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Protect your home

These days, homeowners insurance covers less and costs more

Consumer Reports magazine: September 2012

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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 past 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.

In the past decade, “insurers have sharply hollowed out the catastrophe coverage offered to consumers,” says Robert Hunter, director of insurance for the Consumer Federation of America.

They’ve done that by transferring 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 homeowners 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.

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.

Outdated assumptions about your coverage can cost you a bundle. Subscribe to ConsumerReports.org for our guidelines to getting the right coverage and to see our homeowners insurance Ratings.

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