Last week, my homeowners insurance company (which most of you know for their annually billed automobile towing service!) called to inform me that my annual premium would be doubling. I was shocked and frustrated. How could that possibly be? I had been a loyal customer for over 45 years, ever since I bought my first auto insurance policy back when I was just 15 years old…and I had never made any claims on my homeowners policy. To add insult to injury, the company proceeded to inform me that they outright cancelled the coverage on my other property entirely. Wow!
I soon discovered that I am not alone.
I have spoken with several clients and friends that experienced similar treatment and were facing the same hurdles in finding alternate solutions. While it took time, patience, and some investigative work, I ultimately found a reputable insurer that could cover both of my properties at a very reasonable price.
Here’s what I learned:
- Be proactive and talk to your insurer. If you are faced with a similar situation, find out why the premiums are increasing (or why your policy is not being renewed). Knowledge is power. If you have a personal relationship with your insurance agent or broker, request that they review your policy to see if they can help you negotiate better terms. If they can’t negotiate better terms, ask for guidance and recommendations in finding a new policy. These professionals know the insurance industry, and you are not the first person to pose these questions.
- Shop around and know your options. Yes, it’s a hassle but worth it. Take the time to compare prices and coverage when seeking a policy that will suit your needs. Ask trusted sources— your financial advisor, your attorney, your accountant, etc.—for recommendations. Obviously, an independent insurance agent or broker that has relationships with multiple insurers is always a good option.
- Consider increasing your deductible. A higher deductible (the amount you pay before the insurance pays out money towards a claim) can help lower the cost of your premium. Compare the difference between a $1,000 deductible vs. a $5,000 deductible. The premium savings can be gigantic! Note: If you increase your deductible, be sure not to raise it higher that you can afford to easily pay out of pocket.
- Understand the limits of your coverage. Replacement Cost homeowners insurance covers the amount of money it costs to rebuild your home as it was before if it’s destroyed, or to purchase brand new items if your old ones are damaged or stolen. Actual Cash Value homeowners insurance may be less expensive, but it also takes depreciation into account and won’t usually pay enough to fully repair or rebuild your damaged property. According to United Policyholders, surveys show that 2/3 of U.S. homes are underinsured.2 Read your policy very, very carefully—some are very misleading.
- Don’t scrimp on coverage. Surprisingly, I had to request that my new insurer increase my coverage above their initial recommendation, as it just did not feel like it was enough. Keep in mind that if you have high value property, reconstruction costs could be as great as $500 per foot (or more!).
- Consider umbrella insurance. Umbrella insurance is additional financial protection. It is a type of personal liability insurance that covers claims in excess of regular homeowners, auto, boat, or aircraft policy coverage. Keep in mind that umbrella insurance coverage covers injury to others or damage to their possessions; it doesn’t protect a policyholder’s property.
Note: If you have exhausted all of your options, look into the FAIR Plan as a last resort. The Fair Access to Insurance Requirements (FAIR) Plan is a state-mandated program that provides fair access to insurance for individuals who are having trouble insuring their property due to the fact that insurers consider them high risk. FAIR Plan insurance is expensive and is limited to basic insurance for a disaster (fire, windstorm, etc.).
1https://www.wsj.com/articles/high-cost-of-wildfire-insurance-hurts-california-home-sales-11578220200
2https://www.uphelp.org/pubs/dropped-your-insurer-where-go-help-california-0
