6 Ways to Help Your Clients Understand Their Homeowner’s Insurance
Tuesday, March 29, 2016/Insureon Solutions, News, Products, Industry Tips
Here’s a scary story for you: once upon a time, a homeowner purchased what they thought was the right amount Homeowner’s Insurance. Their “good” policy had a $200,000 limit, so they figured they were all set when a fire destroyed their house. Unfortunately, the rebuild ended up costing $240,000 – that's $40,000 out of pocket for those keeping score at home.
What makes this story even more unnerving is it's true, according to The Charlotte Observer. And it happens all the time!
This is the kind of cautionary tale you may use to illustrate the importance of adequate coverage, but you can take a lesson from it, too. If a client is surprised by their out-of-pocket costs after a claim, they may allege you didn't recommend enough coverage, and that can easily turn into an E&O lawsuit against your agency.
Protect your independent insurance agency by reviewing these six items with your client. Doing so can help ensure they understand their policy and that you've done your part to recommend the appropriate amount of Homeowner’s Insurance.
1. Explain the Difference between Market Value and Rebuild Value
The first thing you may want to address with your homeowner clients is the difference between the home’s market value and the cost of rebuilding it. Many homeowners assume these are one and the same, but they aren’t:
- The market value of a home is how much it may be able to sell for in the current market conditions, which fluctuate and take the location's desirability into account.
- The rebuild value of a home isn't concerned with the value of the land – it considers only the expense to repair the damaged home and the labor and materials needed for the rebuild.
Your client can give a rough estimate of their rebuilding costs, or they could get more accurate data from a professional home-replacement cost estimator or local builder. They can also pay for an estimate from a website like HM Facts.
2. Explain the Difference between Actual-Cash Value and Replacement Value
You may also want to explain to your client difference between:
- Actual-cash-value coverage. Insuring property for its actual-cash value means the insurer considers the item's depreciation when it's time to pay for a claim. Typically, the insurer takes the initial cost of the home and subtracts the depreciation. As a result, actual-cash-value policies tend to make lower claim payments, which is why their premiums are usually lower, too.
- Replacement-value coverage. Insurers only consider the initial price tag, not depreciation, when your client’s home is insured for its replacement value. Essentially, the provider pays what it costs to buy the exact same or similar home. Note: Homeowner’s Insurance seldom includes the land value, so if your client paid a total of $455,000 for their home and the lot cost $55,000, the replacement value is $400,000.
- Guaranteed-replacement-value coverage. Your client’s most costly option is to insure their home for its guaranteed-replacement value. Doing so means the insurance provider pays to rebuild their home exactly as it was, even if the cost exceeds their policy’s limits.
Clients often want the least expensive option, but that may leave them underinsured. Make sure they understand the risks of only insuring for the actual-cash value and document the conversation.
3. Emphasize the Importance of a Home Inventory
Standard Homeowner’s Insurance policies cover the contents of your client’s house, giving your client…
- 70 percent of the building limit for their home’s contents.
- 20 percent for living expenses.
- 10 percent for other structures.
That 70 percent might seem like a lot, but a home inventory may help your client decide if it’s enough coverage. Encourage your clients to keep an up-to-date record of their big ticket items that includes…
- Descriptions of each item.
- The date of purchase.
- The make and model.
- Receipts, purchase contracts, and appraisals.
- Photos or videos.
This brochure from the Insurance Information Institute can help them identify their valuable items and decide if they need additional coverage.
4. Review the Home’s Claims History
Unless your client is moving into new construction, chances are their home has a claims history that may reveal some red flags, such as multiple claims for:
- Sewer backup.
- Hail damage.
- Wind damage.
These claims may indicate a need for more coverage than the standard Homeowner’s policy provides.
5. Discuss How to Insure a Home-Based Business
Ask your homeowner clients if they run a home-based business. As a general rule, Homeowner’s Insurance doesn't cover business losses, so your client may need to add endorsements or to purchase a Business Owner’s Policy.
6. Stress the Benefits of Comparison Shopping for Insurance
One of the best things about being an independent agent with a Noodle membership is you aren’t tied to a single insurer. You can use our insurance quoting software to get multiple quotes for your clients so they can pick the product that works for them.
Moreover, the Noodle app addresses the issues we discussed above automatically, making it easier for you to walk a client through their risks. Once they’re in your book, you can use the Noodle agency management system to track and review their policies as needed.
Discover why it makes sense to write personal lines with Noodle in “.”