How to Intelligently Buy A Homeowner’s Insurance Policy
When it’s time to purchase insurance, most homeowners simply compare the prices between companies or worse allow a salesman to pick a company for them.
Like anything else, you get what you pay for.
The cost of any insurance policy is immaterial unless you fully understand WHAT you are getting in exchange for you money.
In the case of insurance, the answer is a piece of paper with promises written on it. However, whether or not these promises are met to the total satisfaction of the insured determines the QUALITY of the product.
The true value of insurance can only be realized after you suffer a loss such as a fire, water damage, burglary etc.
Therefore, the only question that should matter to a prospective insurance buyer is:
Of the thousands of insurance companies doing business, which of them treat their claimants with the most respect and pay the large claims quickly, fairly and without hassles.
The answer to this vital question can almost never be obtained from an insurance agent. The reason being is that agents are all biased toward the company they represent which makes it almost impossible to get Quality advice from insurance agents.
There are only three methods to find out how a particular insurance company treats its customers after they become a victim of a fire etc. and file a claim;
1. Allow an insurance agent or broker to choose your insurance company for you and wait until you suffer a loss to find out how well your claim is paid.
2. Ask the real experts who can provide quality advice and more importantly do not have a financial gain associated with your purchase.
These sources of qualified information are Fire & Water Damage Restoration companies and Public Insurance Adjusters. They are the only people who are truly qualified to assess the difference between insurance companies because it is they who interface with various insurance CLAIM departments every day of their lives.
This task requires calling or writing to them. They can be found in directories under Fire and Water Damage and Adjusters. You must make sure that you speak to public adjusters and not independent adjusters. Public Adjusters only represent victims and independent adjusters only work for insurance companies. (Read The Crime of the Century Insurance for more information).
For decades and decades the insurance industry has been training consumers to believe that insurance agents provide this information for FREE, therefor the idea of having to work for the right answers or pay a third party for advice is a waste of money.
Since insurance agents’ commissions range from 15 to 20% of the premiums, the FREE advice you get from them is never FREE nor is it necessarily quality. When you trust a commissioned salesperson, the odds of getting Quality Information is roughly 20% because only 20% of the insurance companies deliver what they promise within a reasonable time.
Before you ask the price you should clearly understand the unusual language that the insurance industry.
Homeowners insurance is not just homeowners insurance. It is priced based on the benefits, provisions and exclusions in each contract. To understand the major difference in the contracts you must understand what is meant by certain definitions.
Definitions
ACV = Actual Cash Value
Actual Cash Value sounds a lot better than it is. What acv means is; the actual cash value of the lost or destroyed property at the time of loss. This means that any property that you claim has been damaged or lost in a covered event will be depreciated by the insurance company’s adjuster according to a standard depreciation table.
For Example:
If your 5 year old, $40 per square yard wall-to-wall carpet was destroyed in a covered loss then (ACV) Actual Cash Value coverage will only pay you 50% of your original cost. The insurance company will only pay $20.00 per square yard because of deprecation.
On the other hand you can purchase additional insurance known as a rider or endorsement.
FRV = Full Replacement Value
Full Replacement Value (FRV) (also known as Guaranteed Replacement Coverage – GRC) means the company is liable to pay you the full amount you need to replace the lost or destroyed property, with the same like and kind property. In the case of the carpet above it may exceed $40.00 per yard.
NOTE: The exact expression of replacement value insurance varies among insurance companies and certain states depending on the company.
GRC = Guaranteed Replacement Coverage
Guaranteed Replacement Coverage insurance costs more than ACV and rightly so, because of the value of the coverage. As it states, the insurance company has to replace the item that was lost or damaged.
Home Based Business
Don’t fall into the trap of believing that your homeowner’s insurance policy will also cover a part time business pursuit or efforts to earn a second income or a home based business.
The products or equipment that you use to earn extra money or in the course of pursuing or maintaining a professional career is NOT considered usual and customary possessions of a homeowner.
Some people will also have contents such as various kinds of equipment supplies or materials that are used in connection with some kind of home based business enterprise. Some of these items are computers, office phones, fax machine copiers, printers, or supplies such as consumable products which are bought and sold in many of the mufti-level marketing business such as Amway, Avon, etc.
Other people may also have part-time business such as home craft shops, assembly shops, auto repair equipment, printing, taxidermy, beauty parlor, professional offices for a dentist, doctor, accountant or a thousand other home based businesses.
These business enterprises assets are not covered by a homeowners insurance policy, therefore they need to be insured by an additional rider or endorsement or in rare cases a different policy altogether.
Premiums
Insurance premiums are based on the risk. Brick houses cost less to insure for fire than frame houses because they don’t burn down. Conversely brick houses cost more to insure for earth quake coverage because they will not withstand shaking like a wood frame house will. The distance from the fire house or a fire hydrant will also affect the cost of insurance.
To counteract the cost of insurance you can install certain safeguards to protect yourself and your insurance company. These devices entitle you to receive credit for having done so.
Credits
Ask what the discount is for a central station burglar alarm, smoke detectors, and figure the discount yourself. The smart thing to do is to price each coverage individually so that you can make a more intelligent comparison. Once you get quotes, only then should you decide on what coverage’s you need to purchase policy.
What happens if?
If you mail, e-mail or fax these forms to an agent or insurance company and you do not get a reply, or you are treated as though you may be asking too many questions and want to know too much, don’t be alarmed or become intimidated in the least.
Stand fast on your commitment to get what you want. After all it’s your money and it’s in your best interest to know exactly what you are getting in exchange for it.
If these people are not willing to provide you with answers to each and every one of your questions then do not do business with them. PERIOD.
As a customer you are not a problem,
you are reason that they have a job.
When you find agents or brokers who are not willing to help you or speak arrogantly to you don’t be offended or be intimidated.
It is much better for you to find out the real truth and the behavior of these people before you get involved with them rather than after.
Just imagine sending them a claim form and being treated the same way!
Give thanks that you found out how undesirable these people are before you gave them your money.