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I received a call today from an existing client telling me he received a better homeowners rate from a national carrier.  He was going to purchase the policy online and was asking why our insurance was higher.  When he told me the name of the carrier, I immediately knew why.

Insurance companies are losing money on their homeowners products.  Claims have been very high over the last 3 years .In fact some companies are paying out $1.30 in claims for every $1.00 they are taking in on premium.

What are insurance companies doing about it?

One of three things: Raising premiums (as much as 40%), raising deductibles, and/or lowering coverage.

I explained to the client above that the internet policy he was looking at had a deductible for wind and hail claims that was the greater of $2,500 or 1% of the dwelling amount.  That means if you have a home insured for $300,000, you'll pay a deductible of $3,000 for any claim caused by wind or hail. 

This company also limited their cost by lowering coverage.  I explained to my client that any roof loss or siding loss would be settled on an actual cash value instead of replacement cost if the roof (or siding) was over 10 years old. 

So, let's say you have a 15 year old home insured for $250,000.  One night, a hail storm causes severe damage to your roof.  Now let's say the replacement cost of the roof is $12,000 (roof prices have shot up over the last 5 years). The low priced internet policy will determine the life of your roof (20 years?), and only pay the cash value (replacement cost less depreciation) less the deductible.  In this case, the payout is based on replacement cost of $12,000 less the depreciation of $9,000 (15 year old roof with a 20 year life) which equals $3,000.  Now subtract your deductible (1% of $250,000 or $2,500) and you end up receiving a whopping check for $500! 

Not much of a deal no matter what the premium savings. 

Some clients don't want to talk to their agent, especially when it's about leaving for another company or agency.  But, it's in your best interest to do so.  Especially when trying to buy these complicated products on your own.  A little bit more premium now could end up saving you thousands later.

Regis Coustillac
Posted 4:42 PM

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