All homeowner's insurance policies are the same, right? So just get the cheapest price. Well, not exactly.
To use buying a car as an analogy, you could buy a car for $30,000 or $45,000. Are they the same car? Probably not. One might be 2-wheel drive with basic interior trim, standard wheels and not much in the way of electronic or technology options. The other might be 4-wheel drive with leather seats, custom wheels, a navigation system and premium sound. Homeowner policies have options, as well, so one policy doesn't necessarily match the next. A good agent will know and explain the differences.
When shopping for homeowner's insurance, think (and ask) about the company's financial stability rating, are they an admitted or non-admitted company, does the quote include replacement-cost coverage, what about sewer & drain backup coverage, does it include animal liability coverage, what are the deductibles?
Financial stability ratings are provided by services like A.M. Best or Demotech who independently analyze the financial stability of insurance companies and assign a rating based on that. They factor in the company's past performance, their assets and liabilities, their profitability, their re-insurance capacity (we'll discuss that in the future) and many other factors to determine a company's ability to pay claims. Based on that analysis, a rating is given to the insurance company. It's important to know the financial stability rating of the company you're using to insure your home which, for most of us, is our biggest asset.
What's an admitted company vs. a non-admitted company? I'm glad you asked. When you purchase homeowner's insurance from an admitted company, you, the consumer, get a greater level of assurance that you'll be compensated for your damages in the event of a claim. Think of it as a backstop or a safety net. You only get it if your policy was purchased from an admitted company. Admitted companies must pay into a fund...in Louisiana it's called the Louisiana Insurance Guaranty Association (LIGA)....which is there to pay claims in the event of the insurance company's insolvency. If the admitted company can't pay your claim, the Guaranty Association will. Admitted companies must agree to submit financial data and meet a higher level of scrutiny, adhere to all of the state's insurance rules & regulations and submit their policy language and rates for approval. Non-admitted companies don't have to submit financial data to anyone for review, their policy language and rates aren't regulated by the State and they don't contribute to the Guaranty Association. As a result, their customers have no backstop and are relying solely on the company's promise to pay claims. Non-admitted companies have more freedom to increase prices and change their policy language at will, without anyone's prior approval. There are some very good, financially sound non-admitted companies. Being non-admitted doesn't necessarily mean they're a bad company. They may just prefer the flexibility of being able to change rates or policy language without having to ask for approval. It's important to know the difference so you can make a more informed decision.
Homeowner policies have many options...just like our car in the analogy above. It does make a difference in the coverage you're getting and the price of the policy. A policy that will pay full replacement-cost coverage is probably better than one that only pays depreciated value for your loss. Of course the replacement cost option adds to the price of the policy. The same goes for sewer & drain backup coverage and animal liability coverage. Will the policy pay if your dog bites someone or damages their property? These are important options to think about and a reputable agent will ask the right questions, offer suggestions and answer your questions.
And finally, deductibles are another important issue. If you have a loss, how much of it can you (or do you want to) absorb, yourself. The higher the deductible, the more you'll be responsible for. Of course, the price of the policy will be lower if you have a higher deductible. Is the risk worth the savings? That's something only you can decide. A good agent will discuss the options with you so you'll understand the options and be able to make a better decision.
One last, but important, point about deductibles. Some deductibles are a dollar amount, like $1,000 or $2,500. Others may be a percentage, like 1%, 2% or 5%. What does that mean? It means your deductible will be 1%, 2% or 5% of the Dwelling Coverage limit if you have a claim. It is not 1%, 2% or 5% of the claim. Your Dwelling Coverage multiplied by the percent is your deductible. A 1% deductible on a $200,000 dwelling would be $2,000. ($200,000 x 1%). A 5% deductible on the same house will be $10,000. Can you afford to lose that $10,000 in the event of a loss?
Knowledge is power. At River Oaks Insurance we're happy to teach our customers about insurance. We don't want it to be a mystery or confusing to you. We think the more you know, the better off you'll be when shopping for insurance. And, selfishly, we think the more you know, the better we'll look. It's truly a win-win.