Homeowners Insurance Isn’t A One-Size-Fits-All Proposition
When preparing a homeowners policy, insurance companies want to know all the details. They’re not being nosy — they just want to accurately cover any potential loss, even the unexpected ones. Understanding your homeowners insurance policy is an important part of getting the most out of your insurance policy. If you have any questions, contact our office at 413.475.7283 or Complete our online quote form today!
Most insurance agent will likely say every homeowners policy begins with a worksheet that captures anything and everything about the home. Inquiries range from the obvious — like the age of the house, square footage, and condition of the roof — to details about the kitchen counters (formica or granite?), whether rooms feature hardwood floors or carpeting, as well as many other questions.
“We ask for lots of details so we can get a true estimate of the home to properly gauge the replacement value,” said Trish Vassallo, director of Operations for Encharter Insurance in Amherst, noting that policies are based on what it would cost to replace the home and its contents if there was an event that resulted in the total loss of the home, such as a devastating fire or tornado.
Insurance companies also try to factor in cost increases in building supplies and labor, so some offer homeowners policies with extended replacement protection that will cover 25% or 50% above the insured amount of the home.
With recent hyperinflation in building materials and labor, extended coverage may not be enough. Lumber has experienced a massive increase in price since the beginning of the pandemic, driven by supply-chain issues and an increase in demand. One measure for estimating building costs is the price for a board foot of lumber.
“Customers ask us why their policies increase each year, and the answer is the inflation guard, which keeps the policy in line with current construction costs.”
While guaranteed replacement might be worthwhile for high-value homes, it can be expensive coverage. A more affordable way to keep pace with rebuilding costs comes in the form of policies with inflation-guard endorsements. Policies with inflation-guard coverage are designed to increase the limits of what the insurance company will pay based on the costs of materials.
Customers ask us why their policies increase each year, and the answer is the inflation guard, which keeps the policy in line with current construction costs. Customers also ask why the estimated replacement cost on a homeowners policy is so different than the market value of the home. The main reason is that market value is driven by the ups and downs of the real-estate market and is calculated using the house as well as the lot it sits on.
That’s why including everything in the house from top to bottom is essential to having it insured. For example, if people fail to report they have a finished basement out of concern they may have to pay higher taxes, they won’t have coverage for a loss.
“We are not trying to uncover a tax increase for the towns; our concerns are, if you have a devastating loss, we want to make you whole again,” Vassallo said. “If you have a finished basement, we want to know how finished — is there a TV room, workout equipment, is there a bathroom down there? These are all important factors so we can come up with the appropriate replacement value and include it.”
Water, Water Everywhere
The most common claim for a homeowners policy is water damage from a leaking roof, burst pipe, or faulty toilet. Long pointed out that, if a burst pipe happens when no one is home, damage can be substantial, and the claim can be huge, even approaching six figures.
Because water-damage claims are so common and expensive, homeowners can now install devices to prevent a severe incident. One of these devices is an automatic water shutoff when a leak is detected. Insurance companies have begun offering discounts to homeowners who install these.
Damage from flooding is not covered under a traditional homeowners policy. Insurance companies define flooding as water from the surface and below, usually entering through the foundation of a house. If a homeowner has a mortgage and their house is in a high-risk zone for flooding, they are required to have flood insurance. Long pointed out that changing weather patterns may require a new way to think about flooding.
“Without umbrella coverage, if you tried to sell your house while there was a personal-liability judgment against you, the creditors could go after the proceeds from the sale.”
In addition to covering the dwelling unit, homeowners policies will also cover personal property — up to a point. If there are special items such as expensive jewelry or fine art, the best approach is to add a coverage rider for those items. As an example of why riders make sense, Vassallo gave an example of someone who owns a $75,000 baby grand piano.
Another type of policy associated with homeowners insurance is umbrella coverage. These are personal liability policies that provide coverage when the limits of a homeowners and auto insurance policy aren’t enough to pay a claim. Umbrella coverage was once thought to be necessary for homeowners who have a dog, a swimming pool, or a young driver. Vassallo said. But with payments for personal-injury claims going higher all the time, everyone should consider the added protection of such a policy. “We even suggest it for renters because you never know who’s going to sue you.”
Some people feel they don’t need an umbrella policy because the Homestead Act protects them, but while it prevents creditors from taking a person’s home, the act’s protection stops there. Without umbrella coverage, if you tried to sell your house while there was a personal-liability judgment against you, the creditors could go after the proceeds from the sale.
Water damage may top the list of common claims, but dog-bite claims are growing in number. A typical homeowners policy can provide some coverage, but it is strongly recommended that dog owners have an umbrella policy, as the average claim for a dog bite is $40,000 — and people with a dog-bite claim often pay much more for homeowners policies in the future.
For many years, companies have maintained lists of dogs they will not insure under a homeowners policy. That list is driven by the number of claims they see for certain breeds. Before purchasing a dog, call your Encharter insurance agent, especially if they are not set on a particular breed. Your agent can give you the current list of dogs the companies will not cover with insurance.
While many people work from home these days, that work can take many forms. A person working full-time for a company is different than someone who operates a home-based business. Vassallo said homeowners policies are not intended to protect business exposure, so a person who runs a business out of their home needs to see their agent for a rider to their home policy.
Liability can become an issue if customers come to the home. It’s not unusual for tax accountants, music teachers, and others to have people at their home for business reasons. In insurance terms, that’s a liability exposure that can be addressed with a separate commercial rider for protection. “Otherwise, using the example of the music teacher, if a student or parent slipped and fell, the teacher would have no protection,” Vassallo said.
Home ownership brings with it plenty of physical hazards. Insurance companies have begun offering protection for virtual hazards such as identity theft and cyberattacks. Cyberattacks are growing at a rate of 200% every year. One of the top schemes is phishing — when a fraudster sends an e-mail that appears to be from a reputable company and encourages the receiver to click on links that compromise their security. But cyberattacks have moved away from laptops and phones and can now impact other areas of the house. Hackers are known to access data through WiFi-enabled thermostats and refrigerators.
Before a homeowners policy comes up for renewal, agents will contact their customers to make sure their coverage stays up to date. It’s important for insurers to know about improvements such as a kitchen renovation. Obviously, homeowners are not looking to pay more for coverage, and there are options for those who are interested only in price. Vassallo tries to help her customers understand why having sufficient coverage is so important. “This is probably the largest asset they will ever own,” she said, “so let’s make sure we properly protect it.”
At Encharter Insurance, we are here to help you with a quote or any claim. Call us at 413.475.7283 or visit our website at encharter.com to discuss your insurance and deductible needs. We can provide coverage from many insurance carriers so you receive the insurance for your budget and needs!