This Is What You Must Know Before Buying Homeowners Insurance

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quick highlights

Buy an Umbrella Policy:  higher liability limits are must for good financial planning.  When the limits of insurance run out, your bank account takes the hit. 

Bundle Up:  keep your home and auto with the same company.  Save a bundle!

 Know your value:  rebuilding values are done on a "cost per square foot" basis.  Insuring your home to value is important.

I’ve been helping folks buy home insurance for over 10 years and this article draws on that experience.

The purpose of this article is to make you into a savvy home insurance buyer.

 On the list of “fun things to do”, the prospect of shopping for homeowners insurance falls somewhere in between getting a root canal and going to the DMV.

Hopefully, by the time you get done reading this, you will at least know a few key things to watch for and have a foot up the ladder towards your goal of buying quality insurance.

First, let's address the proverbial elephant in the room...price… 

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The insurance industry spends hundreds of millions of dollars every year trying to convince you to only pay attention to price.  

This is just wrong.  Insurance is not a commodity.  

It's not lumber.  It's not a car.  

Focusing on price is dumbing down the buying process.  

A savvy insurance buyer looks at coverage.  

When your house is on fire, you aren’t going to be thinking “gosh, I’m glad I saved that $10 a month on my insurance”.  

You are going to be hoping your homeowners insurance policy is in force, the coverage is good, and the claims guy isn’t going to take forever to cut you a check.

Risks

So what are we doing buying homeowners insurance? 

What exactly are we trying to protect against?  Fires?  Pipe breaks? Tornado or hail damage?  

Yes!  All of those things.   

But as good home insurance buyers, we are going to get into the nitty gritty before we buy.  

We are going to take a deep dive on coverage so we know all the nasty details of the policy we are considering.  

What happens when the shed burns down and the dog bites the neighbor?  

How long can I rent another house while mine is rebuilt?

These are the nitty gritty questions we need to ask.  (Click here to find a list of the dog breeds with the worst reputation in the insurance business).

Picking an Insurance Agent

When shopping for insurance, you are going to be working with agents.

Regarded by many as being equal to a door to door vacuum cleaner salesman, some agents do a good job of perpetuating that stereotype. 

The best way to find a good one is to shop around. Have some questions ready before you call.

Ask them how long he or she has been selling insurance. Home insurance is complex. It is only learned over time.

You want an agent who has been in the business for at least five years.

The newbie agent is probably still learning about coverage and gaining experience. You don’t want to be a part of that learning curve!

Above all else, make sure you work with someone you like and trust. The insurance sales business is like any other business with many different kinds of people working in it.

Some guys are slimy used car salesmen types. Others are very professional and take their job seriously.

Find yourself a serious professional.

Trust your gut. 

Captive Agent Vs. Independent Agent

The Independent Agent

She does not work directly for an insurance company and represents more than one homeowners insurance company and is able to shop around to find you a policy that fits. 

I recommend using an independent not only because of the variety, but also for the buffer they provide.

Have you ever had a question about insurance coverage? Or has anything ever happened to you and you wondered if insurance would cover it?

You don’t always want to report every single thing to your insurance company, sometimes you just want to chat with an insurance expert and know your conversation is being held in confidence.

A good independent agent is a phone call away and she is able to advise you without reporting it to your home insurance company. This is nice because you can have a trusted advisor on your side.

Generally, a quality independent insurance agency is going to have quality insurance companies in their stable, including names such as Safeco, Travelers, Mercury, and The Hartford.

These agents also typically offer access to lesser known insurance companies, who will provide a quote to insure older homes or homes deemed to be “high risk” due to their proximity to the ocean or wildfire areas.

The Captive Agent

Think All State, State Farm, or Farmers (or as I like to call them; “The Big Three”).

When working with one of these agents, they will only offer you a home insurance quote from their company. They are employees of that company.

This has advantages because they are going to know their policy very well and as a direct representative of the home insurance company, they can speak on behalf of their company.

This has advantages. Many people like this way of doing business and if that is you, know it's a valid way of purchasing coverage.

The drawback of course is that you can’t just call and ask a question about a potential claim you may want to file.

For example: you had hail damage to your house and you aren’t sure if you want to take care of it out of pocket or if you want to file a claim.

If you call your captive agent and tell him you had hail damage, that info is probably going in your underwriting file and at renewal you may see a rate increase.

I do recommend getting quotes from both captive agent type companies and independent agent representative type companies.

You may find a better deal buying from one or the other, it just depends on who you are, where your house is located, and the amount of coverage you need.

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Coverage Tips:

#1 - insure your home for its rebuilding cost

This is #1 for a reason. The majority of homes are not insured for their actual rebuilding cost.

Why? Because most people are clueless.

This is where price shopping can kill you at claim time. Insuring yourself for the actual rebuilding cost is going to cost more premium than buying homeowners insurance for the minimum amount possible.

The first step is to do a replacement cost estimate of the home. The very best way to get an estimated replacement value is to ask restoration contractors.

They may charge you for the service, but it's going to be a very accurate number.

You can also ask your agent, who can probably access an online replacement cost estimation tool.

These vary in quality, so take care with the estimate you receive when using one.

This one, offered by AIG, gives you a basic idea of how they work. When using this tool, remember that rebuilding cost varies from place to place.

Homeowners Valuation Estimator
In California, I generally tell my clients to carry anywhere between $250 to $400 a square foot in insurance coverage.

In places like Boise, Idaho, or Cleveland, Ohio, you can get away with much lower insurance limits. Somewhere in the $150 a square foot range is typically a good number.

This is a very simplistic approach to the problem because every home is different.

You need to consider the size of their home, the quality of the finishes.

#2 - The Size of The Home

When a home has two stories, three bathrooms, and 5 bedrooms, the interior systems are going to be a lot more complex.

There is more electrical wiring, more pipes, and more debris to haul away if there is a fire.

Complex homes are more expensive to rebuild. So you need a higher limit of insurance. Simple!

#3 - Accounting for Expensive Finishes

Does your home belong on “Lifestyles of the Rich and Famous”? Does it have imported Brazilian hardwood floors?

Does your at home library smell of rich mahogany and leather bound books? Then you need higher limits of insurance.

Are you like me? Drywall, laminate floors (aka fake wood), maybe granite countertops in the kitchen? Then you can probably get away with a lower limit.

In California, this is going to be $250 a square foot.

Other parts of the country, like Kansas, or Arizona, you are probably below $200 a square foot because everything is not so outrageously expensive.

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#4 - Don’t rely on the automatic increase limit

Many home insurance policies contain an “automatic” increase of coverage to 150% or even 200% of the limit showing on the policy.

This is often referred to as extended replacement cost coverage. In theory, this coverage kicks in if the claim exceeds the amount of coverage showing on the policy declarations.

For example, if you are insured to $500,000 and have a 150% “coverage boost” endorsement, you would receive an additional $250,000 in coverage if needed.

If you read the policy, you will often notice that you must have the home “insured to value” in order to have this additional coverage apply.

Keep this in mind when talking to agents. Some may try to sell you on the idea that you can depend on this additional coverage and intentionally under insure yourself as a way to save on the premium.

Others may know their pricing is not competitive unless they sell you on underinsured on purpose. Don’t do it!

Actual Cash Value, Replacement Value, or Agreed Amount
These are also known as “settlement clauses” in your policy.

Every home insurance policy is going to have one. This is how they are going to pay you if your home is damaged by a covered claim.

You need to pay close attention to this clause because a lot hinges on it.

#5 - Actual Cash Value

This is probably the worst possible option, especially if you own an older home. This is also known as a “depreciated value” settlement option. This may also be your only option if your home is in bad shape and needs a lot of renovations.

Have you seen the commercial where the insurance company gives you enough money for half a TV when yours is destroyed? This is the type of policy they are referencing.

Consider this story as an illustration of why Actual Cash Value is a horrid option:

Mr. Norris bought his home in Valier, Illinois, in 1985. At the time it was brand new. Just a couple weeks ago, Mr. Norris had a kitchen fire. The fire burned the kitchen and even got up into the attic, burning a part of the roof before the fire department arrived and got it under control.
Mr. Norris had gone cheap on his insurance a few years before when he decided he needed more money to play the poker machine down at the tavern. The homeowners insurance policy he bought contained an “actual cash value” settlement provision.
So when the claims adjuster showed up the other day, he calculated the replacement cost for the damages as $130,000. Then, he deducted 35% for “depreciation” of the older building materials and offered Mr. Norris his settlement check for $84,500. Mr. Norris was shocked to find out that he would be paying $45,500 out of pocket for the repairs to his home. 

#6 - Replacement Cost

This option is almost self explanatory. Your settlement is offered at the amount it would cost to repair the damages to your home, with some caveats…

#7 - Guaranteed Replacement Cost

This one is becoming rare. Mostly because the homeowners insurance companies offering this coverage found that it was not good for them.

They were paying out too much money! So if you can get GRC (Guaranteed Replacement Cost). Go for it!

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Dodo Tips

Remember Demand Surge!

Demand surge is when a community is suddenly faced with an overwhelming amount of people who have nowhere to live and many homes that need to be rebuilt all at once. This surge results in artificially inflated rebuilding costs as contractors become overwhelmed with requests to rebuild and the available building supplies are all suddenly purchased. This surge results in labor and materials price increases.

Here is a sad story...

In 2017, the Tubbs Fire swept through the town of Santa Rosa, California. Destroying 2,834 homes and over 400,000 square feet of commercial space. https://en.wikipedia.org/wiki/Tubbs_Fire

Don't Make this Dodo Mistake

This was a devastating blow to the community. In 2012, Superstorm Sandy destroyed an estimated 600,000 homes in New York and New Jersey. https://en.wikipedia.org/wiki/Hurricane_Sandy

These massive catastrophes led to a phenomenon known as “demand surge” in those regions in the following months and years.
The ugly part of this equation is the rental properties. Any property that is still standing and available for rent suddenly becomes way more valuable.

Being a free market economy, property owners are free to set their monthly rental amounts at whatever the market will allow.

A client of mine called in the wake of the Tubbs fire to tell me his sister’s home was lost and homes that had been renting in Santa Rosa for $1,500 a month were now going for $4,000 a month.

Having a policy with enough coverage to pay these increases needs to be considered when shopping for home insurance.

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Ordinance or Law

How to pay for updates to the undamaged portion of your home:

Own an older home? If so, it may not be up to current building codes. Insurance is meant to return a home to its original state, prior to the loss. In other words, the policy pays for the damaged part of the home. A catch phrase in the insurance business is to pay for “like kind and quality” to that which was damaged or destroyed.

Consider this story as an example of why this coverage is important:
Wendy’s house was built in 1952. She has been with her home insurance company since the 1980’s.

She’s never had a claim.

One day, a fire breaks out in the garage and gets into the house before it is contained.

There are $200,000 in damages. The local building inspector arrives to make sure the structure is still stable and can be rebuilt.

While there, he notes the condition of the wiring in the undamaged portion of the home.

He says that the home be rebuilt, but before he approves it, the entire home must be rewired and the breaker box must be replaced.

Wendy’s homeowners insurance contains a limit of $45,000 for upgrades to the undamaged portion of the home for code compliance.

The local building ordinance laws are different in different states and counties, which is why it's difficult to advise how much coverage is enough.

The best practice when setting up your ordinance or law coverage is to ask a local builder or the local building code office for a list of current codes and doing the work to determine how far out of modern code compliance your home falls.

Then you would need to make sure your homeowners policy has enough coverage to match the cost of upgrades.

Loss of Use (AKA “avoiding mom’s house insurance”)

When your home is made unlivable after a claim, you will probably still have a mortgage payment and other ongoing bills to pay.

Making the monthly payment and also paying the rent for a replacement home is probably not in your budget. The ends are not going to meet.

So ask yourself: “If my house burns down, do I want to end up staying at your mom’s house?” You may love your mom.

Does your spouse love your mom? If you don’t have enough Loss of Use coverage and your house is destroyed, you end up at mom’s house.

Three months ago, my client, Tony, called to tell me his kitchen had flooded.
Turns out, the water pipe that fed their refrigerator had broken.

We filed the water damage claim and a restoration contractor came out to begin the ‘dry down’ process on the kitchen.

Then, things went terribly wrong. 

The first restoration contractor didn’t do a very good job. He missed some water and didn’t get the rooms 100% dry.

At the same time, a plumber had come out to fix the leaky pipe.

He told the homeowner that everything needed to be pulled out of the house so they could dry it properly and the pipes in the slab all needed to come out. 

This plumber, knowing it was an insurance claim, just saw dollar signs. It was an insurance feeding frenzy!

The home insurance claims adjuster became aware of the situation and dismissed the plumber and the first restoration contractor.

She brought in a new restoration contractor to handle the dry down. 

Unfortunately, this contractor caused some significant damage to the kitchen cabinets and the tile floor.

They also discovered mold forming due to the poor job done by the first contractor.

Keep in mind, this was during the height of the COVID 19 quarantine. The homeowner had a wife recovering from knee surgery, four kids, and three dogs.

He needed a place to stay.

Even during normal times, a family of this size would have some trouble finding a house to rent for a few months, let alone during a global pandemic!

Luckily, their policy with Nationwide was arranged to pay for them to have unlimited coverage for loss of use until their home was repaired.

They ended up staying three weeks in a hotel on the beach.

Once things settled down, they moved into a nice townhome within a few miles of their home under repair.

Due to the quarantine, his location in California, and the size of his family, the monthly rent is $20,000.

The claim happened in late March and as of today (almost four months later), he is still not back in his home.

Had he been under insured for loss of use, he would be calling his mom and asking to sleep on her couch.

Small Valuable Items

Anything small and expensive should be insured separately from your standard homeowners insurance policy.

Examples include watches, jewelry, cameras, firearms, collectables, or fine art.

I once had a client who owned a bunch of imported African antiques.

She carried a special policy with each item listed, with the replacement value included.

This policy insured $150,000 in antiques for about $100 a year.
Every homeowners policy I have ever written contained a lower limit of coverage for these items.

The best advice is to place these items on a valuable articles floater.

These policies take some work to place.

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For example 

Jewelry will require you to have an appraisal completed. This will be the basis of insurance.

Once the policy is in force, you will be happy with the decision to insure the items properly.

There is no deductible usually and the claim won’t impact your homeowners insurance loss history.

If you are concerned, make sure to get some competitive offers on your policy.

For more information on valuable articles policies, click here.

Most home insurance policies are going to have a line titled “other structures” coverage.

This is going to be automatically provided and is meant to cover anything not attached to the home.

Examples are the unattached garage, the shed, (Cheryl’s She Shed in the Farmers commercials), fences, or a jacuzzi with its shade structure.

If you have an unattached garage or a granny flat on your property, the automatic coverage limit may not be enough.

Be sure to mention it to your agent when shopping so they can increase the limit to match the need.

In wildfire areas, this coverage is going to be extra important.

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Dodo Tips

Be proactive and prevent the problem before it occurs...

Install a water pressure regulator.  The majority of homeowners claims are from broken pipes.  The pipes get old and they just can't handle the amount of water pressure from the city's water supply.  This is especially true in places with hard water, which causes pipes to corrode more quickly.  Preventing water damage claims is the first step towards keeping your future policy costs low.

Personal Property

This is all of the “stuff”.

Couches, tables, beds, clothes, toys, electronics…

The added benefit is most homeowners policies cover your stuff on a world wide basis.

So if you are traveling abroad and your suitcase is stolen, you may have a claim with your home insurance policy.

Usually this limit is automatically generated and based off the amount of coverage you have for the home itself.

Sewer or Drain Back Up

If you live in a low lying area without much slope to allow the lateral sewer to run away from your house, look closely at this one.

Your policy has a very low amount of coverage for a sewer back up. Many will only pay $10,000 for clean up and repairs of damage caused by the sewer or drain backing up into your home. Also keep it in mind if you live in a condo.

I don’t know how many times I’ve had a condo owner call to tell me the unit owner on the floor below put something down the toilet that made the whole building have a back up.

Don't Be a DODO about Mold

A Quick mention regarding mold coverage.

If you have mold in your house. Fix your house!

Do not, under any circumstances, file a claim for mold damage unless it is related to a larger claim, such as a water damage event, where your house was flooded by a broken pipe.

Filing a mold damage claim on its own is not smart.

It tells the homeowners insurance company that your house has problems with water intrusion.

This indicates the home is in bad shape and you are probably not someone they want as a client.

Worse than that, is the database that exists for all homes in America.

The database is kept for all homeowners insurance companies, so they can take a look at your claims history, without even asking you.

So if you file a mold claim, you will get a small amount of money up front, but the claim is going on your record in this claims database.

Your current homeowners insurance company will drop you at the next opportunity.

Then, when you shop for quotes, all the other home insurance underwriters will see this mold claim on your recent record.

You will end up paying triple the price to go with some insurance company you've never heard of and the coverage will be cut in half.

Remember, insurance is for events that are called “sudden and accidental”. Mold growth is never sudden. Don’t make that claim!

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Medical Payments

This is an oddly worded coverage.  

Rest assured, if someone is injured due to your family’s negligence and they want you to cover their medical expenses, this is not the total amount of coverage available to you.

This coverage is what we call a “good will” coverage.  

Typically less than a $10,000 limit, it is meant to act as a way for the claims adjuster to settle small claims quickly.  

Think of it like a “no questions asked” type coverage.  

It really isn’t no questions asked, but it's pretty close.  

If a guest breaks their leg on your property, this would probably cover it.

Getting claims closed quickly has been noticed to keep them small, which is what the homeowners insurance companies always want.

Liability Protection: You Need More Than You Think.

This part of your homeowners policy pays if you are liable for hurting someone or destroying someone’s property.

Many also pay if you are personally liable for slander or defamation of character.

In the modern world of social media, this is becoming a valuable piece of coverage.

Keep personal liability in mind when shopping for quotes. Not all policies offer it.

Some only offer it if you specifically request the coverage.
Protecting the nest is your goal.

Your homeowners policy will not be able to provide you with the amount of coverage you should carry in the modern day.

You will need to add a Personal Umbrella policy, which will extend over your home and auto insurance.

Dodo Definitions

insurance terms explained:

Independent Insurance Agency:  You can buy insurance from an indendent agency but they represent other companies (typically several).  For example, an independent agent who works for Acme Insurance Agency might sell you an auto insurance policy insured by Travelers Insurance.

You and the wife take a weekend trip to Palm Springs, leaving your trustworthy 16 year old daughter in charge at home. 

Being 16, her decision making processes aren’t always consistent, so she decides to have the traditional ‘kegger’ while mom and dad are away.  

Your sweet little peanut, Shelly, invites 25 of her closest friends to the party.  

Can someone say 'KEG HEADSTAND!'

The keg of beer is accompanied by some yummy jello shots.  

Not a bad deal, until this happened...

After his umpteenth, her boyfriend, Johnny, decides it would be super cool to do a swan dive off the roof into the pool.  

Unfortunately, Johnny misjudges the depth of the pool and what is  necessary to decelerate after impacting the water.  

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"The best homeowners insurance does not always mean the cheapest!" Insurance Dodo

Newton, Johnny was not and gravity took hold.

Of course, Johnny breaks his neck and the ambulance ride to the hospital alone is $1,000.

Your weekend getaway is disrupted by a call from Johnny’s parents.  

Letting you know that they are holding you responsible for the hospital bills, long term care, and any potential life time impact on his brain function.  

If he is a veggie for the rest of his life, you are going to have a lot of financial problems.  

At this moment, you are probably glad you took the advice of your savvy, professional insurance agent.

Who you hired after reading this article most likely.  

When he told you the need to have at least $5,000,000 in liability protection.

His quote was something cute like, “Five million is the new one million”.  

Your homeowners policy is going to offer as much as $1,000,000 in liability coverage. 

Once you max out that limit, you should purchase a personal liability umbrella policy.  

If you would like to know more about that policy and why I believe it is a mandatory part of any homeowner’s insurance portfolio, you can click here.


Compare Policies

Action Item:  When comparing homeowners insurance companies, don’t decide based on price alone.  Get two to three quotes, then call or chat online with the company and ask about their claims process.  Does it sound easy and reliable?  You can get started comparing quotes here. 


How To Save Money On Your Personal Umbrella Policy

  1. Bundle!  If at all possible, have your home, auto, and umbrella policy all with the same insurance company.  Not only does this put all three policies on a single bill, but it also gives a nice discount (sometimes as high as 15%).

  1. Keep up on maintenance:  if you have an older home, make sure your roof is replaced every 20 years.  Old wires cause fires. If you have an old home, you may need to make a few investments to update the infrastructure.  Remember, home insurance companies use “big data” when they set your rates.  It's nothing personal with them, it's all about probabilities.  They know an older home with electrical wiring that is from the Nixon administration has a higher probability of starting a fire than a home that was built three years ago.  

  2. Find out the discount percentages before you buy insurance.  How much is the burglar alarm discount with All State?  What about State Farm?  Farmers?  Travelers?  They all have discounts for different things, so ask questions and find out who gives what discount.  Sometimes, the discount isn’t for the home insurance, it is for auto insurance, but if you have everything bundled and the auto insurance discount is significant, you get a deal.

  3. Homeowners Insurance should be your financial backstop.  Only to be used in case of emergency.  If you share this belief, why would you carry anything less than a $2,500 deductible?  If you have a small claim, you take care of it.  If you have a whopper of a claim, $2,500 means nothing.  Most folks don’t ever have a claim, so the higher deductible does nothing but provide them with the lowest possible premium year over year.  Best idea;  have agents give you a quote at $1,000, $2,500 and even $5,000 deductible levels so you can make an informed decision.

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High Risk Locations… What to do, what to do??

Some of you own your dream home.  Located down a sunny dirt road somewhere beautiful with a lot of big trees and open land surrounding it. Unfortunately, most of these locations are scary to insurance underwriters.  Global warming is causing wildfire danger to increase every year.

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There are somethings you can do:

  1. Shop around.  Like, a lot… There are a lot of insurance companies that you have never heard of and they are sometimes willing to take on into riskier locations and offer coverage.  These companies are in the “surplus lines” home insurance market.  They include some names you may have heard of, like Lloyds of London.  They also include divisions of insurance corporations, like Nationwide, who have more flexibility in their underwriting and are able to price in the risk associated with insuring your home in a remote location.

  2. In most states, there is also a “market of last resort”, where anyone can go to buy home insurance when they have been turned down by everyone else.  Home insurance is a bedrock of our society.  If you can’t take the risk of loss out of your investment, nobody would buy a home.  Even states like California, which doesn’t seem to care much about affordability, understands this concept.  For this reason, there is the California FAIR plan, created for homeowners who can’t insure themselves on the open market.  

These policies will only cover you for a few specific kinds of claims; fire, smoke, explosion… This will require you to buy a second policy, known as a “difference in condition” policy from another insurance company.  This will provide coverage for liability, theft, and water damage.  This can be a lot more expensive than just buying a standard homeowners policy.

  1. Consider calling your home a “Farm”:  if you live in an area prone to wildfire, you may have a lot of land, some outbuildings, and maybe a horse of a couple goats.  You can use this to your advantage by calling your home a “hobby farm”.  Many insurance companies have a special farm insurance division, that is separated from the standard homeowners insurance division.  A client of mine was able to get coverage for a good price by going through the Farm Insurance Division of a major insurance company.  I think he owned a couple horses and a goat, but they were willing to call him a ‘farm’ because of the barn on his property.

4. Talk to your neighbors.  Who are they using for home insurance?  Some insurance agents are connected with home insurance providers that others may not be, so you need to figure out who can get you the best deal.  Home insurance can be compared to taxes. Not everyone pays the same amount in taxes because some people have better tax guys.  Same concept applies to insurance; not everyone pays the same because not everyone has the same access to the same companies.

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Earthquakes and Floods

A normal homeowners insurance policy is not going to cover you for earthquake or surface water flooding, such as hurricane induced storm surge or a river overflowing its banks. 

These events typically cause a huge number of policyholders in one area to have a big claim, all at once.  

Earthquakes and floods cause these types of losses.  

The Houston flooding caused by Hurricane Harvey resulted in 204,000 homes being damaged (according to website The Balance).  

This type of magnitude usually requires government backing to insure.  This is why the National Flood Insurance Program exists.  

It is the primary source of flood insurance for all homeowners and if you buy a policy, it will probably be backed by the NFIP.  

You can get up to $250,000 in coverage for your home via an NFIP program.

If you own a large home and need more than $250,000 in flood coverage, the private insurance market also offers Excess Flood Insurance.  

These policies allow you to stack additional coverage on top of the primary $250,000 policy offered by the NFIP.  

Typically, deductibles for flood are 2% of the insured amount.  So that would work out to $5,000 for coverage of $250,000. 

The key to flood insurance is knowing how your property is mapped.  Due to the forecast of rising sea levels, many areas are currently being remapped into higher risk zones. 

This change has caused many mortgage providers to require homes in the newly mapped “high risk” zones to pick up some flood insurance. 

Get a quote for Flood or Earthquake Insurance.

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Dodo Tips

Do you live by water?

 If you receive a notice that your property has been remapped from a low risk zone to a high risk zone, you need to jump on the opportunity to secure low cost flood insurance.  If you buy flood insurance within one year of the property being remapped, you can still buy at the old “low risk” zone rates.  The difference in pricing can be significant.  I have seen low risk policies cost $700, when the change to a “high risk” policy would cost $5,000.  Once you are locked into a low risk zone policy, you are grandfathered into the deal for future renewals.  This is a sweet deal.  

In 1992, the region just north of Los Angeles was hit by a major earthquake. 

The quake hit 6.7 on the richter scale and caused billions in damage.  

At the time of the quake, only a third of homes in the area had earthquake coverage.  

In the wake of the 1992 Northridge Earthquake, the state of California set up the California Earthquake Authority, which offers low cost earthquake insurance to all California residents. 

The policies typically are low premium/high deductible policies.  They are meant as coverage for catastrophes.  

The good thing is the California Earthquake Authority has recently introduced a wide array of deductible and coverage options to allow the consumer more choices.  

The complaint in the past was that earthquake insurance has a really high deductible, so any claim would require a deductible of over $100,000 to be paid. 

This seemed prohibitive to most folks.  

Earthquake insurance deductibles are set up as a percentage of the total insured value of a building.

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Dodo Definitions

insurance terms explained:

Loss Assessment:  If you live in a Homeowners Association, this is for you.  Did you know the board of your HOA can charge you for any losses not covered by the HOA's master policy?  This is called a Loss Assessment.  Your home or condo insurance policy will have a line of coverage titled "loss assessment" and that is the money available for this type of claim.  Condos should have at least $100,000 in coverage due to the nature of a condo building. 

Renovating or Adding On?  Course of Construction or Builders Risk

Standard homeowners insurance policies are meant to cover your home while it is just sitting there, being a normal, completely built home. 

Most of the policies will have exclusionary language for homes undergoing major changes to the structure.  

Taking out a load bearing wall during that remodel so you have that “open concept”?  

Adding a second story and taking off the roof?  

These types of projects need to be insured by a special policy called a “Course of Construction” or “Builders Risk” policy.  

They are going to be a little more pricy than your typical home policy because the home is at greater risk of collapse or fire while construction crews are working on it.  

That is key:  greater risk.  Protecting the nest is our goal and any major renovation should be discussed with your agent.



don't be a dodo!

Don't Make this Dodo Mistake

Watch out for this mistake!

In the age of Social Media, things can be said in public forums that can be called slander or libel in a courtroom.  These statements are in writing, so there is evidence.  Your homeowners insurance only pays to protect you if "personal liability" coverage is afforded.  Check your policy to make sure you have personal liability coverage.  If you have teenagers, do it today.

Condo Owners

When buying your condo, be sure to ask your real estate agent to secure a copy of the Covenants, Conditions, and Restrictions (CC&R’s) from the Homeowners Association.

This document outlines how the insurance for your condo needs to be arranged.

The key piece of information within the CC&Rs is whether they cover the drywall or if you cover the drywall. If you cover “walls in” then you need to buy additional limits of insurance to handle the drywall.  

A good condo policy is also going to provide plenty of “loss assessment” coverage.  

The CC&R’s will state that the board of directors is allowed to assess a percentage of any loss to the individual unit owners if the condo association’s master policy is unable to cover the loss.  

This coverage is not too pricey, so I usually tell clients of mine to buy at least $100,000 in loss assessment coverage.

If you live in an older condo, I recommend buying as much sewer and drain back up. 

Your neighbors might decide to flush a football down the toilet one day, backing up the sewer into your kitchen.

Condo policies need to be arranged to have this event covered properly.  

If you intend to rent out your condo, beware of higher insurance premiums and limited options. 

The best bet is to lump your condo policy in with your home and auto policies.  

Buying a condo policy with tenant occupancy is going to be expensive because insurance companies know they are going to have an increased likelihood of claims on a tenant occupied condo. 

Renters Insurance

If you don’t own the home you live in, you still need a form of home insurance. 

Renter’s insurance provides coverage for your stuff and also some liability protection, so if you are responsible for someone else getting hurt, the insurance company will pay the damages.

Your landlord’s insurance won’t cover your stuff, so you need renters insurance. 

If you have room mates, your renters insurance isn’t going to cover their stuff or their liability, so they need to buy their own policies.  

You can generally buy renters insurance from any auto insurance company, so I recommend bundling to save.  

Typical policies are going to run about $100 to $130 a year.  

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How will Claims be Handled?

This is a good question to ask the agent when discussing your quote. 

Some homeowners insurance companies are going to offer a dedicated claims adjuster who works directly for the company.  

I highly recommend this option.  

When your house is in shambles, you want to be working with a claims adjuster who can cut you a check very quickly and is able to make decisions without having to ‘ask the home office for approval’.  

I call this type of arrangement “in house claims adjusters”.  

The alternative is a Third Party Claims Administrator. 

Also known as a TPA in the jargon laden insurance business.  

These folks are sub-contractors and they are hired by insurance companies who do not have in house claims departments.  

I have not personally found them very speedy when it comes to settlement offers.  

It might just be me, but they seem to be looking for a way to avoid paying claims most of the time.

tips for success!

Dodo Tips

Plan ahead!

Use your cell phone to take a video of your house and store it on the cloud.  Use Google Drive or Microsoft One Drive.  There are others.  The key is to have it stored somewhere you can access it after the home is destroyed.  This will act as evidence of your belongings before they were destroyed.  This is very important when working with a claims adjuster, who will need to be able to document your living conditions prior to loss.

My Rules of Homeowners Insurance

  1. Go with a well known brand name insurance company.  They have the coverage you need and they will have the resources necessary to respond quickly when your area is hit by a natural disaster.  

  1. Deductibles:  Never go with less than a $1,000 deductible.  Insurance should only be used when absolutely necessary.  If you start filing a bunch of small claims, your future policy costs are going to skyrocket.  Save some money with the premium discount provided by the larger deductible.

  2. Earthquake Insurance:  if you live somewhere like California or Hawaii, buy this coverage!  Oftentimes, these policies come with a large deductible, but the government has been known to step in and change insurance policies after major catastrophes.  There are several companies offering deductible insurance as well, which would pay your large deductible after an earthquake.  

  3. Flood Insurance:  remember:  just because you live in a low flood risk zone does not mean you live in a no flood risk zone.  Floods happen everywhere.  Flood zones are being remapped all the time with rising sea levels.  

Bonus Tip:  If you buy flood insurance within one year of being remapped from a low risk to a high risk zone, you can be grandfathered into the low risk rates.  I have seen this be the difference between paying $700 a year and paying $12,000 a year for flood coverage.  

These are the important things to remember:  

  1. Get a few quotes

  2. Ask a lot of questions

  3. Insure your home to value

  4. Get an Umbrella Policy

  5. Use a higher deductible

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Best Homeowners Insurance Companies

You Could Save Over $600 By Comparing Quotes From Top Insurance Companies.  Shop Around For the Best Rate in Under 2 Minutes.

Comparison quotes are quick, easy, and free!

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