“Am I covered?”
It’s a question that is rarely asked when consumers are shopping for Homeowners’ Insurance. However, it is almost always asked at the time of a claim.
The uncomfortable truth is most of us know very little about our own insurance policies. In an article published by NU Property/Casualty 360, a recent survey conducted by Policygenius, suggests consumers widely misunderstand home insurance. As an example, “half of the respondents surveyed did not know that a typical homeowners insurance policy does not cover floods, and more than 80% did not know that a standard policy does not cover earthquakes”.
This lack of knowledge is due, in part, to the fact that we tend to purchase insurance differently than almost any other product.
When shopping for tangible products such as cars, TV’s, and carpeting, we focus on the benefits and features of that item. We gain knowledge which helps us in our decision making. How fast is it? What’s the resolution? Is it stain resistant?
Certainly, cost is a consideration, but usually not the primary factor in making a purchase decision.
However, with insurance, the focus is almost always cost.
Why is this?
Part of the reason has to do with the fact that insurance is an intangible product. Essentially, a contract that defines what the insurance carrier will cover (and not cover) should an unexpected event occur. The “benefits” are nuanced. You can’t see them or touch them.
Worse yet, insurance is something we hope to never use. There is no excitement or joy in anticipation of the purchase. Essentially, we dread the idea of using it, thus we dread the idea of buying it. So, naturally the last thing we want to do is spend very much money on it. Beware,…less money can mean less coverage.
What’s more, we’re usually in a rush when buying it. Homeowners’, Condo Owners’ and Renter’s insurance is typically first purchased because it is a requirement. Maybe your mortgage company needs it at the time of closing, or maybe your landlord requires it in the lease. Essentially, it’s an afterthought… an “I have to” purchase. Little time is spent analyzing the differences between policies, let alone optional coverage.
Finally, the insurance industry itself bears a great deal of the blame. In particular, the insurance companies who advertise nationally (since they get the most mass attention).
These companies have made the decision to forgo consumer education. Rather than making the effort to enlighten the public of the benefits of their product, they focus on entertainment value and cost savings when influencing potential buyers to purchase a policy.
There is little, if any, advice given regarding the differences in policies, and how to determine which policy best suits the needs of each individual.
Short of entertainment value (talking reptiles, funny spokespersons, and volleyball with emus), the primary goal of these ads seem to be limited to name recognition.
What’s most insidious about these advertisements is the implication that the product itself just isn’t very important. The inference is that all insurance is the same, and…look!…a talking camel!
This could not be further from the truth. Choosing inadequate insurance does have consequences. Unfortunately, in most cases, they are not discovered until after a claim…when it’s too late to correct things.
So how do you make sure you have a Homeowners’ Insurance policy that fits your needs?
Get an assessment of your current policy.
The best way to get where you want to go is to find out where you are first.
What does your current coverage provide? Does it adequately meet your unique needs?
Do you have any special possessions (jewelry, artwork, collectibles)? Are there any liability exposures (swimming pool, dogs, trampolines) that have you concerned?
Determine if there is coverage for these things, how much is covered, and what types of losses they are insured against.
Identify the limitations and exclusions.
It seems simple enough to figure out what “things” are covered in a policy…just look around you. Your furniture, clothing, and appliances (Personal Property). Obviously, your house if it’s Homeowners’ Insurance, or the portions of the structure you are responsible for if it’s Condo Insurance.
But how much coverage is there for each? There are a whole host of items in which coverage limits are in place at the time of claim.
For instance, you may certainly have coverage for jewelry, but there may be limits (as low as $1,000) if the cause of loss is theft. There may be no coverage at all for “Mysterious Disappearance” (losing something).
Determine the accuracy of your limits.
The first page or so of any policy is called the “Declarations Page”. It provides a summary of coverage. In particular, the dollar limit of coverage for things like Dwelling, Other Structures, Personal Property, and Liability.
Is it enough? To rebuild your home…to replace everything in the house…to properly protect you in a lawsuit?
Don’t be afraid to ask these questions. Most people are hesitant to do so, because of what it might cost. The truth; very little…pennies on the dollar. Find out before a loss. You don’t want to have to pay $10,000 or $20,000 out of your own pocket only to find out the insurance policy would have covered it for only a few dollars more.
Find out the options available to you.
Once you’ve done your due diligence and found out that standard Homeowners’ Insurance Policies rarely cover things like underground utility pipes, it’s time to ask, “Is there an option I can buy?”. In most cases the answer is “Yes”. In fact, you may be surprised to find there is a way to purchase a number of exposures that aren’t in your current policy. However, this can only be done once you have a better understanding of your coverage needs and how your current policy addresses those needs.
What is the best way to attain this knowledge?
There are certainly a number of ways to learn more about your current coverage, and how to tailor it to meet your needs. You can start by reading your current policy. Although it may be a bit confusing, and raise more questions than answers, you certainly will know more than when you started.
There is also plenty of online help. Insurance company and insurance agency websites provide a wealth of information including blogposts and videos. Your state’s Department of Insurance website will usually provide buyer’s guides, such as The Ohio Department of Insurance.
Finally, if you want to make optimal use of your time, and get a comprehensive understanding of your coverage, the best advice is to sit down with an agent licensed in your state. Call your current agent, or one with a good reputation, and set up a time to meet in person, over the phone, or via zoom. Let them know upfront your intentions. Most quality agents are more than happy to discuss coverage. I, for one, am flattered when someone asks for this kind of help. Bring your policy, or provide it in advance. This meeting should take about an hour, but don’t be shy about asking for a second meeting if you need further help.
As a result, you should feel empowered to take control of your insurance needs. A quality agent means a better understanding and a better appreciation of the value of a quality insurance policy.
Congratulations! Perhaps for the first time, you have now have the knowledge to shop for a Homeowners’ Insurance Policy that gives you a great price…and great coverage too!