August 3, 2016
It has been said numerous times, that in the absence of value, price is everything. In today’s world of multiple insurance quotes, I find that many clients that seek my assistance have been led astray. Insurance is more than just a premium. The coverage forms for home insurance are entering a mind boggling dozen. Revocable Trust best practices are really not that well established. Auto insurance practices surrounding valuation are complex. Differences between state insurance regulatory bodies significant. Often what I find is that consumers just opt for the Cheapest Insurance Policy and while that may work in your young 20s, it is distinctly not sufficient as your wealth increases. Protecting that hard earned wealth is a significant point of Risk Management. In other words opting for the Cheapest Insurance may end up leaving you poorer.
Listen to a few of these common statements that Insurance Brokers hears:
“I only pay $450 for my homeowners insurance.”
“My home insurance rate has not gone up in years”
“I know my insurance agent really well”
“I got my home insurance through my auto insurer because of the discount.”
“My bank says I don’t need flood insurance.”
Lets take each one of these statements and explain their fallacys.
What about ‘$450’ makes this home insurance premium a good rate? Of course in the absence of any other information its hard to determine if this amount is a good price or a bad price. Is the policy an HO3 or an HO5? Does it include personal property replacement cost? Is it a log home? What type of plumbing do they have? Do they live at the house? Does it include limited coverage for personal statements they make on social media? Does it properly cover their net worth? Is their community inclined to numerous building ordinances?
What about $450 is good?
If your ultimate goal is just to pay as little in insurance as you need to – why even have insurance? Is it because your bank requires you to? I certainly can understand the desire to spend less money than you have paid in the past, however improper coverage will not help you in the long run. And focusing just on the premium itself if short cited. Please consider all the aspects. Consider the total coverage. Ask what if. Think about your long term future. Consider your children. Contemplate your retirement with a liability lawsuit hanging over your head.
Good for you. But wait… why hasn’t your home insurance premium gone up in years? Haven’t the costs to rebuild your home gone up? How can your insurance cover an appreciating asset without charging you more? Secondly, don’t you own significantly more stuff than you did five years ago? Do those personal possessions magically get added for coverage? A simple answer to these two questions is that an Insurance Policy that is not moving up or down is not really covering your changing needs. IE, this is not necessarily good news. Consider a home insurance policy that needs to change with you.
Its nice to work with people that you know well. But don’t rule out exploring better coverage just because you know someone. Many insurance agents are actually Captive Insurance Agents. Captive insurance agents are extremely common and in general serve communities really well. But, Captives are not all that likely to tell you this. Captive insurance agents can only write insurance with a group of companies (unless that company refuses the policy.) Generally speaking, a captive insurance agent is only shopping your policy around with at most two insurance companies to come forth with a proposal for you. Please consider your options well.
In San Francisco most insurance agents find patches. Patches of areas that they know well. However this marketing mechanism is starting to lose ground to specialists. Specialists that work with certain types of risks more often than not. The next time you are considering a new agent, ask their opinions about various insurance ideas. You may find that some agents have no interest in sharing their philosophy or opinions while others are much more open. Want to know mine? Just read my blog.
Adding your home and auto together can be good logic. I suggest it a lot of the time. However there are some well known and less well known reasons to NOT do this. For example if you have a checkered driving record, getting your auto coverage from your home insurer may not make sense. There are specialty insurance companies out there that may be a better option.
Second, home insurance, especially in California is more complicated than most think. To a much greater extent than Auto Insurance, where you live matters a lot in terms of the types of coverages you may need or want. For example, here in Marin County, the rebuild values on homes is far in excess of what typical insurers would normally write. This creates the situation where insureds often are dramatically under insured in the event of a total loss. With the presence of wild fire, flooding, earthquake, and major hurricane like storms we get here, the possibility of a total loss is likely greater here than in most locals. Therefore purchasing your home insurance online through some algorithm may not be your best bet.
Will your bank have to pay off the loan themselves if its a total flood loss? Likely not. Just because your bank does not force you to have flood insurance, does not mean that you should ignore it. I have written extensively about the need for flood insurance in the San Francisco region. A couple of years ago a single storm brought more than 20 inches of rain to Mt Tam in… 24 hours. Folks there is just no amount of elevation that can protect certain homes from floods during a storm like this. You are the ones that live in the home. Ask yourself, can I imagine a way in which my house would flood from natural sources? Floods do more damage than all the other perils. Although not as likely in the X zones, floods often go way past the high risk flood zones into the lower risk zones.
If you live within a good stones through from a high risk flood zone, I strongly recommend you at least see what it costs per year. Federal flood insurance is capped at $250K of building property coverage, which will not fully replace too many homes around here. However it certainly will pay for the cost of mold and mildew remediation up to a level of so many feet. You may see the cost of it and say No Thank you. But, please don’t reject it without first considering it.
Procuring the best insurance often starts with finding the right insurance agent. The best insurance agent might actually be a broker. The best insurance agent might be the most prepared captive agent. The best insurance agent may be a specialist who works with affluent clients. Its really hard to say and it will depend on your situation.
Certainly the best insurance though is the insurance that fits your families life. The best insurance will take into consideration all of your liabilities, such as dogs, second homes, and trampolines. The best insurance will take into account your net worth, such as IRAs, investment accounts, and rental properties. The Best Insurance will seek to find out what you wish to non insure, self insure, or cover either on admitted or non admitted paper. The Best insurance may come from a household name or an insurance company you have never heard of.
“The hard question for each and every client is… Which Change is it?”
Although I have no statistics of my own to back this claim up, I find that on average the typical client of mine needs to make about one change to their home and or auto policy each year. That is the easy statement. The hard question for each and every client is… Which Change is it? Getting the best insurance usually means speaking with your insurance agent or broker often. Ask them questions, take their calls. It often means avoiding a simple oversight and paying more to get properly covered. Ignoring a problem wont ever make it better.
Scott Johnson is a licensed and bonded insurance agent and broker that lives, works, and hikes in Marin County California. He is licensed by the California Department of Insurance. California License 0H11625. He enjoys writing complicated insurance.
Marindependent Insurance Services serves clients throughout the California Area with a specialty here in the San Francisco Bay Area. Auto, Home, Affluent, Term Life, Umbrella, and much more. California License 0K10734.
Merely reading about insurance is not enough. In all situations with regard to buying, changing, adding, deleting, and modifying any type of insurance – always speak with a licensed insurance broker or agent in your jurisdiction. State laws are different in the US with regards to insurance and insurance regulations. Please read our entire disclaimer.