The True Price of Your Homeowners Insurance Coverage

luxury-homeI can hardly believe it, but this year marks my 20th year in the insurance industry. When I entered the insurance industry from the education field, I was always surprised at customer reaction. Every time I introduced myself as an insurance professional, I immediately felt the client’s mistrust and skepticism. That level of mistrust is a sad comment on the insurance industry, but I have made it my mission for over twenty years to change and improve that perception.

I’ve invested hundreds of hours in education and training to become a certified expert in the insurance industry. I am a Certified Personal Risk Manager, a Certified Insurance Counselor, and a Life Underwriting Training Council Fellow. I’ve invested that time, so I can properly serve my clients. I devote many, many hours to education and consultation with my clients helping them to navigate the complexities of insurance coverages to adequately protect their cars, their homes, and their other assets. I want to them to be confident that whatever is most important to them is sufficiently protected.

Premium Cost

I can understand how many agents have become fatigued with the insurance process. Rather than devoting the time it takes to explain coverages, they simply grant the client’s request for the cheapest price on insurance. Price, however, isn’t just the cost of the premium. Price is also the cost to the client in UNCOVERED losses at claim time. I have seen this unpaid total reach thousands of dollars when a loss is not covered at claim time.

When the client does not understand exactly what coverages are included in their auto or homeowners insurance policy and exactly what coverages are not included, this becomes an all too familiar scenario. In most instances, the cheaper low price insurance is NOT worth the risk. Minimum coverage is just that-minimum. Yes, minimum insurance limits cover bodily injury, liability, and property damage but at the lowest level required by law. Losses can add up quickly. Minimum coverage leaves the insured at risk for damages or medical costs that exceed this minimum.

As an agent I am comfortable only if the insured clearly understands the price differential in insurance COVERAGE before a claim occurs. Claim time is not the time for a surprise. I too often see situations in which the insured is not given all of the pertinent coverage information upfront because both the agent and the client focus only on the premium cost.

At claim time I have never had a client ask me what premium amount they paid. It never comes up. I get two questions regarding the claim. The first question is, “Am I covered?” and the second is, “How much coverage do I have?” As an agent, when I hear these questions regarding an auto or homeowners insurance policy, I want to provide a positive response. Claim time is stressful for the insured. They have suffered a loss and perhaps a catastrophic loss. I want to be there to help, not to deliver the news that their lowest price insurance coverage is inadequate to replace their lost assets or cover damages.

A Tough Lesson

One young first-time home buyer to whom I recently offered homeowners insurance coverage did not choose our policy because it cost $70 more per year even though the policy offered much broader homeowners coverage. Two months after the home closing, a hail storm caused $6000 of damages to the roof of the home. The homeowner received a check from the “cheaper” insurance company for a mere $300. Do you think the $70 (that’s $5.83 per month) in annual premium savings was worth the $5700 of uncovered losses to this homeowner? With our policy the client would have received a check for $5000 instead of $300.

Unfortunately, far too often, claim time is when insureds realize the type and limits of the auto or homeowners insurance they purchased. Needless to say, this young homeowner called us after the fact. Our new client will be much happier at the next claim, but what an incredibly tough lesson for this young homeowner to learn.

The insurance industry itself bears much of the blame for creating this “cheapest price” mentality. With millions of dollars spent on advertising by the “one call and save 15%” companies, this mind set becomes pervasive. It is easy to call 1-800-CHEAPER or type “lowest cost” into an online insurance rater. Price is front and center in the mind of the client when they think about insurance coverage. Without proper education regarding the differences in insurance coverages and risk mitigation, premium price becomes the primary driver. Looking at the total cost of loss that could occur at claim time, gives a much more accurate price especially for homeowners insurance coverage.

The Small Print

The truth about these cheap homeowners insurance policies often resides somewhere in the small print or the disclaimer in a tiny font that flashes on the screen for only a couple of seconds. In many instances an extra $20 a month in premium provides much broader coverages for the client and brings peace of mind at claim time. Auto and homeowners insurance policies are complex, legal contracts that specifically describe the insurance coverage provided at the time of a loss. Having a professional agent to explain the significant differences in auto and homeowners insurance coverages, allows the client to make an informed and educated decision. I believe that making sure the client understands those coverages is my responsibility. It is one of the reasons why I invest significant time in staying current in personal risk management and insurance counseling. It is plain and simply the right thing to do. It is how I hope I am helping to change the perception of the insurance industry.

The Dilemma

The true dilemma for agents is threefold. How do we make the process of getting auto and homeowners insurance coverage easy? How do we give the client what they want (lower premium costs?) And how do we safeguard the client with adequate auto or homeowners coverage to protect them at claim time.

As I said earlier, I have an educational background, and many times I see clients risk far too much because of a lack of knowledge about their homeowners insurance policies. They haven’t read over their policy or their agent hasn’t properly explained the differences in coverages. Clients simply do not know their insurance coverage levels. They think a claim will not happen to them, and they view all coverage as equal. I believe education about coverage, about risks, and about the total value of the client’s financial assets is the answer. When the client fully understands how insurance limits affect them, then they can make an informed decision about coverages.

The difference in an agent’s pay for a broader homeowners insurance policy and a cheaper more restrictive homeowners insurance policy is negligible. Many agents think it is just not worth devoting time to the battle for an insignificant return in commission. Those agents’ mentality is simply to give the client what they want to protect their biggest asset-the lowest price. On the other hand, I know there are many professional agents across the country like me who care about their clients and feel a responsibility to properly protect them. You have worked hard to build your assets. Your home may well be the largest and longest-term investment you have made. Make sure you find an agent who cares enough to ask you many questions on the front end and then thoroughly explain the numerous differences in your auto and home insurance coverage coverage options. You will be much happier at claim time.