Today we have Raichel Binns on the show, she is an awesome insurance broker. I love her, she saves me money, puts me in the right position, makes sure I’m set up financially and I brought her here today because she’s going to talk about what’s important when it comes to home owner’s insurance.
In my younger years, the answer was always, “What’s the cheapest?” End of story. Whoever was the cheapest got my support…but that’s NOT the way to go. Raichel is going to tell us a little bit more on what’s really important with home owners insurance.
Raichel: The first thing I want to cover is dwelling coverage. That number can be baffling to people because they’ve got the market value of the home, what they got their mortgage for, etc. What we’re really looking at is what is the actual cost of this home for us to rebuild it? If we had a complete and total loss, we want to make sure that your home is whole and is exactly what you paid for.
I see it all the time, I ask, “How did you come up with this number for your dwelling coverage?” And the person replies, “It was what my mortgage was…” or “It’s what my agent said to do.” When you get that number, that’s what we’ve determined, brick by brick, what it would take to build the home again, and do it properly, that’s where that number comes from.
Lisa: And one of the things that we were talking about earlier was, actual cost value versus replacement cost value, can you explain the difference and what people should get?
Raichel: Absolutely. Replacement cost value is what you should shoot for. It’s saying, no matter the cost of the materials at the time, we are going to use similar building materials. When actual cash value comes into play usually with an older home. What they’ll determine is wear and tear, age of the home, to protect their investment, the cost they would have to tear it down and rebuild, and the cost of materials of what was there before…they can’t really bridge that gap, otherwise your insurance would be astronomical and unaffordable. So sometimes that option is going to come up, again a good reason to have an agent break that down for you, especially if you are getting an older home.
Lisa: So tell me about personal property and what needs to be covered there.
Raichel: Personal property is usually 75% the value of your home, and that will insure all the personal property you hold in your home. It’s important for to think about in the case of inclement weather or theft. If you go with a high deductible and your golf clubs get stolen, it might not be worth it to make a claim on it. If it’s just a little bit over your $1,000 deductible it might be better to self insure instead of make a claim.
Lisa: I am glad you mention that because too often when people have something go wrong with their property, they’ll call their insurance right away and that can tip them off…
Raichel: Well and zero dollar claims do effect you in the long term as far as your claims history with any company. That is also good to have an agent be an advocate, I always encourage folks to go with the company that they’re comfortable with to get an assessment to understand a cost before they call in a claim. Knowing what their deductible is, it’s sometimes not worth it. I had a client lose a retaining wall on the back of their home, $700 but their deductible was $1,000 but they already called in and it’s just going to sit there on their claims history which will effect them long term.
Lisa: So tell us about deductibles and your thoughts on those.
Raichel: Deductibles are a tricky situation you don’t want them to be too low because then you’re basically just inflating your insurance costs for no reason. Hopefully it’s something you feel comfortable with, if it came out of nowhere…could you come up with $1,000? Or $1,500? Or is that a struggle for you? If you lower it too much, you will be spending more.
Lisa: You’ve also mentioned, sometimes the higher end properties are moving towards percentage deductibles as opposed to a flat rate.
Raichel: That’s something to really watch out for because, as you notice if you’ve gotten renewals on a home before, the value on a dwelling cost changed. We reassess the value of your property— it’s no longer $200,000 it’s $225,000 and there will be a progression the longer you own the home. If you have those higher dollar homes, that’s a lot of money that can catch up to you with 1% of the value. That is something that sneaks in at renewal, so always review your documents and if there is anything you don’t understand, call your agent.
Lisa: That’s a great point! Read your renewal as opposed to tossing it!
Raichel: You want your money to be well spent and you want to protect your assets also.
Check out my video blog here: https://www.youtube.com/watch?v=VfJ0RFcGFxI