Home Insurance Missteps Of The DIY Homeowner
Freedom is usually a good thing, but sometimes it can lead us to make uninformed decisions. Take home insurance, for instance. Your insurance customers may one day decide to test the waters on their own, thinking they can get a better deal if they buy directly and forgo consultation with a trained professional agent like you.
Unfortunately, many of these customers are one low premium away from certain disaster because they haven’t adequately prepared with their policy. They’ve just gone after the cheapest, quickest fix. Recently, Zillow’s Arthur Murray highlighted some of the biggest home insurance mistakes that people make when trying to forgo the agent process. Here were some of the standouts.
In an effort to save a buck, notes Murray, some home insurance customers could end up skimping on the amount they’ve set forth to compensate for structural damages — something he calls a “terrible idea” because “the amount of dwelling coverage you purchase also affects the amount of coverage you have for your possessions, for other structures on the property, and for additional living expenses should your home be declared uninhabitable because of a covered peril.”
Those protections go down along with the overall amount, in other words. And DIY-ers often make the mistake of insuring the home for what it’s worth instead of what it will cost to rebuild. Say the home insurance they select is for $200,000 at the time of their home purchase, but when a catastrophe happens, the home is worth $250,000. That’s $50,000 less home they’ll be able to afford in the event of a total loss.
The deductible is another area where home insurance customers can skimp, shooting for the lowest premium instead of the arrangement that is right to their living situation. As Murray says, some experts will “advise you to set your deductible high because it will reduce your annual premium,” but “what happens if your deductible is so high you can’t pay it?”
“You don’t get coverage, that’s what,” he adds.
Ultimately, a home insurance customer, who doesn’t know how or doesn’t have the discipline to save, is flirting with disaster when he goes with the high deductible because the money he should be putting back is being spent somewhere else.
Murray, noting that coverage limits are usually set for personal possessions at “between 50 percent and 70 percent” of the dwelling coverage limits, points out that many home insurance DIY-ers do not pay enough attention to their product to account for endorsements.
“For example,” he notes, “if you have $200,000 worth of dwelling coverage, you have between $100,000 and $140,000 worth of protection for your belongings. … [But] Certain high-value items such as jewelry, furs and collectibles can have limits on payouts. That means your most valuable possessions might not be replaced if they’re stolen or destroyed by a covered peril.”
As a licensed agent, this is one major value that you possess — the ability to see and schedule endorsements — to the DIY-er.
If the homeowner finds himself as the defendant in a lawsuit due to the injury of another person on his property as well as the subsequent medical care fallout, then he may be putting his personal assets at risk. That’s because most DIY home insurance buyers don’t account for the standard coverage limits on the policies they are purchasing. Murray explains:
“Personal liability protection can assist if the injured person sues. It can help pay your legal defense as well as any award — but only up to your coverage limits. That limit typically is set at $100,000. So who is responsible if your case exceeds $100,000? You are.” Same with medical payments, too, and we all know how expensive that can be. Most families simply do not have enough in savings to cover the excess.
If the house payoff is in sight, many homeowners get excited about the possibilities of dropping coverage since they will no longer be required by a mortgage lender to have it. But one glance at the average claim amounts from the Insurance Information Institute (I.I.I.) paints a grim picture of what might happen in each of the following cases:
- Fire: $34,306
- Liability: $18,804
- Wind/hail: $7,307
- Theft: $3,428
“Without adequate home insurance,” Murray notes, the homeowner would “bear the full cost of these claims.”
It’s important that homeowners realize the value a good agent can bring to their home insurance protections. There is a lot of fine print on a policy and most homeowners insurance leads & customers never bother to learn this print in-depth. As an agent, you have the value that comes with being able to close gaps in coverage, apply the proper endorsements, and make sure the homeowner is protected in both the ways he’s already thought of, and the ways he hasn’t.