When initially seeking out homeowners insurance, a buyer’s first instinct may be to seek the least expensive options. After all, cutting costs wherever possible is a normal response when faced with the intimidating amount of money being spent while purchasing a home. However, any home insurance professional will tell you that by approaching homeowners insurance from a price-first perspective, you’re setting yourself up for failure.
One of the most important factors to consider when creating a relationship with a home insurance professional is communication. A good insurance agent will spend time discussing all of the options with you, and ensuring that you are getting an insurance quote that isn’t just “the cheapest” quote, but an insurance quote that will be for a policy that protects you and your investment.
Choosing the cheaper option simply for the reason that it’s less expensive at the time of purchase can mean not having complete or ample coverage when you are in a position to need it. Oftentimes the cheaper options may not only leave you high and dry when it comes time to make a payout- with lower payouts or incomplete coverage- but may also be slow to respond due to exclusions and limitations built into the policy in order to keep prices low. With these exclusions and limitations, the insurer knows that the likelihood of an actual payout is low, thus allowing them to offer those inexpensive premiums.
A simple online search for the keywords “homeowners insurance” will turn up hundreds of results that include the term “cheap.” It is normal to want to be thrifty and not overpay for things you don’t intend to need. We never intend to have a house fire, or have a storm blow a tree into our roof. We like to think we’re immune from the impacts of life’s daily disasters, but it’s not a smart risk to take. The costs you cut in the outset will absolutely come back to haunt you- especially when you consider how many valuable assets and aspects of your home are covered by a quality homeowner’s insurance policy.
Options are certainly available if you simply want what is cheapest- in fact, there are even 800 numbers available to that end. But as with many things in life, you get what you pay for. Companies that advertise their policies as the “cheapest homeowners insurance” are doing so simply to win your business. These companies know that by advertising the lowest prices, they will make more in the long run through bulk inexpensive policies that rarely if ever make payouts. When the policyholders need to make a claim, the chances of getting the money and help they need are reflective of what they paid for: cheap, bare bones service, and runarounds on payouts.
On the other hand, quality homeowners insurance professionals take a different approach. For companies like these, the value is in meeting minimum standards. A true professional will not offer insurance coverage below a certain level, and won’t make needless cuts and skimp on needed coverage just to save their clients $50 or $100 a year. When the time comes to make a claim, the $50 or $100 saved a year means nothing in comparison to the differences in coverage. We tend to think of our home expenses in the terms of monthly payments. Perhaps the home we purchased has us making mortgage payments of $3000 or $2500 a month. But ultimately, our home is a $400,000 home. The complete value of what we are taking out that homeowners policy to protect is the primary consideration. The way we would choose to insure something that valuable shouldn’t be based on scrimping and shaving on what are actual necessary costs.
Assuming that we don’t need coverage until, in fact, we do- is a mistake many make. An experienced homeowners insurance professional knows better. While it is true they make their money at the time of selling you the policy, the value in trusting their professional judgement is made clear when it’s time to make a claim. Knowing the insurance policy that you have purchased is well-thought out, has value, and will protect your assets come claim time is key.
Insurance is a necessary part of doing business when it comes to making major purchases, whether it’s the insurance required by your state before you leave the dealership with your new car, or the homeowners insurance required by the bank holding your mortgage before your home loan is completed. There are of course minimums required- but the bank’s only concern is that the value of the mortgage is covered. In the event that you’ve purchased a home for $400,000 and put down $60,000, your bank will only be concerned about a minimum of $340,000 in coverage. What happens when you experience a devastating house fire with that minimum coverage? Well, the bank gets the money owed on the mortgage, so you’re in the clear there- but what about a new home? Your possessions? Any other costs incurred while you’re displaced from your home? A quality insurance policy will cover these needs as well.
There are three different types of valuation for properties. Firstly, there is the tax assessment. This is the value determined by the tax assessor and determines the rate of property taxes. Secondly, there is the market valuation, which says, for example, if you were to sell your house today, it will be worth “x.” This varies according to neighborhood comps and the overall fluctuations of the housing market. Finally, there is the replacement cost, which is the insurance valuation calculated by insurance professionals. Replacement costs take a broad range of factors into consideration. Let’s return to the fire damage example. In the event that the fire caused damage to 51% of the home and it’s determined to be inhabitable, costs for demolishing and rebuilding need to be considered. Costs will be incurred to remove the debris. Architects, engineers, builders, permits, and all the labor and materials- all of these will cost money. Full replacement costs aren’t just the foundation, walls, and roof. The value of a home built 50 years ago may not be comparable to what it will cost to replace it by a longshot, which is why a comprehensive and complete homeowners insurance policy that takes these costs into consideration is so vital.
Catastrophic events aren’t common, but being left in the lurch when they happen makes them that much more devastating. When it comes time to make the major investment of purchasing a home, a complete and quality homeowners insurance policy provided by a professional, not a phone number or the first “Cheap” link in a web search is the smarter way to protect that investment. You can rest easier knowing that if something happens to your home, you’re covered- and your policy will pay out to help you make the needed repairs and get on with your life.