A Homeowners Policy is a Homeowners Policy, Right?

PURCHASING YOUR HOMEOWNERS POLICY

When you meet with your insurance agent to buy your homeowners policy, how much time do you really spend with them going over the various coverage options available to you?  If you’re like most people, you count on your agent to sell you the policy you need – the one that will cover you for just about any imaginable catastrophe that could occur, right?  However, many people hammer their agent over the price then strut out of their agent’s office feeling like they’ve won a gold medal when they buy the cheapest policy the agent finally offers.  They truly believe the agent was holding out on them and sweet victory lies within the folded pages of the budget policy they’ve just purchased.  They take the policy home, throw it in a drawer, and forget about it completely. But then …

IT COULD NEVER HAPPEN TO YOU … UNTIL IT DOES.

You’ve just turned the corner of your street in Phoenix – driving home from a restful two-week vacation in sunny California.  It’s a good thing you got plenty of rest and relaxation … because you’re going to need it.  As you pull into your driveway, you notice a small stream of water running down your side yard into the street.  Hmmmm, that doesn’t look good.  Before you even open your front door, you know something’s not right – in fact, something’s terribly, terribly wrong.

You quickly unlock the door and push it open.  A wall of mildew-laden moisture hits you like a ton of bricks.  You step over the threshold and into a puddle of water that’s pooled up by your front door.  Your heart sinks.  As you make your way through your home, you ultimately discover that the supply line for your icemaker has failed and is shooting a small but very steady stream of water out behind your refrigerator.

You race to your desk and dig through that drawer until you reclaim that prized homeowners’ insurance policy you so proudly purchased.  You fumble through the pages until you find your agent’s phone number.  Desperate for help, you tell your agent what’s happened.  Here are any number of scenarios that could ensue:

• • A sadness is heard in your agent’s voice over the phone as she explains to you that you purchased a homeowners’ policy that doesn’t have any coverage for an appliance failure.  She reminds you that she mentioned that to you when you were insisting on purchasing the cheapest policy possible to satisfy your mortgage lender’s requirements.  Your claim is denied.  The cost to make these repairs will be completely on you.

• • Your agent contacts the claim department for your insurance company and submits your claim.  The adjuster meets you at your home to evaluate your loss and write an estimate.  The insurance company adjuster writes an estimate for damages – which totals $17,000 – however, your policy comes with a $5,000 deductible (in order to get you that cheap premium payment).  So, he writes you a check for $12,000 – you’ll need to come up with the rest on your own.

• • Let’s say you have an older home that contains asbestos.  The insurance company adjuster comes out and everything is exactly the same as the scenario above EXCEPT that your home must be properly abated (meaning that any drywall, mastic, or other asbestos-containing materials that will need to be removed from your home will have to be done by a licensed abatement company).  However, your budget insurance policy has an exclusion for asbestos removal.  So, the cost for the abatement will be an out-of-pocket expense for you.  We’ve seen abatement costs as much as $18,000 in a residential water loss.  None of the repairs can be done until the abatement is completed.

Are you getting the picture?  That discount homeowner’s insurance policy you bought really isn’t helping you very much, is it?

ASK THE RIGHT QUESTIONS WHEN PURCHASING HOMEOWNERS’ INSURANCE

Buying homeowners’ insurance isn’t the time to be cheap.  Your home is one of your most valuable assets and you shouldn’t insure it with a bare bones policy.  Believe me, I deal with distraught homeowners on a daily basis and going through an insurance loss is stressful enough without having any part of the claim not covered by your policy.  In order to purchase a policy that will fully indemnify you in the event you suffer a loss, you need to ask these questions:

1. 1. What is a realistic deductible amount?  If you can easily pay $2,500 without having to liquidate any assets, then fine.  But, most homeowners find that a $1,000 is the most realistic deductible amount to have.  Don’t count on finding a contractor to waive your deductible.  Many will not do that.  Why? Because it’s illegal and tantamount to committing insurance fraud.  If your insurance contract says that you need to pay a $1,000 deductible, then that’s the amount you should be prepared to pay.

1. 1. Do I have coverage for an appliance failure water loss?  Believe it or not, many policies exclude these types of claims – which are the most common of all homeowner claims – especially here in Arizona.  Understand that no homeowner’s policy includes flood insurance.  That’s a separate policy of insurance that you purchase from the National Flood Insurance Program.  Your agent can explain that to you.  But, what I’m talking about here is coverage for a dishwasher overflow, hot water heater failure, toilet supply line failure, washing machine hose break, etc.  These types of losses are considered appliance failures and are specifically outlined in most policies whether they are covered or not.

1. 1. Do I have coverage for code upgrades?  If you have an older home this coverage will be particularly helpful to you.  I have had claims where electrical runs needed to be replaced.  However, the homeowners policy excluded any coverage for code upgrades.  In this case, the home had aluminum wiring.  Most city and county codes require this electrical to be brought up to current code when replaced.  This can get expensive and, without the proper coverage, can be something you’ll come out of pocket on without the proper policy.

1. Do I have replacement cost coverage for my home?  Some policies are known as “ACV Only” policies or “Actual Cash Value” Only policies.  In the insurance world, this means that the policy will only pay out the claim at a depreciated value.  Let’s say a storm blows off your 15-year-old shingle roof.  You currently have 20-year shingles on your roof.  If you have an ACV Only policy, the insurance company can determine that it will cost $15,000 to replace your roof.  Once the rate of depreciation is applied (75% in this case since the 20-year shingles are 15 years old), the insurance adjuster will hand you a check for $3,750 to replace your roof.  You’re left scratching your head thinking that you had insurance for this type of damage.  So, making sure that your policy covers what’s called “Replacement Cost Value” on your home is very important.  In the previous scenario, the insurance company would still likely hand you that same check for $3,750.  However, the difference is that you can easily find a roofing contractor who will get started and complete your roof for that small payment, knowing that once it’s completed the amount of depreciation that was held back ($11,250) will be paid by your insurance company.

CONFUSED YET?

These are just a few of the most important questions you should ask your agent before purchasing a homeowners’ insurance policy.  If you do have a loss, are you prepared to sort through your policy (which is really a legally-binding contract) to figure out what the insurance company should pay you?  Believe me, if they paid the right amount regularly, there would be no need for my services.  Unfortunately, it’s been my experience that the homeowner is rarely completely indemnified without the help of an advocate.

If you find yourself in the middle of an insurance loss and you want to talk to someone who will be on your side, give me a call.  I’d be more than happy to answer any questions you have, as well as come out to your home to give you a complimentary no-pressure consultation.