Home Insurance Question

[Mulligan]

After 9 years of dealing and fighting over premiums with same company since I built my home, I am finally rate shopping as this years increase sent me over the edge. Part of the problem ( and also with the first place I shopped) is the outrageous value they assign to my home. It was appraised for $140k, 2 months ago, but they wouldn't sell a policy under 200k in value, saying the replacement cost is higher than appraisal. Ok, I get that, but if someone built the exact same house it would be listed for $155,000 tops, probably less. To be honest I only want to insure appraisal cost, as I would just sell the lot and move on or get a similar house for $140k as I am not the sentimental type. Why are they fighting me on this? To top it off, my father has a similar type home and value in another town 100 miles away and he is paying half what I am ($500). He said he insured his for the amount he told them too. Why am I having trouble doing this as I am 0-2 in dealing with agents on this? BTW- I have never had a claim ever on any home, I have owned.

 

[skipro3]

I've lost a home to fire. Believe me; you do not want to insure the home for it's resale value. You want to insure it for what it will cost to replace a burned up home. The clean-up alone was over $30,000. The landscaping, driveways, sidewalks, etc. all cost money and they do not survive fire and even if they did, they would not survive the demolition.

For insurance needs, don't go it alone with an insurance company to negotiate a policy. Contact an insurance broker. They represent several companies and can negotiate a 'group' rate for you. I have SAFECO and they couldn't have been better with the policy paying out to me if my own dad owned the company. Instead of adversarial, they were my partner in rebuilding my home.

If you want to know how much to insure your home for, contact a contractor and ask him how much to demolish the existing home and rebuild a replacement just like it. That's what you are insuring for.

 

[JOHNNIE36]

mulligan, I guess I don't understand the thinking of that insurance company either. skipro is right, you ought to be able to insure a home for whatever you feel the value. Find another company. Call the state insurance regulator. Do something but get away from what ever company you are with.

 

[mystang52]

Be careful! The homeowner's policy is designed to cover costs of replacement. If you do not have the "correct" face value of the policy, partial losses may be pro-rated.
For example, presume the policy coverage for your house should be 200,000, and you chose to get a 150,000 policy. Then, you have a serious loss of $80,000. You would only get paid $60,000 (80,000 loss X 150,000/200,000).
This is a simplistic example but can be very real. Make sure you have adequate coverage or you may risk "self-insuring" a significant portion of a loss.

 

[73ss454]

It could be worse, you could have to deal with the ins comp's in Florida.

 

[Mulligan]

Be careful! The homeowner's policy is designed to cover costs of replacement. If you do not have the "correct" face value of the policy, partial losses may be pro-rated.
For example, presume the policy coverage for your house should be 200,000, and you chose to get a 150,000 policy. Then, you have a serious loss of $80,000. You would only get paid $60,000 (80,000 loss X 150.000/200,000).
This is a simplistic example but can be very real. Make sure you have adequate coverage or you may risk "self-insuring" a significant portion of a loss.

That certainly isn't the outcome I want! I guess I don't get this stuff. Even the $200k value had up to $30k additional for disposal. In my area that is way beyond reasonable cost and disposal. Plus I could sell the lot for $20k after its cleaned up. Plus "included in price" is for a 20k out building that I do not have, $125 k in personal possessions which I only have a fractional amount of that. It seems like they are forcing me to pay for a lot of stuff I don't have in the "included price" I cant change. I have an independent agent searching now. Maybe door number 3 will provide me something. My beef is I feel like I am forced to pay premium way beyond what is necessary without a choice.

 

[mystang52]

Insurance coverage - and in particular the rules concerning policy payments - vary by state. What I wrote is generally accurate, but please verify what the rules are for your state. Like I said - be careful, because the price of under-insuring can be steep in the event of a loss.

 

[skipro3]

You may find a policy that is more in line with what your possessions are worth rather than what their replacement would cost isn't going to be all that much less than a policy that is for higher limits. Here's why;

On every policy where the buyer makes a claim, the first dollar of policy limit is going to be paid out. 100% of the time. This continues for up to about $5,000. At that point, only a percentage of policy claims filed will be more than $5,000. Now take that even further; even less claims are for $10,000 and almost no claims are for $100,000. That means it costs the insurance company a lot more to insure the first $5,000 worth of coverage than it costs the last $5,000 worth of coverage in a $100,000 policy; simply because there are so few claims at that higher end.
For me, the increase of my policy from $500,000 to $1,000,000 cost me an additional $350 a year. I sure wish the first $500,000 was that cheap, but because the odds of a claim that extends into that second half mill is so small, the insurance company can afford to discount the cost of that extension of the policy.
This is also why higher deductibles are lower cost policies.
Hope that makes sense.

 

[MooreBonds]

On every policy where the buyer makes a claim, the first dollar of policy limit is going to be paid out. 100% of the time. This continues for up to about $5,000. At that point, only a percentage of policy claims filed will be more than $5,000. Now take that even further; even less claims are for $10,000 and almost no claims are for $100,000. That means it costs the insurance company a lot more to insure the first $5,000 worth of coverage than it costs the last $5,000 worth of coverage in a $100,000 policy; simply because there are so few claims at that higher end.
For me, the increase of my policy from $500,000 to $1,000,000 cost me an additional $350 a year. I sure wish the first $500,000 was that cheap, but because the odds of a claim that extends into that second half mill is so small, the insurance company can afford to discount the cost of that extension of the policy.
This is also why higher deductibles are lower cost policies.
Hope that makes sense.

I'd add another thought to the above, and suggest that while the $ value does apply to their modeling of calculating rates, it also is dependent upon estimating the number of claims of each magnitude that they forecast.

If you have a $150,000 home, and insure it for $150,000 replacement, it'll take a pretty unlikely event to completely wipe out your home - and a pretty unlikely event for the insurer to have to cough up $150,000 to rebuild your home.

If you have a $1MM home but only insure it for $150,000 replacement, it wouldn't take as much of a 'rare event' to cause $100,000-$150,000 in damage...which is just 15% of the home's 'replacement' value. Anything from a strong wind knocking over a big tree, to a burst pipe on the second floor running over the weekend, to an overheated hair dryer and more could result in a much more likely 'minor incident' compared to the entire house burning down to a crisp with nothing salvageable. This leaves the insurer more likely to have to pay out $150,000 in claims on the $1MM house, compared to paying the same $ magnitude claim ($150,000) on the $150,000 house, even though the coverage levels and payments are identical.

Plus, if a home is only insured for, say, 25% of replacement value, if it gets hit by a 50% damage incident, then the homeowner is on the hook for the other 25%. And the insurance company may not feel that great knowing someone is having to foot the bill for 25% of their home's value, while it sits in a damaged state. Perhaps they will cut corners rebuilding it? Perhaps they will drag their feet, leaving the damage susceptible to the elements for a longer period of time? These and other scenarios probably also help demand that homeowner's carry 'sufficient' (usually at least 80% replacement value) coverage, so there isn't much of a gap, and less chance for someone to get caught rolling the dice and having to absorb a massive financial loss without knowing how they'll afford to get it fixed.

 

[MichaelB]

It could be worse, you could have to deal with the ins comp's in Florida.

That's for sure. Getting an insurance agent sounds like good advice here.

 

[Seeking Hobbes]

That's for sure. Getting an insurance agent sounds like good advice here.

I learned my lesson this year... bid out your insurance coverage every year (or at least every two years).

Several months ago, when I received my Home Insurance statement, I couldn't understand why it increased significantly. Digging into it, I learned that my carrier automatically increased the home value by 18% each year. So, the replacement cost for my home had jumped over 100K in 2 years. (If only market values were that generous!)

Subsequently, I bid out my insurance coverage and changed carriers. That brought the home value back in line and succeeded in reducing my total insurance bill (home/auto/umbrella) by $600 annually.

Not a bad return for a few hours on the phone.

 

[pb4uski]

I have had similar issues in the past and got information from local contractors on the cost to replace the building and was able to work through it with my agent.

 

[Mulligan]

Bingo! I finally hit pay dirt as third time is truly the charm. Tried an independent agent on my third rate inquiry and achieved my goal. The insurance is actually better than what I had or want, but I am fine with it as my premium is going down from $1090 to $600. That is a significant improvement, thank you Travelers! As Seeking Hobbes said, make sure you rate shop as the savings can be significant. I finally went to an independent agent as my dad told me to do that as they can get rates from many companies. For me anyways, it paid off handsomely. I feel pretty good about myself this year. Just refinanced saving $100 a month, now my escrow will drop $40 a month, jawed down my Direct TV $20 a month, and my internet $10. A companies nightmare.....a retiree with plenty of time vigilant to get the best deal.

 

[JOHNNIE36]

Hey Mulligan, glad things worked out for you. I think threads like this one are so informative. After reading all the posts I have earmarked a number of items on my homeowners policy that I want to check into. In fact I called my agent today and I'm going to see her tomorrow. One thing I found out is I have to get a policy on my golf cart. Doing that tomorrow also. I'm not worried about theft as much as injuring someone and not having a liabliity policy for an accident like that. My homeowners policy would cover injuries to individuals on the golf course, not out on the streets of the community. Just another advantage for forums like this one. Thanks again.

 

[Mulligan]

I agree, Johnnie. I think it was Midpack awhile back who planted the seed about being more vigilant on the home insurance. Another thread mentioned the Direct Tv technique which motivated me to call ATT to lower internet. The best thing was I didn't even have to threaten them with canceling. I just asked and they did it as I hate to threaten on something I have no intention of following through on. When I was working, I would have just brushed it off as not worth my time. Now I am trying to see things differently, as little things add up. My monthly expenses have dropped $170 and with my $100 cola this year, Im $270 a month to the good as what I was a year ago with absolutely no change in lifestyle.

 

[Mulligan]

Update: Now I know why maybe people DONT rate shop their home insurance. What a PIA, as nobody can seem to do their job right. Called bank to put a block on insurance payment so I can shop. They said they would give me 3 week window to shop. Found my company I wanted that slashed my rate, so I called bank to tell them what was going on. Well they screwed up and submitted payment anyways. So they tell me to call company have them send refund to me and pay out of pocket the new premium, then provide proof its paid. So then I have to make a half dozen calls to finally get that straightened out with company. Then I call the new agent to set appt up to pay premium (I told him earlier to not send bill to escrow, that I would have to pay it myself) and then he tells me he already sent bill to my escrow. So now I have to figure out how to infuse money into my escrow as it is going to go negative after property tax bill is paid thanks to double payment. If I don't my escrow costs will go up instead of down despite lower insurance premium. I can see how this is already going to go. I will mail in an escrow check, and they will apply the money to my principal instead and screw that up, too. No wonder people who work say they are too busy to do this, because they probably are!

 

[MooreBonds]

Yikes! Sorry to hear about your billing nightmare after nightmare!

Just one suggestion - some banks will let you stop escrow after so much equity has been reached - have you looked into this to see if you can do away with the whole escrow bit?

 

[Mulligan]

Yikes! Sorry to hear about your billing nightmare after nightmare!

Just one suggestion - some banks will let you stop escrow after so much equity has been reached - have you looked into this to see if you can do away with the whole escrow bit?

I think I will give that a shot as I would rather just pay it myself.