, if you have a total loss, you won't be a happy camper.
Why isn't market value the same as replacement cost for your home?Well, to rebuild and replace all of the same components of your existing home with new components it costs more than market value of your home due to depreciation or aging. The person buying your home on the market buys the depreciated components. The insurance company in a total loss replaces completely all of these same components, only new. So the next time you see that replacement cost figure on your policy think of brand new versus current value.
Finally, how do claims affect your premium? They do and it's almost always up. Consider a storm damage claim of $2500. You might see an increase in your homeowner over the next few years of $200 to $500 dollars. Once time passes on that same claim, underwriting usually straightens out again. So why have insurance you might ask, if all I am doing is paying for claims myself. First, larger claims are not as manageable and you need the assistance of an insurance company to pay the bill. If smaller claims are not a problem then consider increasing your deductible, especially for wind and hail claims. This will allow you to pay the claim with no impact to your premium. Insurance helps us manage our expenses due to unexpected claims, but it is not a guarantee that you won't have some financial ramifications from the loss.
I hope that this brief review of typical questions about a homeowner's policy has been helpful. As an insurance agency, we would be happy to talk with you further about any questions you may have concerning your homeowners policy.
