There are a few mistakes that customers make when shopping for Home insurance.
Buying home insurance can be confusing because it is not as simple as just buying the cheapest quote when you are searching for low cost homeowners insurance.
As you will read below some insurance agents are not giving you the coverage you need.
Understand what to ask for when you are shopping for homeowners insurance and you will get your claims paid the next time something unexpected happens.
You will also see why talking to an independent insurance agent is the smartest decision you can make in the Louisiana homeowners insurance market.
To understand homeowners insurance, you need to see the common mistakes customers make when shopping for insurance.
Here is a list of a few mistakes to avoid
1…YOU BUY THE CHEAPEST QUOTE
If all policies were the same, you would be right to just buy the “cheap” one.
Buying homeowners insurance is nothing like buying car insurance.
For the most part, all auto insurance policy coverages are the same.
- uninsured motorists
- collision and comprehensive
not much an agent can do to change the coverage except adjust your deductible.
If you own a home, you should raise your auto liability limits to 250,000 and purchase a 1,000,000 umbrella policy for less than $1 a day.
A Homeowners insurance policy can have over 10 endorsements added or removed from a quote and even some agents are now selling dwelling policies instead of a homeowners policy in a desperate attempt to make a sale.
You may think you are buying a homeowners insurance policy, but you may receive something less.
What to ask for when you get a quote?
Did you quote me a homeowners HO-3 or a dwelling DWG-3?
This matters because if the agent has been non-competitive lately, more than likely they will offer owner-occupied dwelling policies to prospects and tell them it is a homeowners policy.
What you lose when you buy a dwelling policy instead of a homeowners policy?
- Replacement Cost on your contents (subject to depreciation)
- Theft coverage on your contents
- Water Backup coverage
This could be one of the reasons your “cheap” quote is so much lower than the other quotes you received.
Dwelling policies were designed for vacant or tenant occupied rental properties not to be sold as owner occupied homeowners policies.
The overall majority of homeowners policies sold in Louisiana are on a Homeowners HO-3 Special policy form.
Ask for an HO-3 quote if you want a New Orleans homeowners insurance quote.
If you are uncertain you purchased a homeowners policy,
Your policy declarations page “dec page” will have “Homeowners Policy” printed on the page. If you were quoted or sold a dwelling policy, the “dec page” would read “Dwelling policy”
Customer Service history of the insurance company
When you get your “cheap” quote, take a quick look at the homeowners insurance company providing coverage.
Get the name of the insurance company and do a quick search for customer complaints.
If you have Progressive, Geico or 21st Century for auto insurance and you contact them for a homeowners quote, you need to understand that they don’t write homeowners insurance.
They partner with another insurance company to offer you a quote.
When you buy the insurance direct from Geico, Progressive or 21st Century,
you do not get to speak to them about your homeowners insurance.
Only your auto insurance is with them.
All homeowners servicing including claims service would be with the company they recommend to you.
In the New Orleans area, as of this writing, if you call Progressive, Geico or 21st Century and ask for a homeowners quote, more than likely you will receive a quote from Homesite Insurance Company.
Before you buy a Homesite homeowners insurance policy, take a quick look at their customer complaint rating.
Here is a customer complaint website with 222 customer complaints you can read
I used Homesite as an example but you should do an online search for any company you receive a quote.
Use search term “customer complaints (insert insurance company)”
2…..YOU TRY TO LOWER THE INSURED VALUE TO LOWER THE PREMIUM.
All homeowners insurance companies want you to insure your house based on the replacement cost which is the cost to rebuild your house.
The cost to rebuild your house is based on the cost a contractor will charge you to rebuild.
You don’t include the value of your land when you calculate replacement cost.
You have other options to lower your premium without lowering the insured value.
You can transfer the risk away from the insurance company and take on more of the risk by taking on a higher deductible.
A rule of thumb is don’t take a higher deductible amount that exceeds available cash on hand.
If you have access to $2500, take at minimum a $2500 deductible.
When you raise your deductible, your premium goes down.
Using deductibles is a smart way to manage your New Orleans homeowners premium.
If you are someone that only makes hurricane claims, consider taking a higher deductible.
A standard is $2500, but if you have the available funds, you can really save with a $5000 deductible.
You can adjust your All Other Perils deductible AOP (anything but a hurricane) without changing your hurricane deductible.
Since we live in a hurricane strike zone, try to keep your hurricane deductible as low as possible.
By adjusting your AOP deductible, you can lower your premium.
To read more about choosing the correct deductible,
here is another article that may help
Another strategy to lower your premium is to make sure you are getting every available discount
Here are some that may be available to you.
- Monitored Burglar Alarm
- Monitored Fire Alarm
- Mature Homeowner (if you are over 55 years old)
- Hip Shaped roof
- Age of Roof
- Auto policy
- Flood policy
- Umbrella policy
The majority of all homeowners insurance companies writing in New Orleans only sell homeowners insurance.
But they will allow premium credits if you have other business with the independent insurance agency.
If you have your
- rental dwelling
with one independent insurance agency,
you may be able to obtain a large premium credit on your policy.
3….YOU ONLY WANT TO INSURE YOUR HOUSE FOR THE LOAN OR MORTGAGE AMOUNT
The mortgage company doesn’t care about protecting you,
they only want to protect their asset.
The amount of the loan.
If you own a 2600 square foot house and you only owe $70,000,
the mortgage company will only ask for proof of insurance for $70,000 but the insurance company will not allow you to under insure your house.
You would have to insure your house for replacement cost which could range $250,000 – $300,000 depending on the materials used to build your house.
All insurance policies have a coinsurance penalty in the policy.
The coinsurance penalty prevents you from trying to under insure the property.
A quick example is
You own a two story house and only owe $100,000.
You decide you are going to buy a policy for only $100,000.
But the estimated replacement cost is $200,000.
Since you under insured the property by 50%,
any future claim check would be reduced by 50%.
If the house sustains a $20,000 fire loss,
you would not receive a check for $20,000.
Your claim check would be $20,000 x .50 = $10,000
The insurance company would take a 50% penalty off the claim check.
To be safe from the coinsurance penalty on your next claim check, use $100 per square foot to determine estimated replacement cost.
if you have a 2000 square foot house,
2000 sq ft x $100 = $200,000 replacement cost
only a contractor or appraiser can give you an accurate current replacement cost based on the current cost of building materials. (the cost fluctuates)
4…YOU START SHOPPING WHEN YOUR RENEWAL GOES UP
Before you go and get cheaper quotes than your current premium,
you should first understand the reasons why your policy went up.
First if you experienced over a 20% premium increase,
you probably should consider another insurance company.
When an insurance company raises a renewal premium over 20%,
the company could be trying to reduce its exposure in your area due to high claim activity
and they want out of either the parish or the state.
or they gave you introductory low rates to gain market share and now they are raising their rates to the adequate level of profitability.
Over 20% increase is a red flag something is wrong.
Anything less than 20% could be something easily explained.
Some premium increasing factors are
Inflation guard endorsement
This is a common endorsement added into every homeowners insurance policy by the insurance company.
What it states is that your insured value will increase every renewal usually 1-3%.
100,000 insured value year one premium $1000
103,000 insured value year two premium $1100
106,090 insured value year three premium $1250
Your insured value is going up each year 1-3% and so is your premium.
The endorsement is intended to keep your insured value up to date with rising cost of materials used to rebuild your house.
After five years, I suggest you review the replacement cost of your house.
If the inflation guard has caused your house to be over insured, you can dispute the amount and get it lowered back to the actual replacement cost.
Another replacement cost estimator report can be submitted to underwriting for review
Age of home is getting older
When you purchased your policy, the insurance company more than likely gave you a premium credit based on the year built of your house.
Each year at renewal, you lose a % of the credit because your house is one year older.
Something has changed on your credit score
Every few years an insurance company can run your credit again at renewal.
Since the majority of insurance companies today use credit scoring,
any drop in your credit score could cause your premium to increase.
You can order a free credit report from annualcreditreport.com
The annual credit report site is the only site for an actual free report with no strings attached.
The site is sponsored by Equifax, Experian and Transunion.
You buy directly from the insurance company
An independent insurance agency can offer you options.
We can determine the company that is the best fit for you.
Here are five benefits of using an Independent Agent
- Independent Agents are not employees of an insurance company.
- Flexibility after the policy is sold
- You can speak to the same representative twice
- Renewal options if you want them
- We represent YOU not the insurance company
To read more about the benefits of using an independent insurance agency read a previous article
What’s this all about?
My name is Tim D’Angelo and I am the owner of FM Agency Group and we would like the opportunity to talk to you about your homeowners insurance.
We can offer you the value you want and the protection you need.
Call us now at 504.348.3131 or complete our quote form to get started