Homeowners Insurance Buying Guide

Blame the weather in large part for your insurance claims. When more than 81,000 Consumer Reports members responded to our recent homeowners insurance survey, nearly 7,000 mentioned that they’d made a claim in the previous three years. And 80 percent of those claims were caused by weather.

Specifically, hail accounted for a third of all claims, more than any other peril.

In some states, homeowners are feeling weather’s impact on their premiums. In those states, substantial catastrophes over a period of years have prompted insurers to ask for rate hikes from regulators. The increases can affect even homeowners who haven’t made claims.

Analysis of data from the National Association of Insurance Commissioners shows that Oklahomans and Coloradans, for instance, saw the cost of their coverage rise 79 and 75 percent, respectively, between 2007 [PDF] and 2016 [PDF], the last year for which the NAIC has data. 

And the prognosis in many parts of the country could be bleak because insurance premiums are reportedly beginning to reflect losses from wildfires in California in 2018, as well as this year’s tornadoes throughout the Midwest, and hail storms in western and south-central parts of the country. 

In such an environment, you may be wondering how to cover your home properly, lower your premiums, and deal with your current insurer—or shop for a new one. These tips may help.

Find a Good Insurer

The best test of an insurer is how well it handles claims. In our summer 2018 homeowners insurance survey—answered by more than 81,000 Consumer Reports members—nearly 7,000 respondents told us how satisfied they were with their experience when they had a claim. Companies’ damage estimates were among the best predictors of customer satisfaction. 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.

See our homeowners insurance ratings for details on the top-rated homeowners insurance companies.

In our survey, more than 10,000 Consumer Reports members said they’d changed carriers in the previous three years. More than half of those who switched said they did so because they got a better price.

Some state insurance departments publish rate comparisons. Floridians, for instance, can go to the Florida Office of Insurance Regulation website; Californians, to the California Department of Insurance website. You can also get quotes from an independent agent who sells policies from several insurance companies. (Find one through the Independent Insurance Agents & Brokers of America.) Comparison-shopping sites such as Insure.comNetQuote, and SelectQuote are also good places to look for coverage.

Note, though, that our top-rated companies—USAA (for military members, veterans, and their eligible relatives) and Amica—use their own agents, and their homeowners insurance isn’t included in shopping sites. You’ll have to apply directly with each of them to get quotes.

Get the Right Coverage

There are no state-mandated requirements for homeowners coverage (as there are for auto insurance in most states), and a mortgage lender may only require you to insure for 80 percent of the replacement value of your home. But being underinsured could leave you on the hook for a significant sum, especially if you need to completely rebuild. 

Buying too much coverage isn’t worthwhile, either. It’s a mistake, for instance, to assume you need coverage equal to your home’s market value. That value includes the land your home rests on, which will remain even after a catastrophe. That’s why in most cases your home’s market value will be higher than the cost to totally rebuild it.

Rule of thumb: Buy enough insurance to cover the labor and materials to completely rebuild your home, called the replacement value or replacement cost. Your insurance agent can help you figure out that amount. Mention unique features, to ensure that they’re accounted for, and make sure inflation is factored in.

Cover Your Assets

Options, add-ons, and separate coverages will increase the cost of a standard policy. But they could save you a lot of money in the long run.

Keep in mind as you price shop that some carriers may include these extras in their basic coverage while others may will charge you an added premium. The National Association of Insurance Commissioners offers a homeowners insurance shopping worksheet as part of its free shopping guide to help you approximate apples-to-apples comparisons. 

Here are add-ons to consider:

• Sewer backup. This coverage would protect you if, say, a municipal line failure caused sewage to back up into your home, says Loretta Worters, a spokeswoman for the Insurance Information Institute. (Sewage backup could also be caused by tree roots growing into the sewer line.) The cost is $40 to $100 per year.

• Earthquake, hail, and windstorm. In our 2018 homeowners insurance survey, 6,940 CR members said they’d filed a claim in the previous three years. According to those claimants, hail was the leading cause of damage. Depending on your state, you may have to pay a separate deductible for hail damage or buy stand-alone coverage. The same is true for earthquakes and high-speed windstorms.

• Extended replacement cost. This will pay 10 to 50 percent above the limit of coverage if building costs soar after a major disaster. Guaranteed replacement cost coverage is a pricier option, but one that may pay to replace your home regardless of the cost. Benefits can vary depending on the state and insurance carrier, so be sure to check the details before purchasing.

• Contents replacement cost. A standard policy may reimburse only the depreciated, or “actual cash value,” of stolen or damaged home contents. To avoid having to pay the difference when replacing possessions, opt for replacement cost coverage. Document the contents of your home by making a video inventory of your possessions, and store it somewhere safe, such as in the cloud or on a thumb drive kept in a safe deposit box.

• Additional valuables. Homeowners policies typically put dollar limits on what an insurer will pay to replace valuables such as furs, firearms, jewelry, and home-based business property. For instance, you’d get at most $2,500 to replace stolen jewelry. (These lower limits often apply only to theft.) So buy a “floater” to supplement coverage on costly items. Raising the limit on jewelry coverage to $5,000 from $2,500, for instance, costs about $17 annually with State Farm.

• Ordinance, or law and endorsement. These can provide the extra coverage required to pay for the cost of rebuilding in compliance with updated local building codes, as can be the case when repairing or replacing an older home.

• Inflation protection. Make sure your policy includes an “inflation guard” feature or rider that automatically raises your coverage to reflect annual increases in homebuilding costs.
 

Boost Your Liability Protection

The liability insurance limit included in homeowners policies (to cover costs and damages resulting from lawsuits) usually starts at $100,000. But depending on where you live, you could be sued for nearly all your assets— including investments, real estate, and personal property. So increase your liability limit if the value of your assets exceeds $100,000.

Your safest bet is to buy coverage worth at least as much as your assets. Umbrella or excess liability coverage can provide this added protection. It increases your liability protection beyond the limits of your home and auto policies in case you’re sued for accidental injury or property damage. It can also cover additional perils, including lawsuits against you for libel or slander. To get it, you may have to raise the liability coverage limits on your auto and home policies first.

A $1 million umbrella liability policy generally costs a few hundred dollars per year. Buying more umbrella coverage can be cost-effective. State Farm, for instance, says that on average, raising $1 million in coverage to $2 million costs 75 percent of the additional premium.

Consider Flood Insurance, Even in a Low-Risk Area

Homeowners policies will cover flooding only if it’s caused by a pipe or other system that breaks in your home. Protection against flooding and mud flows originating from the outside must be covered by flood insurance. National Flood Insurance, provided by the federal government, insures dwellings for up to $250,000 and contents for up to $100,000; it’s sold mainly through private agents. (You can buy additional coverage through a private flood insurance carrier.)

While the average national flood insurance premium is about $700 annually, the premium for a low- to moderate-risk property could cost an affordable $325 per year. Given the price of coverage—and the fact that about a quarter of flood claims come from low to moderate-risk areas—it’s a worthwhile expense for many people.

Go to the Federal Emergency Management Agency’s National Flood Insurance Program website for an estimate of what it will cost to cover your home.

Find Ways to Lower Your Premium

Try one or more of these proven ways to bring down the cost of your premiums.

• “Bundle” coverage. Purchasing your homeowners and auto coverage from the same company can provide savings of up to 30 percent overall.

• Raise your deductible. Higher deductibles equal lower premiums. Going to a $1,000 deductible from $500, for instance, can shave up to 25 percent off your premium, the Insurance Information Institute says.

• Make home improvements. Replacing old plumbing and adding a security system and water- or gas-leak detection sensors can each provide insurance savings of 2 to 6 percent or more. Replacing a roof with an impact-resistant one can save up to 35 percent in some states. Cutting back dry brush around dwellings and outbuildings in a fire-prone area can earn you a 5 percent break on your premium.

 

Be Savvy About Submitting Claims

Making multiple claims in a short period will probably trigger a rate increase or even cause your insurer not to renew your policy.

“Making three claims in two years, for instance, shows you have a proclivity for claims,” Worters says.

Half of surveyed CR members who filed a claim in the previous three years said they saw no subsequent premium increase. Only 12 percent had hikes of $200 or more annually. That suggests that there’s not much of a downside to filing a single claim. If you file infrequently, an insurer isn’t going to raise your rate or decline to renew your policy as a result, Worters says.

Still, avoid making claims of just a few hundred dollars above the deductible. Doing so might erase discounts you’re getting for remaining claim-free. If you’re dealing with an independent agent, discuss the pros and cons with him or her before you report. 

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