@csshsm - we shopped around for new insurance this year. I always thought our replacement cost and valuation was too high, but this year, they upped our premium by $4000! We’ve never had a claim, and have been with them for 5 years. Since we’ve had them for more than 3 years, they are not allowed to drop us (state law) but they managed to do it anyway by raising rates drastically.
Our old agent was upset and said our house is now under insured, but I’d rather save that money than gamble that our entire house would be reduced to matchsticks and this insurance company would magically hand over the inflated value they came up with. So far, no inspection with the new company.
Be careful with the new company if your old agent is right and you are underinsured. Many policies have a co-insurance penalty where if at the time of loss you are not insured to 80% of the value of the replacement value of the home you only get the percentage you are insured to paid in the claim. This is a big catch when companies let you decide the value of your home, they are protecting themselves.
Yes if you have a total loss you will get the amount on the policy and if you are happy with that amount it is great. The problem is in a partial loss. Let’s say you have a moderate kitchen fire and the damages are $60,000. The company determines that at the time of loss the amount of insurance you were carrying on the house was only 70% of what it should have been. You then would only receive $42,000 for the loss and you would be responsible for the other $18,000. This is a small loss, imagine if your house was $750,000 in value and the loss was 40% of the home ($300,000). Now you are suddenly out almost $100,000 and that $4,000 a year difference doesn’t look so bad.
The thing with insurance is you pay on one side or the other. A carrier with no co-insurance clause and guaranteed replacement cost (that would pay the full $60,000 loss) will be more expensive up front but you will not have a surprise on the back end. It all comes down to when you want to pay, annually when you are budgeted for it or when there is a loss and it is a surprise.
Many policies won’t hand you over the money. You are required to rebuild/replace and they give you (or the contractor) the money in increments to insure the work is done.
One of the biggest trick the insurance companies use to reduce their payout is L&O rider. L&O = Law and Ordinance, ask your insurance agent about it, do not brush it off. Some agents want to sell the insurance and try to tell you that is only for sprinkler system. In fact, it is a major expense if and when you are rebuilding. The “basic” insurance coverage is for the home in the “current state” AND the age of the home. So, if the home is built 1940’s, from 1940 to date, whatever the building code changes are included in “L&O” rider, not in the “Basic Coverage”. I have heard some one had to rebuild a 1930’s home that require 100K+ of L&O upgrades that is not covered in the “Basic Coverage”. A “normal” homeowner’s policy only has 10% of the L&O coverage and if you do not request it, it will be burried in the fine prints. Some insurance company will not increase the coverage to certain %, Mercury, for example, only covers up to 30% even you pay extra. Now, if your house is a recent build(within the last 20 years), it might be good enough with a 10% or 30% L&O coverage, but if it is older, you might want to think twice.
I had to pay almost 50% extra premium for my 90% L&O rider on my older investment/rental properties, which included 90% L&O and wrongful eviction liability. For example, my 1960’s house still has only 2 prong ungrounded sockets and galvanized pipe, if it burned down, the electrical and water system will not be covered by the “basic insurance” and L&O will be kicked in.