Harris, Reed & Seiferth
Buying insurance can be a tricky purchase - but it doesn’t have to be. Simply put, some areas of your insurance policy will just require extra attention to avoid weaknesses in your coverage. Here are some of the major coverage mistakes we’ve seen here at our agency.
Not Insuring Your Home For Replacement Cost
Do you think you only need enough coverage to insure your home for the amount you paid for it? If you said yes, well, that’s just not true! You need to be insured for the amount of money it would cost to REPLACE your home, not the amount of its actual cash value which will include a deduction for depreciation. Think of it this way: the total cost of replacing a home could be tens of thousands more than the house would have sold for on the market, cash value. So, what if a fire or tornado destroyed your home and you’re currently only insured for the cash value? You could be at risk!
Buying Lower Deductibles and ACV on Contents
There’s really only one way to save money on your homeowners insurance: raising your deductible. Insurance companies typically overcharge for lower deductibles - but that's what policyholders buy and accept risk in other areas. The savings actually rack up though as you instead, RAISE your deductible! For the average policyholder paying $3,500/yr premium for a homeowners policy with a $1,000 deductible, moving up to a $7,500 deductible (if you can afford it), saves $800/yr. That’s almost 25%! Think of the commercials about trying to save 10, 15, 20%.
$800/yr savings amounts to $8,000 in 10 years, so the policyholder that has 1 claim in 10 years breaks even. The average claim frequency for homeowners is closer to 6%, or every 16-17 years, so, a homeowner that has 0 or 1 claim is ahead of the game with the $7,500 deductible. You only lose if you have 2+ claims over 10 years, which is a much smaller group.
Analyzing the math, 88-90% of the time, a homeowner with a $7,500 deductible will break even or save $8,000; there’s a 10-12% chance you lose about $8,000. Basically, you’re 4-5x more likely to win $8,000 than lose $8,000, and a third of the time, you break even. Assuming you can afford the loss when you lose some, it makes a lot of sense to take a higher deductible. The risk is much lower than the typical ways you save money like deciding to not have full roof coverage or having ACV instead of RC on your contents. That’s risky!! In this case, you know your downside and there’s a cap on it. It’s relatively limited vs. what you can win.
This is a much better way to save but very few do it. People who work in the insurance industry usually buy homeowners policies with high deductibles because they understand the math to which the average consumer simply is not privy.
Buying The Cheapest Policy
When you shop for insurance, do you settle for choosing whatever is the cheapest? Cheaper isn’t always better. And if you’re looking to save money, you have to be sure you’re doing it smartly. Start with a reputable company; you want to buy from a solid insurance carrier that you can trust to pay your claims. You’ll also want to be sure that you’re comparing apples to apples. If you’re buying for your home, ask yourself if the cheaper policy only insures your home for cash value instead of replacement cost (like above)? Does one company exclude leakage of water but not cover it? These are the details that can often be missed or worse, misunderstood.
Buying Only The Required State Minimum Liability Insurance
While each and every state does have a required minimum amount of liability insurance to drive, it’s often not sufficient or helpful when you’ll need it. Selecting only the minimum could leave you open to a suit, wage garnishment, or even worse, the potential loss of an asset, like your home. You’ll want to be sure you’re discussing different liability amounts with your agent to see what is necessary based on your income, net worth, and liabilities. A bonus? It won’t be near as much as you might think!
Buying Life Insurance Through Work
Many clients initially were telling me that they have life insurance through work and weren’t interested in purchasing their own coverage. Huge mistake. Why? Well for one, gone are the days where people are staying at jobs for 30+ years. On top of that, if you develop health problems and leave your current employer, you’re at risk for possibly not being able to solidify coverage again! Purchasing your own life insurance, which is extremely affordable, ensures that you are covered no matter where you are employed or what health concerns you might develop in the future. It’s the smarter choice, right?
Not Using An Agent
The ultimate solution to avoid all of these coverage mistakes? Work with an insurance agent! As agents, we have vast knowledge on the details and can always find coverage that’s right for your specific situation. It’s our job to discuss different liability amounts and ensure that the one you choose is high enough, to explain the difference between actual cash value and replacement cost and make sure that your home will be covered at the cost to replace it after a loss, to help you put your own life insurance policy in place so that you won’t be at risk to lose it when you change jobs, and to make sure that you aren’t buying an inadequate policy that doesn’t protect you.
Call us today for a quote!
Harris Reed & Seiferth Insurance Group
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