Financial Independence

CANCELLED! Five Things to Consider when Buying Homeowner’s Insurance

September 12, 2017
Cancelled!

[This article is co-written with my sister, Sharon Kreft, who is a dedicated insurance adjuster in central Wisconsin.]

Homeowner’s insurance is one of life’s necessities. But heaven help you if you actually file a claim! Higher premiums are the least of your worries. My policy was cancelled after two water leaks in two years. Should your policy be cancelled, there aren’t a lot of options. But if you have options and time, there are a number of things you should consider when shopping for homeowner’s insurance.

CANCELLED!

Cancelled!

I moved into my current house in 2001 and was quite happy with my homeowner’s policy through Travelers Insurance. Over the next 14 years I handled a downed tree and minor issues without filing any claims. But in 2015, a leaking upstairs toilet ruined the flooring, leading me to file my first claim with an insurance company. Travelers was “johnny on the spot” and paid out $2,784 to repair the damage. I did much of the work myself, installing new flooring, and a new toilet and vanity. Then bad luck hit again last November. The water heater (which local builders stupidly place in the attic) sprung a leak, creating a nightmare of water pouring down the vents into a bedroom and kitchen. So yep, another call to Travelers was in order. And again, I was pleased with the local Travelers insurance adjuster as he pushed the inept contractors to eventually complete the job. The amount paid by Travelers: $4,907.

I really didn’t think much about the insurance claims, especially after 14 years without any claims at all. And with a total pay out amount of $7,691, I figured I might see an increase in premiums at best. But last week I was notified that Travelers was cancelling my insurance policy!  HOLY COW! You’ve got to be kidding me!

The Search for New Insurance

While I was shocked to learn that my homeowner’s insurance was cancelled, I naively thought I could easily find a new policy. WRONG! I had no idea that two claims in two years – neither weather-related – would disqualify me from most major home insurers.  And it didn’t seem to matter that both claims were quite meager. Here’s my experience finding a replacement policy.

Online Searches

My starting point was an online search for quotes for a new homeowner’s insurance policy. And what better place to begin than Progressive, which was already insuring my car? After entering my information in the Progressive website, I was feeling pretty confident. I received an instant quote from Progressive and a second quote from one of their associated companies. But the only way to complete the process was with a phone conversation with one of their agents. And as the weekend rolled around I checked out other companies.

All of my other online searches ended up in REJECTED verdicts. Each asked for claims in the last three years and when I entered the information, a dead-end rejection notice popped up on the screen. So my next step was to check out my local independent insurance agency – Williamsburg Insurance Associates. I submitted information for an online quote and never received a response.  I called, spoke to administrative staff, and requested a call back. And nothing! Well, that was less than impressive and they’ve certainly not won any referral awards from me!

Progressive to the Rescue…Well, Sort Of

So after a few days of searching online and waiting for a call back from the local agency, I began to worry that finding new insurance would not be so easy. The time had come to give Progressive a call to nail down a policy. And after giving the Progressive representative all my information, I was kindly told that neither Progressive nor the other company they represent could offer a policy. Two non-weather claims in three years apparently breached a threshold that shut their doors too. UNREAL! I asked the very helpful Progressive representative for suggestions on where I might turn to find a policy, and she gave me contact information for an agency in a city fifty miles from home. The owner of the agency informed me that he handled only auto insurance, but he recommended I contact “Kathy,” who specializes in hard-to-find homeowner’s insurance.

Would Kathy help me out? YES! I explained my situation and Kathy promised to send me information and quotes the following business day. The bad news: all of the major insurers in her newtork – Nationwide, Safeco, MetLife – turned down my application. But there was good news! A single brokered company, a group called Allrisks, offered me a policy. Having never heard of Allrisks, I asked for additional information and learned the underwriter was Lloyds of London, which gave me a little more confidence that the policy might be okay. And much to my surprise, the premium was less than my current premium  with Travelers. In the end, I really had no choice in insurance companies.

What to Look for in the Best Case Scenario

My search for homeowner’s insurance was less than ideal. But let’s hope that your situation is not so desperate. Here are five key things to consider when you search for a homeowner’s insurance policy.

1. Examine Rankings of Home Insurers

I’m a fan of money expert, Clark Howard, so I was lucky to have found an article on his website on the best and worst insurance companies. The article is based on research from Consumer Reports, which ranks insurances on six metrics:

  1. Ease of reaching an agent to handle the claim
  2. Agent courtesy
  3. Promptness of response and attentiveness in handling the claim
  4. Simplicity of the claims process (number of steps, amount of work etc.)
  5. Satisfaction with company’s estimate of dollar amount of damages
  6. Satisfaction with timely payment by insurer.

The top five home insurers in 2017 were Amica Insurance, USAA Property & Casualty, Erie Insurance Group, MetLife, and Auto-Owners Insurance Group of Companies. The worst five: Auto Club Group, State Auto Insurance Companies, American Family, Allstate, and State Farm.

2. Gather Word of Mouth and Agent Experiences

Ask friends and family about their experiences when filing a claim with their homeowner’s insurance company. And while it might seem a bit “old-fashioned,” it can pay to talk to an independent insurance agent who works with multiple companies. INDEPENDENT being the key factor here.  These  agents should provide you with unbiased advice and match you with the best policy for your particular situation. While my local agency was unresponsive, I had good fortune with an independent agency in another city, so you may need to broaden your search. And you might get some good advice from contractors who provide home repair services at the request of insurance companies.

3. Look at A.M. Best Ratings

A.M. Best Rating Services measures an insurer’s relative creditworthiness, looking at things such as balance sheet strength, operating performance, and business profile. Why is this important? Imagine that you purchase a policy with a company, only to have that company fail in bankruptcy months later. That would stink! So this rating provides you with some peace of mind that the insurance company that you do business with has sound business practices. All but the smallest companies will have a rating, which works like a report card. Don’t sign on with an insurance company that has a rating lower than a “B”.

Unfortunately, access to Best’s credit ratings from their website is available only to members. So you’ll have to narrow down your search to a couple of companies and then visit their websites and search for Best ratings. If you work with an independent agent, s/he should also have this information readily available. Make sure you have a solid company backing your insurance. In my case, I was relieved to learn that the underwriter for my new insurance (Lloyds) had an A.M. Best Rating of “A.”

4. Learn how to Read the Codes: HO3 and HO5 Policies

Your policy should be coded as an HO3 (better) or an HO5 (best) policy. The agent who found a policy for me didn’t mention anything about these “secret codes,” so I had to search through the paperwork to discover that the policy I was offered was an HO3 policy. Once I had the information, did it really matter? Well, the only way to answer that question is by explaining the differences between the two forms.

The HO3 policy is the most widely available form and typically provides the minimum coverage required by mortgage companies. Both HO3 and HO5 policies insure the dwelling against all causes of loss (open perils) except when specifically excluded.  But HO3 policies replace personal belongings only when they are damaged or destroyed by specific causes (named perils), such as lightning, hail, or vandalism; whereas the cause of the loss is irrelevant in HO5 policies. Let’s take an extreme example. Say a bear crashes through your sliding glass door and proceeds to destroy your television and furniture. The loss would be covered under an HO5 policy, but you’d be paying out of pocket if you have an HO3 policy, as a bear raid is unlikely to be a named peril. Yes, it’s an outrageous example, but it demonstrates how the two forms vary. An HO3 form should be fine for most people.

5. Bump up your Liability Limits!

We live in a litigation-happy society. Some people seem particularly eager to sue others for seemingly minor incidents. Take a look at the personal liability limit on your policy. If a neighbor slips on your slick flagstone walkway and decides to sue the shorts off of you for pain and suffering and a lost career, you’d better have a decent liability limit. Bumping up your liability limits will bump up your premium, but should this nightmare scenario become a reality, you’ll be in much better shape to protect the bulk of your assets. I increased my personal liability limit from $300,000 to $500,000, just to be on the safe side, which increased my annual premium from $1,041 to $1,113 (a difference of $72).

Some Final Words on Premiums

Of course, you’ll want to pay attention to the premium, but that should not be the sole criteria for your final selection of an insurance policy. The real test of insurance comes at the back end when you file a claim, and it’s so NOT WORTH the aggravation of dealing with poor customer service or inept insurance adjusters. This is one time when going with the lowest premium may not be the best decision. Do yourself a favor and check out all the ratings and options before you sign on the dotted line. And should you find your insurance policy cancelled, IMMEDIATELY begin your quest for a replacement policy!

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