Abram Interstate Insurance Services, Inc., CMGA

Helping Independent Insurance Agents Since 1996

Mistakes on homeowners insurance – Underinsuring

Published on March 27, 2014

Here’s a post that you (the insurance agent) can share with your current and prospective customers to help them understand and get the best homeowners insurance policy for their needs.

Forbes wrote a whole article on several mistakes people make on their homeowners insurance policies. This information was written by Forbes contributor Caroline Mayer.

Mistake No. 1: Underinsuring your house

Insurance experts say failing to have enough insurance to cover the cost of rebuilding your house if it’s destroyed is the biggest mistake homeowners make. Amy Bach, executive director of the consumer advocacy group United Policyholders, says one 2009 study found that two-thirds of U.S. homes are underinsured.

Why? For one thing, many homeowners buy only enough insurance to cover the amount of their mortgage. But the mortgage may be, at most, 80 or 90 percent of the value of the house, depending on the original down payment (less, if the home has appreciated in value).

(MORE:Umbrella Liability Insurance: Is It Necessary?)

For another, some policyholders insure an amount equal to the current value of their homes. But this figure may be far less than the actual cost of rebuilding your house, including labor and supplies (and both of those may rise sharply after a storm when there’s big demand and short supply).

What should you do? First, calculate how much it would cost to rebuild your house.

You could ask your insurance agent, but Bach encourages you to use a professional home-replacement cost estimator, who’d likely provide a more accurate number. The fee can run about $300, but some insurers offer this service for free to their high-value customers.

Alternatively, you could ask a local real-estate agent, builder, contractor or building association for the average rebuilding cost per square foot in your area or pay for an estimate from the websites HM Facts or Accucoverage.

Once you know what it would cost to rebuild, see if your coverage is close to that figure. If it isn’t, increase your protection.

When estimating your rebuilding cost, remember to add in what you’d pay to replace any special features in your house, such as marble floors or high-end woodworking.

To avoid making this calculation every year, ask your insurer about an automatic inflation provision. Of course, this may raise your premium.

You might also consider instead getting extended replacement coverage, which means the insurer would pay up to 125 percent of your policy limit to rebuild your home.

The top of the line protection — and the most expensive option — is “guaranteed replacement cost coverage,” where the insurer will pay to rebuild your home no matter what it costs.

Be sure you’re adequately covered for your valuables, including jewelry, art, antiques and computer equipment, too. A good tool to take an inventory is the free software and iPhone/Android app, KnowYourStuff.org, from the Insurance Information Institute.

Ask your insurer how much you’d get if your belongings needed to be replaced. The figure could be based on what the items are now worth or what it would cost to replace them, a better, but more expensive alternative. Don’t overlook buying extra coverage, known as floaters or riders, for jewelry, electronics or art since policies ordinary limit protection for valuables.

If you’re an insurance agent, we have a great market for wholesale homeowners insurance with A or better rated Carriers, in admitted and non-admitted markets.

We also have a NEW High-Value Homeowners and Dwelling Fire Product. Talk to an account manager today to learn more.

916.780.7000

Account Manager

Meghan Melendez       meghanm@abraminterstate.com

 

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Abram Interstate Insurance Services, Inc. is a wholesale insurance broker (CMGA) in California and surrounding areas. We offer wholesale homeowners insurance, wholesale dwelling fire insurance, and wholesale vacant land insurance.