Frequently Asked Questions
Why did my rates go up even when I didn’t have any claims?
Insurance is basic economics. There has to be enough premium developed to pay for the claims filed. When we purchase insurance, we are contributing to a pool. The idea of the pool is to have similar typed risk together and when the pool under-performs, then all of the contributors have to pay a little more. So, unfortunately that will always equate to rate increases.
Why is the replacement value higher than the market value of my home?
An insurance company’s only concern is that they are able to adequately re-build your home in the event of a total loss. Market value does not matter at all in this regard. Also, re-construction is more costly than new construction. Due to the nature of some of the extremely severe storms that we have seen in the last number of years, insurance carriers are having to account for expenditures not previously considered. For example, there have been a few storms in the last 15-20 years that caused damage that was not experienced prior, i.e…F5 tornado in Oklahoma City and Joplin actually tore driveways, sidewalks and foundations out of the ground, etc…
Can I purchase a policy that offers less than Replacement Cost?
You run the risk of being subject to a coinsurance penalty if you insure a property for less than 100% of its value. Ex., home has a replacement value of 100K. You want to insure it for 40K or 40% of value. You have a fire loss of 20K. Carrier could say due to the fact that you are insured at 40% of value, they are only obligated to pay 40% of your claim minus deductible. So, if you have a $1000 deductible and a 20K loss, then they potentially may only pay you 7K. (20,000 X 40%=$8,000-$1000(ded)= $7000).
Another consideration is that many of the carriers that are willing to offer you a policy based say on Actual Cash Value (ACV) usually have a higher premium than the replacement cost policy anyway. It rarely makes sense to insure a property for less than replacement cost unless it is a very old property that develops a replacement value that is significantly more than the ACV. You may see this on properties that are 80+ years old.
Why do insurance companies use my credit to determine the rate I qualify for?
As underwriting rules have become more and more sophisticated over the years, the insurance industry recognized a correlation between credit-worthiness and claims filed. The worst the credit score, the more they see trends towards higher or more frequent claims activity. Gone are the days that your auto insurance is based solely on the zip code you live in and your driving record. Instead of 4 or 5 factors determining your rate, it could very easily be 20+ factors; one being your credit score. It is fair to note that your credit score is usually not the determinant, but a credit model that considers your score as one component of the model. That’s why people with flawless credit still may not qualify for a company’s absolute best rate because it is an algorithmic model, not just the score.
Do I really need sewer and drain coverage on my policy?
For most carriers, Sewer & Drain/Sump Pump Failure is an optional coverage and some people do not understand the value of this coverage. Our agency will not offer you a policy without it and here’s why; in my 24 years as an agent my most likely claim has always been hail/wind/storm damage. My second most likely claim has always been sewer backup.