Homeowners insurance provides peace of mind that one of your biggest financial investments – your house – is protected in the event of a peril like a fire, theft or vandalism. But there's a lot you need to know before signing on the dotted line and purchasing a policy.
Here's a look at the top characteristics to assess before doing business with a home insurance company.
1. Financial Strength
Above all, an insurance company must have the capital to meet its obligations to pay claims, says Mark Galante, senior vice president and chief marketing officer at the PURE Group of Insurance Companies. In particular, a professional response to a major event like a hurricane can require a substantial amount of capital, or "policyholder surplus. And you want to make sure your home insurance company's pockets are deep enough to handle the large response needed in the event of a major catastrophe as well as if you suffer an individualized peril.
Assess an insurance company's financial health by looking to major rating agencies, such as A.M. Best and Standard & Poor's. There you can confirm how financially strong your insurance company is.
2. Claims Response
Following a large loss, the burden of paying out-of-pocket to repair your home and waiting for reimbursement from your insurer could place your family in a difficult financial position. A number of the insurers are outsourcing core functions including the handling of claims.
Before purchasing a policy, find out whether licensed adjusters or third-party call centers will be receiving and handling your claims calls. Your agent should be able to provide feedback on his or her experience with a carrier, as well as its market reputation, says Galante. Look for a carrier with a proven track record of fair, timely settlements and make sure to understand your insurer's stance on holdback provisions, which is when an insurance company holds back a portion of their payment until a homeowner can prove that they started repairs.
3. Risk Management Services
Insurance companies are developing new services to help you maintain proper coverage limits and to find ways to prevent losses. These range from basic tips, to online tools to more personalized risk management consultations at the home intended to help you prevent another loss from happening in the future. We've established relationships with third parties to avail policyholders of complimentary or discounted risk management services, such as arborist consultations, home security assessments and even background checks for domestic staff, says Galante. Those services may help prevent a peril like theft or damage. Ask your agent about any value-added services that may be available for your policy.
4. ‘Special deductibles' That Apply to Your Property
Hurricane or other special weather events often trigger ‘special deductibles' that are much greater than your base deductible, according to Galante. These can vary widely by insurer and state, and could mean tens or hundreds of thousands of dollars in out-of-pocket expenses if you're not careful. See Hurricane Insurance Deductible Fact Sheet for more details.
5. Agent Representation
The quality of your insurance agent is also key. A first-rate independent agent or broker will be more than an insurance salesperson.That agent will partner with your family in strategizing how to evaluate and manage potential risks, providing you with cost/benefit advice, insights and options. In addition, the best brokers care about their own hard-earned reputations and will likely represent insurance companies that meet your high standards.
6. Current Policyholder Satisfaction
Every company will say they have good claims service. However, cut through the clutter by asking your agent or a company representative what percentage of policyholders renews each year. Called the insurer's retention rate, many companies report retention rates between 80% and 90%. You can also find satisfaction information in annual reports, online reviews and good old-fashioned testimonials from people you trust.
7. Available Types of Coverage and Your Needs
For example, most insurers cap the amount of coverage available to rebuild your home after a loss and many deduct depreciation from the value of your contents. Many offer little or no coverage for damage to special additions or updates to your home, such finished basements, says Galante.
If you have a large or high-end house, you may need a homeowners policy that addresses issues specific to your property, rather than a boilerplate home insurance policy. Galante says in this instance, a potential home insurance company should offer coverage provisions that allow policyholders to not only rebuild, but to rebuild with the same quality of construction and materials. That means, if your house has copper gutters, real plaster walls and imported flooring, those same materials will be used if it is ever rebuilt. The insurance terminology for this is coverage for replacement cost, not actual cash value. There are lots of coverage differences out there. Make sure you know what you're buying so you can avoid massive out-of-pocket expenses if you have a claim, says Galante.
The Bottom Line
Make sure you're confident the companies you're interested in do well according to these seven criteria. Be sure to get quotes from several competing insurers before choosing one. And read The Beginner's Guide To Homeowners Insurance, Find the Best Homeowners Insurance and How To Compare Home Insurance Companies for additional tips.
