What is bad homeowner’s insurance? Are there other types of homeowner’s insurance? What are my real options? These are questions that many prospective homeowner’s insurance buyers will ask. And every one of these questions has a very valid reason to be asked. Everyone wants to know what they are getting for the money they are paying. It is as simple as that.
My name is Nevin Shennett and I have been in the insurance industry for four years.
For three of those years I have owned my own agency. From a consumer standpoint, all of these questions make the average person’s head spin with options and concern. Luckily the answers to these questions also provide a great basis from which the average consumer can learn about what is great for their needs and what may not be so suited for their needs. The most basic of these decisions it whether to choose a dwelling homeowner’s insurance policy or a traditional homeowner’s insurance policy. I have the answer to what the average consumer does not want to purchase.
What are the main types of homeowner’s insurance and what should I not buy?
The most basic homeowner’s policy is the dwelling policy. A dwelling homeowner’s insurance policy is homeowner’s insurance on a chosen coverage basis. This means that each coverage that is placed in the policy for coverage of the property is chosen individually and not as a blanket coverage such as some other homeowner’s insurance policies. If any particular coverage is not selected when issuing the policy, there is no way to obtain this coverage after the policy has been bound and issued. This fact alone leads to a clear opportunity for necessary coverages needed by an insured to be missed by the insured or the agent issuing the homeowner’s insurance policy.
The second notable fact about dwelling homeowner’s insurance policies is the fact that the majority of these policies pay out on a “cash value” basis in the event of a total loss. What this means is that the home may be insured for one amount of money, however once there is an actual loss, the home is then evaluated based off of the market value of the property.
Once the market value of the property is assessed, depreciation is then calculated into the number before a payout is given. An example of this is could be a home insured for $100,000 on a cash value basis has a total loss and burns down. The home is evaluated at market value which it was valued at $60,000 as a purchase price.
Once that value is obtained, the insurance company then has to calculate depreciation in the value of the property. For example, said property may have had a market value of $60,000, but after depreciation is calculated, the property may have only actually been worth $30,000 due to upkeep and age of the property once the lose occurred. Now, this is all done on a fictional basis, however these figures are well within the bounds of normalcy.
This would mean that a property that was insured for $100,000 at the time of loss may only yield a payout to the insured in the amount of $30,000 once the claim is settled. This would be a devastating loss to an insured that may have been under the impression that they would receive the amount of money for a total loss on the property that it was actually insured for.
These are simply some of the key reasons why I as an agent do not recommend dwelling homeowner’s insurance coverage to my insureds. There are cases where this will suit specific needs, however those needs are quite specific and the average consumer need not purchase this coverage in my professional opinion.