Category: Hazard insurance

What are Insurance Companies Doing to Transfer More Costs to the Homeowner?

How homeowners insurance policies make you pay more upfront before they ever pay a claim.

Have you noticed lately that cartons of ice cream or frozen yogurt have gotten a little smaller? This is a marketing trick that many manufacturers are using to help keep the retail prices down. Give them less for the same price, who’s the wiser? You may be interested to know that many insurance companies are using the same method to keep their rates competitive and affordable. This little known stunt is becoming especially popular in coastal states because of the exposure to windstorms. You will also find it getting popular in areas that suffer severe hailstorms. The insurance companies are actually using two different (and sometimes combined) methods for reducing their risk.

wind damage to roof wind deductiblesWind & Hail Deductibles – In areas where windstorm and hail is the norm, you will most likely be presented with a higher deductible for these perils. This is usually listed on your policy as a percentage of the dwelling coverage. For example, having a 1% deductible seems negligent at first, but if the dwelling amount is $350,000, that will translate to a $3,500 deductible on your wind or hail claim. That is a substantial out of pocket burden to carry. I find it interesting that this is not very conspicuous on your quote or declarations page. Protect yourself by asking about the deductibles before committing to a purchase.

Roof Surface Endorsement – this is something that raised its ugly head in 2012. A few of the major insurance companies are placing an endorsement (coverage change) on their policies that reduce the valuation of a wind or hail claim on the roof surface by using a depreciation scale. If, for example, your 10 year old roof needs replacing after a wind or hail storm, the insurance company is going to pay the value of a 10 year old roof, not a new roof. This is referred to as “actual cash value” and could leave you paying thousands of dollars to have your roof replaced. And remember, that 1 or 2% deductible comes right off the top before they depreciate the value of your roof.

It is very interesting that lenders are not screaming about this issue. They are lending money on a very expensive asset that is not being insured to value. It surprises me that they are not demanding a 100% replacement cost policy.

Have these been sneaked into your policy? Have you had the coverage for years? I HIGHLY recommend you look at your most recent policy that was mailed to you and see what riders and exemptions exist. If you need help with that, contact us. We will be glad to let you know what homeowners insurance coverage you actually have.

The Most Important Coverages for your Homeowner’s Insurance Policy to Contain

Most homeowner’s insurance policies are written as a package policy. By this I mean, there is a specific amount of coverage for the dwelling (house) and all other coverage is a percentage of that amount.

In other words, if the dwelling amount (coverage A) is $300,000, the contents are usually 50% or $150,000 and other structures is 10% or $30,000. There are however, three important topics that you want to consider when purchasing a homeowner’s hazard insurance policy.

Replacement Cost or Actual Cash Value

How the structure or contents are valued is a key part of the policy. Replacement cost valuation means that you would receive new for old. If your home or personal belongings are damaged as the result of a covered peril (fire, wind, hail or burglary) then you would be reimbursed for what it would cost to replace or repair those items at today’s cost. Actual Cash Value valuation means that for the same type of claim you would be reimbursed for the depreciated cost of the items. For example, if your air conditioning unit were damaged due to a lightning strike, you would want the unit to be replaced with a new one, not a used one that is the age of the damaged unit. Many insurance agents today, who are trying to offer the lowest price, will quote a policy with an “Actual Cash Value” valuation on contents since the rate is lower. This should be avoided since you are unlikely to be happy getting reimbursed for anything at the depreciated value. You are not likely going to want a used air conditioner if yours is damaged by a lightning strike. The same thing goes for the roof of your home down to your clothes.

Wind and Hail Deductible

wind deductable homeowners insurance coverageMost insurance companies today have a separate deductible amount for wind and hail than for all other perils. This can be confusing to the buyer since the wind/hail deductible is usually stated as a percentage of the dwelling amount. So then, if your home is insured for $300,000 and you have a 1% deductible, then the first $3,000 of the wind/hail claim is coming out of your pocket. Many insurance agents skim over this quickly when discussing coverages as this is what is normal in the market place in many states. In Florida for example, the wind/hail deductible may be quoted as high as 5% to get the rate down but this would be ridiculous in a state that sees few hurricanes or hail storms each year. Make sure you ask about this since it is the last thing you want is to find out about it when you are getting your roof repaired.

Water Backup

Another coverage that is overlooked by the consumer is water backup. Most policies do not contain this coverage and it must be endorsed onto the policy. Water backup coverage responds when water backs up into your home as the result of the city’s water or sewer lines failing. This is usually more common in older neighborhoods where the infrastructure is out dated. It can be a very messy and expensive situation which would be covered by your insurance if you paid an extra $50 or $75 per year for the coverage.

Your home is usually the most expensive purchase in your lifetime. It doesn’t make sense not to take the time to be informed when insuring it. So when getting quotes for homeowners insurance ask the right questions and don’t be focused on just the cost — focus on truly replacing your home for just about any contingency.