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Insurance Outrage
Old 02-03-2011, 10:33 AM   #1
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Insurance Outrage

I have a situation where I am paying out the nose for insurance coverage and wondered if anyone had a suggestion. I am working and can afford it now but in 15 months I will retire - and will be a big hit each month.

2 days ago I closed the purchase of a small stilt house on a river near where I live. It is in a flood zone, the structure is wood and nothing fancy, the primary value is the 1.75 acres with over 300ft of waterfront.

I have all my coverage with Farm Bureau Ins. Recently rolled auto ins. into existing coverage on primary residence, 2 rentals (plan to sell one when I retire) and umbrella policy. Thought there would be an advantage (discount?) in giving them all my business.

The coverage amount (not the flood insurance part) on the river place is more than twice the appraised amount. And just yesterday I received notice they were increasing the coverage amount on my primary residence by $60K with corresponding increases on contents, etc. This too is more than the appraised value of the entire property (this appraisal includes 3 acres that would never be a replacement cost). Can they just arbitrarily do this?

I also am paying max. coverage on my autos (one 1999, one 2009) even tho I have clean driving record. Was told they had to do that for me to have the umbrella policy. Any of you with umbrella policy told this? I plan to address all this with them but thought would run it by this forum first. Thanks,
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Old 02-03-2011, 10:39 AM   #2
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If I'm not getting what I think is a value for any product or service I'll shop around for a quotes from a different company. Sure, the one you have can say "This is our price" but that's not the only one out there.
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Old 02-03-2011, 10:46 AM   #3
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I guess that's the obvious answer. Just wondered if this was industry standard or new insurance laws.
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Old 02-03-2011, 10:50 AM   #4
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My auto policies are at 350k (liability only) and the umbrella picks up there.
Flood is a tough one, there aren't many companies writing. As a fellow coastal resident, I can sympathize with the costs. I chose our lot specifically for it not being in a required coverage flood zone (and built high). I shopped for 5 years on our homeowners coverage to try to find someone to beat State Farm and just did this past year, to some new Florida company whose name escapes me at the moment.
Use a broker and shop all your coverage every year. If you have a good credit rating, try Progressive for the cars. I had Farm Bureau years ago and recall them being VERY expensive compared to others for auto.
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Old 02-03-2011, 11:02 AM   #5
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You don't say the location of the property (state). I'm also assuming you're not in a coastal area. There's a whole set of windstorm issues in those locations.

The insurance on dwelling structures is at replacement, not market, value. Ask your insurance agent the details on how they calculated replacement cost. If you still disagree on the number, ask if they'll accept a replacement cost letter from a local licensed contractor (on letterhead). The replacement cost on insurance policies must be for the building(s) only - which means the land is excluded. I'll tell you right now market value is significantly lower than replacement cost in most areas.

To answer your question of can they actually do this - the answer is yes. You contractually agreed to insure the replacement value of your houses. Most insurance companies will not offer coverage / cancel coverage if the replacement value is not maintained.

Back on the new property - did you finance it? If so, then there's always that tug-of-war between the amount the mortgage company wants on the policy versus actual replacement costs.

Let's get to your umbrella policy. This is a liability policy over and above the liability on your cars, homes, and boats. You are required in most states to have a minimum of $300,000 liability on the underlying policies. There is an interesting balance between raising the underlying coverages and getting a discount on the umbrella. Your insurance agent can run the numbers.

Be careful about moving your policies every few years since some companies offer a longevity discount. If the company you're with is treating you fairly, answering your questions, proving a reasonable product for a reasonable price, you may be missing out on some other discounts - ask your agent.

Ask your agent about everything that influences premium - defensive driving credit, all kinds of home credits, etc.
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Old 02-03-2011, 11:24 AM   #6
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Besides the obvious shopping around for better price, only carry the insurance you can't live without. Cut collision, raise deductibles, liability only...
I'm with State Farm and think my insurance is dirt cheap.
Umbrella policies have certain underlying minimums they require...remember the upside. A $300K underlying coverage and a 1 million dollar umbrella means you have $1.3 million in coverage.
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Old 02-03-2011, 11:26 AM   #7
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Quote:
Originally Posted by unallowable View Post
The coverage amount (not the flood insurance part) on the river place is more than twice the appraised amount. And just yesterday I received notice they were increasing the coverage amount on my primary residence by $60K with corresponding increases on contents, etc. This too is more than the appraised value of the entire property (this appraisal includes 3 acres that would never be a replacement cost). Can they just arbitrarily do this?
Sounds like replacement coverage-- mortgage companies are kinda insistent that you have that level of coverage. If you're not carrying a mortgage then you may be able to negotiate a fixed amount of coverage with the company.

The insurance company may also not have an accurate impression of the property being insured. Is your property accurately reflected in their databases as far as size of dwelling, its characteristics, and comps of nearby property? Again if you (or the mortgage company) has chosen replacement insurance then there's not much to be debated about assessed vs appraised values.

If it's not replacement cost coverage, then whose appraisal is being used? Is it an appraisal from the purchase or is the insurer using a tax assessment? You may also be able to hire a claims adjustor (or an appraiser) to negotiate a more realistic appraisal with the insurance company.

We always used to get the hard sell on personal property being underinsured because we knew we'd be replacing it from Craigslist, not Ethan Allen. We eventually canceled our persprop insurance.

Quote:
Originally Posted by unallowable View Post
I also am paying max. coverage on my autos (one 1999, one 2009) even tho I have clean driving record. Was told they had to do that for me to have the umbrella policy. Any of you with umbrella policy told this? I plan to address all this with them but thought would run it by this forum first. Thanks,
I'm not sure what "max. coverage" is, but I wouldn't carry collision or comprehensive on a decade-old car. Insurers do generally require a certain level of liability & property-damage coverage on an auto policy before they'll issue an umbrella policy, but each company's various requirements make direct comparisons more difficult.

Time to go get competitor's quotes. If you're a military veteran or have one in your immediate family then you might also want to check USAA's and Armed Forces Insurance's membership requirements on their respective websites.
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Old 02-03-2011, 11:33 AM   #8
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So you want a house in a flood zone. But you are outraged that the insurance cost is high !
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Old 02-03-2011, 11:44 AM   #9
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So you want a house in a flood zone. But you are outraged that the insurance cost is high !
No, that's not his issue. He is aware the flood insurance is separate from his property and casualty insurance. His issue is paying a reasonable premium for a reasonable product. He just needs to come to an understanding with his agent on the definition of "reasonable".
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Old 02-03-2011, 11:58 AM   #10
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This seems to be a "growth industry" in property/casualty insurance today: inflating the claimed replacement cost of a home in order to extract more premiums. It seems like a lot of folks are being told they need $350K replacement cost coverage on a $200K house that would take $260K to rebuild. And too often it feels like they include the land value in their estimates of replacement cost, which is silly. And many of them require you to accept their inflated limits if you want other riders or coverage on cost overages.
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Old 02-03-2011, 12:10 PM   #11
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You don't say the location of the property (state). I'm also assuming you're not in a coastal area. There's a whole set of windstorm issues in those locations.

The insurance on dwelling structures is at replacement, not market, value. Ask your insurance agent the details on how they calculated replacement cost. If you still disagree on the number, ask if they'll accept a replacement cost letter from a local licensed contractor (on letterhead). The replacement cost on insurance policies must be for the building(s) only - which means the land is excluded. I'll tell you right now market value is significantly lower than replacement cost in most areas.

To answer your question of can they actually do this - the answer is yes. You contractually agreed to insure the replacement value of your houses. Most insurance companies will not offer coverage / cancel coverage if the replacement value is not maintained.
This is news to me. Let me put some numbers on it to clarify. Suppose my 30 year old house has a market value of $150k. Building lots are going for $30k. Someone who wanted to build a brand new house with my floorplan would need to spend $140k on the construction, so lot+construction would be $170k.

Now an insurance company will refuse to write a policy for me unless I insure the building for at least $140k?

What would be the business purpose of that? It seems to me the higher the ratio of coverage to market value the greater the moral risk on the policy. Insurers usually want to reduce moral risk.
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Old 02-03-2011, 12:12 PM   #12
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Market value has absolutely nothing to do with replacement value. Insurance companies use replacement value. The land is not a part of the insurance policy.

I'm not sure what you mean by "moral risk". Insurance companies are brick and mortar - what it takes to replace the building at current building costs.
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Old 02-03-2011, 12:19 PM   #13
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Market value has absolutely nothing to do with replacement value. Insurance companies use replacement value.
Agreed and understood. I don't see anything said to the contrary.

However...

It seems to me that insurance companies use what ***they*** consider the replacement value, which may or may not bear much resemblance to reality.

I had to push back so my home worth about $90K (probably about $60K for the 2/1 dwelling itself) wasn't given a "replacement cost" of $160K when I know local contractors who were fairly confident the "replacement cost" would be in the $100-120K range.
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Old 02-03-2011, 12:31 PM   #14
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Agreed and understood. I don't see anything said to the contrary.

However...

It seems to me that insurance companies use what ***they*** consider the replacement value, which may or may not bear much resemblance to reality.

I had to push back so my home worth about $90K (probably about $60K for the 2/1 dwelling itself) wasn't given a "replacement cost" of $160K when I know local contractors who were fairly confident the "replacement cost" would be in the $100-120K range.
One of the other costs to consider is the cost of removing a burned out hulk... not one that burned to the ground, but enough to make the whole house unusable, but still standing... this happened to one around the corner from my sister's house... they had to put up a fence, tear down the house, move out the burned cars, etc. etc... took a week or two... so not cheap... then, you have a slab that might or might not be albe to be used... more costs if they have to take the slab out (note, the OPs house is on stilts... wonder what the cost is to take out burned stilts and put in new ones)..


Now, talking to my insurance agent (back when I had one).... he said that he could reduce it, but if I went to low they would consider that I was 'self insuring'... so if I only insured 80% of thier value and there was a small claim... I would have to pay 20% of the cost plus deductible... I made sure I was over the amount...
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Old 02-03-2011, 12:38 PM   #15
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How high is this insurance and where are you located ? Are you in a natural hazard area ?
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Old 02-03-2011, 12:39 PM   #16
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Market value has absolutely nothing to do with replacement value. Insurance companies use replacement value. The land is not a part of the insurance policy.

I'm not sure what you mean by "moral risk". Insurance companies are brick and mortar - what it takes to replace the building at current building costs.
"Moral risk" in this context is the possibility that the insured creates the loss just to collect the insurance. That is, I'd burn down my 30 year old house just so I can get the money to build a brand new house of the same size.

No company would sell me an auto policy that would pay to replace my 5 year old car with a brand new one. I understand the various complexities that make it possible for companies selling homeowners insurance to offer replacement coverage, but I'm surprised they would require that.

In fact, I got a form letter from State Farm in the last month saying it's always good to check replacement costs before you renew. But there was no suggestion that they were requiring me to increase my insurance up to replacement cost.
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Old 02-03-2011, 12:55 PM   #17
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Get quotes from other insurers. Go to an independent agent who works with a variety of insurers and get quotes. A few years ago, my homeowner's insurance was over $7k a year. I did have good coverage but the cost was really high. Turned out it was because the nearest fire station was less than 5 miles away as the crow flies but just over 5 miles driving distance.

We got quotes from other insurers who were fine with the fire station location and ultimately for the same coverage got a quote of about $1800.
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Old 02-03-2011, 01:11 PM   #18
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Thanks to everyone who responded. This has given me much to consider. I think I have to do the obvious and shop around - that will give me a basis for negotiating with current provider or other.

I am in North Florida, the house is in Sopchoppy, Florida which is very close to the Gulf. Not sure exactly how many miles but the river is much affected by the tides. One of the reasons I needed input was I fear having the insurance cancelled altogether if I complain too much because of the flood zoning on the new house. This all gives me perspective. Thanks,
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Old 02-03-2011, 01:27 PM   #19
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Nords had an excellent suggestion - if you're eligible for USAA's insurance, give them a call.
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Old 02-03-2011, 02:03 PM   #20
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I think we could save a few bucks if they didn't advertise so much. There are more insurance commercials than beer commercials during sporting events today. I'm getting tired of gechos, cave men, Rod Serling imitators, strange looking women yelling "discount", mayhem, magic State Farm adjusters... (I must admit, I did like the cave men stuff for a while)
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