6 Replacement Cost Factors Your Home Insurance Customers Need To Know
In the past we have discussed the ins and outs of buying homeowners insurance, particularly as it relates to the question of how much insurance a customer should purchase. As a rule, homeowners insurance should be bought based on the replacement cost of the home, and not the actual value. But replacement cost can vary on a number of points, and when it comes to determining what that final number should be, make sure that your customers are paying particularly close attention to the following factors.
Average Home Values In The Area
While it’s certainly possible for home values to decrease — in fact, that’s been a frequent occurrence since the housing crisis of 2008 — they usually increase by a small percentage each year. Either way, one should never consider lowering the amount of coverage even if it saves them a couple of dollars a month in premiums. Why? Because of factor two.
Cost Of Building Materials
Yes, even if home values have fallen, that doesn’t mean one should make any downward adjustments because building materials may be trending in the opposite direction, and at a greater pace. In other words, even if the home isn’t worth what it used to be worth, it could still cost more money than it appraises for to replace it. And if the customer has lowered their insurance coverage, then they will end up staring at a gap in coverage when it comes time to rebuild.
Homeowners insurance customers may have also made recent upgrades to their homes, using specific high-end materials for the construction. If they plan to update other parts of the home using these same materials or, in the event of a loss, they would like to rebuild the entire home with the more expensive grade, then it would behoove them to meet with you the agent. What your customers may not realize is that you can help them arrive at a more authentic final estimate than they would be likely to think of on their own.
Two big coverage gaps that homeowners often don’t think about are flooding — important if they live in a flood plain — and sewage backup. Damages that occur from either of these claims can be expensive and difficult to pay out-of-pocket. For flooding, the National Flood Insurance Program is something that you can point customers toward. They may also wish for you to add a rider for sewage backup and other similar types of claims that fall just outside the homeowners insurance umbrella.
Possessions On The Property
A basic homeowners insurance policy will generally cap limits on personal possessions at 75 percent of the home’s coverage. So if they plan on purchasing $250,000 in coverage, then coverage of personal possessions will top out at $187,500. Even so, it’s worth revisiting this aspect of the policy at regular intervals to update home inventory and make sure that big-ticket additions aren’t forgotten about.
Accidents are never expected, especially when they involve a visitor on one’s property. Say a customer’s friend or co-worker gets injured while visiting, and they decide to file a claim. If the customer has skimped on liability coverage, they could end up paying out-of-pocket. With medical costs on the rise, this can eat up coverage in a hurry. So how much is enough? Currently, industry experts say a good number to suggest is anywhere from $300,000 to $500,000. Because the same exposures can also exist when giving someone a ride home from work, your customers may wish to add an umbrella policy. These can provide liability protections of around $1 million for just $75 per year, and your company may be able to get it down to as low as $50.
Insurance customers can get forgetful when it comes to revisiting their coverage as often as they should. As an agent, it’s wise to get them in your office every year or two to discuss house changes, market fluctuations, and any other relevant factors. Not only can it be good for your business, but it can give insurance leads & customers the peace of mind and protections that they need as homeowners.