Homeowner insurance Buying Guide

Getting started

Homeowners buy insurance to protect against disaster. But when disaster strikes, your insurer might not live up to your expectations, especially if you have a large claim, according to our survey of 11,250 subscribers who filed claims in the last few years.

The greater the damages, the greater the likelihood that home insurers paid less than expected, our survey found. Overall, almost 10 percent of respondents reported disagreements with their insurer over the amount of a claim payment. But when damage was $25,000 or more, 19 percent disagreed with their insurer's assessment of what was due. That was more than three times the disagreement rate for claims worth less than $2,500. Among those in the higher-damage group who disputed estimates, insurers paid a median of $7,000 (or 20 percent) less than the claimed loss, leaving the policyholders less satisfied.

Insurers have transferred the risk of damage from severe weather events to policyholders through higher deductibles on claims stemming from hurricanes, wind, and hail. Instead of the typical $250 to $1,000 deductible under standard coverage, you may have to pay 1 to 5 percent of your home's insured value (up to 10 percent in Florida). So if your home is insured for $200,000 and your policy has a 3 percent deductible for hurricanes, you'll have to pay $6,000 out-of-pocket on a storm-related claim. Many insurers have abandoned hurricane-prone areas.

Insurers are also using contract language to avoid paying claims. For example, got hail coverage? Great. But if your roof is more than 10 or 15 years old, hail damage might be excluded. And even if you have a standard homeowner's policy that covers an overflowing bathtub or burst or frozen water pipe plus flood insurance, you're still out of luck if your sump pump can't handle a monster downpour or if the sewer backs up--unless you pay $40 to $50 a year more for a specific endorsement covering that.

At the same time premiums have increased by 5 to 10 percent annually in recent years, depending on the region, and hikes of up to 12 percent are coming this year, industry sources say.

You might not even be aware of the erosion in coverage until you file a claim. The average homeowner files a claim only once every 6 years, and many policyholders don't read the disclosures, renewal contracts, and updates that insurers send them.

Get the right coverage

Outdated assumptions about your coverage can cost you a bundle. Here are five guidelines for getting the right coverage to protect your home and budget:

Choose the best insurer

The test of an insurer's responsiveness to its customers is how well it handles claims. But some major insurers provided significantly better satisfaction than others, and that can translate into savings because the primary reason for satisfaction was the company's damage estimates. Lower-rated insurers tended to have a greater percentage of customers who disagreed with their damage estimates and felt their final settlement was too small.

Our homeowners insurance findings reflect our readers' experiences, not necessarily those of the general population. The reader score reflects overall satisfaction with homeowners insurance and isn't limited to the factors listed under survey results. Ratings for companies within a group might vary. Damage amount is based on the percentage of readers who were satisfied with the company's estimate of dollar damages. Agent availability is based on the percentage of readers who were satisfied with the agent's availability to discuss their claim. Timely payment is based on the percentage of readers who were satisfied with the timeliness of payments from their companies. See our Ratings for details on the top-rated homeowners insurance companies.

Fight for your claim

In most cases our survey respondents had no argument with their claims. But in 9 percent of cases, customers and insurers failed to see eye to eye on damage amounts. Disputes are also more common after major hurricanes.

In such cases it can pay for you to try to negotiate with your insurer. Our survey found that among readers who were unhappy with a claim, those who challenged it got a payout that was about $6,000 more, on average, than those who didn't.

If the adjuster says your policy doesn't cover certain damage, ask to see the specific contract language.

If the dispute is over the damage amount, request a sit-down with the contractor and adjuster to go over the estimate line by line, which is standard practice at Amica.

Still disagree? Get a second opinion from an independent contractor. Patience, persistence, and legwork getting multiple estimates are important.

If you reach an impasse, consider a public adjuster, who will negotiate for you for a fee, usually 10 percent of the payout. A Florida study of 76,000 claims suggests that it's money well spent: Policyholders who used a public adjuster settled with their insurance company for 19 to 747 percent more on hurricane-related losses than those who didn't. But such cases take longer to close.

To find a public adjuster, go to napia.com, the website of the National Association of Public Insurance Adjusters, and click on "Find an adjuster." Look for good references, several years' experience, and a state license, if required.

If you've been misled by an insurance salesperson about policy wording, contact a lawyer who specializes in insurance law. The Consumer Federation of America notes that courts have consistently ruled in favor of policyholders on such ambiguities. Arbitration is another option.

Look for a better deal

Home insurance is not as hotly price-competitive as auto insurance, but you can still save from hundreds to more than $1,000 a year in premiums by shopping around. About 9 percent of our survey respondents had switched insurers in the previous three years, mostly because they got a better price from their new carrier. And those who switched for a better price were just as satisfied with their later claim payments as those who stayed put.

Residents of California, Florida, New Jersey, New York, Texas, and other states whose insurance departments publish rate comparisons for standardized coverage can zero in on the lowest-priced insurers and then contact them for custom quotes. If your state doesn't offer such guidance, contact an independent agent who sells insurance from multiple carriers. To find one, go to iiaba.net, the website of the Independent Insurance Agents & Brokers of America. You can also use online shopping sites such as Insure.com, Insweb.com, and NetQuote.com.

While shopping for a cheaper insurer, consider buying your homeowners and auto coverage from the same company for as much as a 30 percent savings. And be aware that most insurers use credit-based insurance scores to set premiums and eligibility for coverage. So you'll probably pay a lower premium if you pay your debts on time and avoid maxing out your credit lines, among other behavior.

Don't underinsure

You can also save by avoiding out-of-pocket costs arising from coverage that's inadequate to begin with. Almost one in 10 of our subscribers who filed claims found themselves underinsured. That problem is much bigger when a hurricane, tornado, wildfire, or earthquake makes a home a total loss.

Don't make the mistake of assuming that because home prices have collapsed in recent years, you can cut your coverage. Fact is, replacement value, or the cost of labor and materials required to rebuild, is what you need to consider. That's often significantly higher than the market price your home can fetch, and it rises annually, 5 percent last year alone. Consequently, 61 percent of homes in the U.S.--80 million-- are underinsured, according to Marshall & Swift/Boeckh, a Los Angeles company that tracks rebuilding costs for insurers. The average shortfall: 18 percent.

Ask your insurer for a customized estimate of your home's replacement cost, which should take into account its unique features, construction details, age, and any costs of meeting new local building-code requirements. Or run a check on your own, for about $8, at accucoverage.com. You should review your coverage needs every few years.

Even if your coverage level is correct, a standard homeowner's policy still leaves you insufficiently protected. If you want to protect against the surge in material and labor prices that often follows a natural disaster, you'll have to buy an "extended coverage" rider, which adds up to another 30 percent to your replacement-value limit. Most insurers no longer offer the "guaranteed unlimited replacement cost" coverage that we have recommended in the past.

You'll also pay extra for an ordinance or law endorsement rider to pay any extra cost of rebuilding your house in compliance with local building codes. Coverage for a sewer backup is also not included in a standard policy, but you can pay extra for it. You'll need hurricane/wind, hail, flood, and earthquake insurance if you're exposed to those risks.

Coverage for your furniture, electronics, clothing, and other belongings is standard, but if you have expensive furs, jewelry, silverware, or artwork, they're subject to coverage limits. You'll need to purchase a special endorsement or floater to cover their full value.

Liability protection for visitors injured in your home or for damage that you, your children, or your pets cause to others is also standard. Coverage usually starts low, at $100,000; increase it to at least $300,000. The more assets you own, the more advisable it is for you to buy an umbrella or excess-liability policy with coverage of $1 million or more.

Of course, all those add-ons increase your total premium, but you can offset part of the cost by raising your deductible to $500 or $1,000, which reduces the premium. You should have sufficient savings to cover the deductible if your luck runs out--and that includes the higher deductibles for hail, wind, and hurricanes.

Reduce your risks

Losses beget out-of-pocket expenses and often, higher premiums. So nip them in the bud by reducing your risks.

Start by doing what insurers explicitly give discounts for. Smoke detectors, burglar alarms, and dead-bolt locks can be worth a 5 percent premium discount. A sophisticated sprinkler system with alarms that alert first responders could get you 15 to 20 percent off.
Impact- and fire-resistant roofing materials made of asphalt, rubber, cement, and metal can get you further discounts because they stand up better against hail, debris, and embers--the primary cause of damage from wildfires. Noncombustible siding provides increased protection.
In hurricane-prone areas, storm shutters for doors and windows, hurricane-resistant siding, and a code-standard roof that can withstand winds up to 130 mph will help your home withstand a storm. Fortified homes can sustain a Category 4 hurricane.
Fire, lightning, and debris removal lead to the highest claims of all insured perils--$ 27,700 per claim on average. Cooking equipment is the leading cause of home fires, so never leave a stove unattended and keep a fire extinguisher in the kitchen.
In earthquake-prone areas, make sure your home's building frame is properly bolted to its foundation. For more information on reducing risks from earthquakes, freezing weather, lightning, wildfires, and more, go to the website of the Insurance Institute for Business & Home Safety, at disastersafety.org.
Insurers recommend a simple fix to help prevent a minor disaster that causes an average of $5,300 in water damage if it happens when no one is home: Replace the standard rubber hoses that come with your washing machine with steel-braided reinforced hoses. The cost is about $20.