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Homeowners Insurance--save a buck
Old 08-05-2010, 03:52 PM   #1
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Homeowners Insurance--save a buck

Finally got around to doing a full line review of our homeowners insurance. I was prompted by an article in Kiplinger regarding importance of keeping your home's valuation current and using the online services for doing self valuation of "true" replacement. The article recommended the service from Marshall Swift entity called accurcoverage. AccuCoverageŽ - Replacement Cost Calculator to Help Determine How Much Home Insurance You Need.
The service cost less than $20 and about 30 minutes of data entry as I recall.
Marshall Swift is a main line replacement cost valuation firm. My megacorp used them for fire insurance valuations and losses.
Couple surprises--insurance companies have changed how they define "replacement" ; coverage terminology does not mean what it says especially if you do not read the exclusions; and deductibles are now available as percentages rather than fixed $$.
In the "old days" if you were insured to 90+/-% of your replacement value, the insurance company was on the hook for paying for complete replacement. Now they have fixed dollar limits unless you buy a "rider" and even that has limitations.
There are almost more take-aways in the exclusions than you get coverage.
By shifting to a 2% deductible (from 1000), I was able to bump my replacement coverage by 50K and still cut my annual premium by $20.
The Accuracoverage estimate came out within a couple thousand of the insurance company (State Farm) detailed valuation.
If I had not increase my principal coverage amount I would have probably cut 15% off the premium.
Nwsteve
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Old 08-05-2010, 09:53 PM   #2
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My homeowners policy included an option to raise the deductible to lower my payment. My first reaction was to jump for it, but now I'm not so sure. The numbers were something like...

Raise the deductible by ~ $4000, lower the annual payment by ~ $100. So on one hand, that first $4000 of ins is very expensive, and I should be insuring for big losses, not small. So save $100 makes sense.

OTOH, just one claim above that range in 40 years is a break even point (roughly, not figuring opp cost of the money, future increases, etc).

I went for it, have not had a HO claim in ~ 25 years (knock on wood). Another one for the 'who knows' category.

My replacement coverage is for roughly the market value, which could be high considering the land doesn't burn down. But I imagine re-building is more expensive than building?

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Old 08-06-2010, 09:42 AM   #3
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Another advantage of high deductible HO ins is that it reduces the likelyhood of you filing any small claims, and filing claims is what gets HO insurance cancelled.
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Old 08-06-2010, 10:35 AM   #4
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My replacement coverage is for roughly the market value, which could be high considering the land doesn't burn down. But I imagine re-building is more expensive than building?
Mine is worse. House is worth maybe $160k, with the land being around $40k of that. So $120k for my structure. Replacement cost is $209k per the insurance company. And it keeps going up 8-10% a year. I keep telling them that there are unemployed and bankrupt construction workers and employees all around, materials costs are down, how could inflation possibly be this bad? And the row of 5 brand new houses down the street are selling for nowhere near $209k (including the land they sit on, which doesn't burn down). And they are likely much nicer than my house given mine is 40 years old and theirs is brand new.

My complaints have not worked. They won't issue the policy for less than $209k even though I told them I am aware of the risk that if I under insure, I could be liable for coinsurance or not receive full coverage in the event of total loss. Frustrating to say the least, but it costs me less than $100 a year for the extra coverage and they are the low bidder for home insurance, so no better alternatives exist. Just frustrating that I know I could rebuild for less than what they are covering me for. And to boot, they allow up to 50% additional cost above the coverage amount for replacement. So $300k roughly.

Has anyone else had a similar experience being forced to insure for higher amounts than what the likely replacement value is?
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Old 08-06-2010, 01:09 PM   #5
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My replacement coverage is for roughly the market value, which could be high considering the land doesn't burn down. But I imagine re-building is more expensive than building?

-ERD50
Unless your home was built in the last 10 years, the replacment cost number can be a surprise. Market values miss the cost of code changes, material valuations, etc. I checked on the cost of the Accucoverage analysis and it is only $8. Small price to avoid the unpleasant experience I would be out of pocket a substantial amount if I had a total loss.
I agree the deductible versus risk equation is a balancing act to make the trade-off. That trade-off is different than not purchasing enough coverage to avoid a spitting match with insurer should you have a significant loss.
If you have not reviewed the details of your coverage, you may be surprised how many limitations and exclusions policies now have.
Nwsteve
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Old 08-06-2010, 01:42 PM   #6
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Unless your home was built in the last 10 years, the replacment cost number can be a surprise. Market values miss the cost of code changes, material valuations, etc.
To calm me down, my insurance agent kept explaining the high amount of the replacement coverage as having to do with replacing everything with brand new stuff. Ie - my 9 year old roof, if replaced, would be brand new. My 6 year old furnace/AC would be brand new. My 38 year old kitchen would be brand new. Etc Etc. But this doesn't bear out in practice because I can drive down to new neighborhoods (or the ones just built 2 houses up from me) and see houses bigger than mine that are selling for less than the replacement cost I have been quoted.
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Old 08-06-2010, 02:07 PM   #7
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Quite the scam the insurance guys have, isn't it? You could ask the agent to come out and redo the replacement cost analysis. Very possible they have a 'bad" data input. Run the Accurcoverage analysis and it it comes in lower, you would have some muscle to ask the analysis be redone. The other option is to look for an insurer who will insure the home for what you want, especially if no bank is involved.
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Old 08-06-2010, 02:19 PM   #8
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Fuego
Quite the scam the insurance guys have, isn't it? You could ask the agent to come out and redo the replacement cost analysis. Very possible they have a 'bad" data input. Run the Accurcoverage analysis and it it comes in lower, you would have some muscle to ask the analysis be redone. The other option is to look for an insurer who will insure the home for what you want, especially if no bank is involved.
Nwsteve
I have had them re-run their analysis over the years and it is fairly consistent. I have told them that the amount they are proposing could pay my mortgage off twice and then leave me with some extra money. To no avail.

They are still the lowest cost insurer for us, particularly when factoring in multi line discount and the very low auto rates we pay ($250 for each of us per year incl. comprehensive coverage). Just frustrating knowing I'm paying for more coverage than I need. But were something to happen to my house, I'd be pushing to get every penny I insured for.
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Old 08-06-2010, 02:32 PM   #9
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Fuego, the way I look at it, you got the best deal available. So enjoy the fact that for least amount of money you got more than you need. Yes, you can try getting a better deal from this already-best company, but I guess your time and nerves become more precious at some point. That's how I view it for my own situation too. When I hit the same issue, I found a different insurer willing to insure lesser amount for less money. If they told me they still have to insure for higher amount but their price would be best, I would still switch and still be happy.

As for deductible, I tend to go with lower ones ($250). Glad I did. Few years ago, I had a claim and paid $250 out of ~$2500. Insurance company raised my price next year and I switched to another one, which had even a bit lower premium than the before-the-increase premium.
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Old 08-06-2010, 03:14 PM   #10
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Fuego, the way I look at it, you got the best deal available. So enjoy the fact that for least amount of money you got more than you need. Yes, you can try getting a better deal from this already-best company, but I guess your time and nerves become more precious at some point. That's how I view it for my own situation too. When I hit the same issue, I found a different insurer willing to insure lesser amount for less money. If they told me they still have to insure for higher amount but their price would be best, I would still switch and still be happy.

As for deductible, I tend to go with lower ones ($250). Glad I did. Few years ago, I had a claim and paid $250 out of ~$2500. Insurance company raised my price next year and I switched to another one, which had even a bit lower premium than the before-the-increase premium.
That's the way I look at it. Casualty insurance companies provide a commodity good. Lowest bidder wins, even if they fudge the numbers a bit to screw me.

I have gone the high deductible route. It shaves off the premiums and also doesn't risk me getting blackballed on renewals. We had a water damage claim at a prior residence caused by the neighbor's toilet tank leaking into our condo. That claim followed us for 5 years and cost us a lot over that time, including almost not being able to get insurance at one point (ie long delay in underwriting). A water leak that causes $1000-2000 is probably something we could fix ourselves for cheap (new carpet, paint, construction worker in-laws working for lunch etc).
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Old 08-06-2010, 03:30 PM   #11
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My insurance company wanted to raise the value a couple of years ago. Two things to my advantage were that I had refinanced and put in a pellet stove which got me an assessor's opinion. Both had decreased the value from the prior year assessed value, noting lower construction costs in the area. I did bump up my coverage to the lower assessed value, thinking the land value will cover any replacement cost underage.
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Old 08-07-2010, 08:48 AM   #12
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I shopped my insurance policies about 2 years ago.

My former insurance company was raising coverage every year. The house (structure) wound up insured for more than the house and land would get if I sold it. My former agent was sick, we were caught in limbo since other agents were doing the bare minimum to support his clients.

I switched companies (used a highly rated/low complaint insurer). The new agent (local family owned GA) lowered the insurance on the structure to a realistic amount. We have replacement cost... but it has a cap of 25% over the insured amount.

The old insurance company had us way over insured on the house. Plus... they were one of the companies caught up in the controversy over the California wildfires and gulf coast hurricanes (or according to the insurance companies... floods for which few had coverage).

I saved about $600/yr by switching the insurer/agent. They lost a 30 year customer.
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Old 08-07-2010, 10:55 AM   #13
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I saved about $1100/year by -- "going bare." Probably FL is an especially bad case in terms of home insurance. Finally the idea of rates tripling in 5 years was just too much ... yes I risk total loss, including problems few others face -- hurricanes and sinkholes, anyone? But comes a point when insurance just isn't worth what you pay for it. On the plus side, I am not subsidizing the state catastrophe pool, nor do I pay interest to the usurer (no mortgage here). Liability is not an issue in FL because the homestead is untouchable.
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Old 08-07-2010, 11:09 AM   #14
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Liability is not an issue in FL because the homestead is untouchable.

Umm...liability coverage can protect your other assets, such as money.

It seems extremely risky to go without any coverage at all.
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Old 08-07-2010, 11:42 AM   #15
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*Sigh*

Just got the renewal notice in the mail, except that it is with a company I have never heard of. Since I line on one of the less insurer-friendly states in the US I suppose I should be used to this by now, but my old insurer is exiting the state of NJ and has given the policy renewal rights to a new insurer. So this will make the third homeowners insurer in 5 years even though I have never had a claim and am a very good risk. Since I am being non-renewed anyway, I will have my agent shop the policy next week, but I suspect that I have a competitive rate.

On the plus side, at least my small, financially solid, mutal insurer found another small, financially solid, mutual insurer to leave me with. So if I just stick with the default option I will not be taking a big risk.
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