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Week of 8.17.07

Home Insurance Tips

Robert Hunter Robert Hunter, Director of Insurance of the Consumer Federation of America, offers advice on how to assess your current homeowners insurance policy, what to look for when buying a new policy, and what to do if you need to file a claim.

Your current policy

There may be gaps or limits in your current homeowners insurance policy that you should be aware of. Here are some key areas to check:

  • Flood insurance is not covered in homeowners insurance policies.

  • Neither is earthquake or land movement, war or nuclear events.

  • Policies may have separate percentage deductibles for wind damage.

  • Policies may not pay full replacement cost if the costs of rebuilding rise.

  • Policies may only pay depreciated payments for roofs or contents.

  • Policies may not pay for costs required if your house is damaged and building codes require upgrades in pipes or wiring or the home needs to be elevated if it is in a flood

  • Policies may contain an anti-concurrent-causation clause that will remove coverage if a non-covered event happens at about the same time. For instance, if wind damage (covered) and flood damage (not covered) happen at about the same time, you might get nothing. Same with earthquake (not covered) and fire (covered).

Shopping for a future policy

If you need insurance or decide to change insurers, here are some tips on how to shop for insurance:

  • Remember that insurance prices vary very widely. You can easily pay twice as much for the same insurance from one company to the next.

  • Start by going to your state insurance department's web site to get information on price. Many states have this information. Usually they show examples of prices. See which insurers are low price in your town for the example most like you. List a few of the lowest priced insurers to call later. If you use a web based service other than the insurance department, be aware that these usually only list insurers that pay the sites commissions so you won't get quotes from insurers that do not pay commissions like USAA. Often these "no-load" insurers are excellent: low in price and excellent in service.

  • Before you call, go the National Association of Insurance Commissioners web site and look on the Consumer Information Source section for complaint information. Get the complaint ratios for the low priced companies you listed earlier. (You do not have to give up good service for low price; indeed some of the lowest priced insurers rank high in complaint ratios.

  • Call the companies with both low price and good complaint ratios for a quote for you.

What to do if you have a claim

A claim is a very traumatic event, both when it happens and as you go through the settlement process. Here are some tips to help you through the claims process. Do not be afraid, you have considerable power in this situation.

First of all, when you are a policyholder, the insurance company owes you a duty of good faith when processing your claim. They are supposed to help you and not low ball you. But often they will not help and will low ball. But if they do, they run a risk of being liable for damages for not treating you properly.

When you have a claim, make sure you keep good notes of all contacts you have with the insurance company. Every call or meeting should be documented: the date, the time, the names of the people involved, the substance of the discussion. These notes will be invaluable should trouble arise during the claim process.

Do not simply accept any offer the insurer makes. Test the offer. Can you repair the damage for the amount offered? Get estimates and verify that the amount will do the job. If not, refuse the offer.

If the insurer is delaying unreasonably, denying your claim or making low offers, ask them to tell you, in writing, what part of the insurance policy language they are relying on to make the low offer or refuse your claim. This does two important things for you. First, once the insurer tells you the specific language they are relying on, they are not allowed to come up with new reasons to deny or low-ball your claim. Second, if the language they rely on is subject to a different interpretation more favorable to you, you will be in a strong position. Any ambiguity in an insurance contract is held in court to be determined in favor of the consumer, so ling as the consumer's interpretation is reasonable.

Complain to the insurer if you're having trouble in getting a fair offer. Use the notes when complaining. Our experience is that an insurer, when seeing that the policyholder is carefully documenting what is going on, will make more reasonable offers. If you still have trouble, file a complaint with your state insurance department. They often will not be much help, but they can get the attention of the insurer and at least you will get clear responses in writing.

If you still have not gotten a fair offer, go to an attorney with your notes. An attorney will often take a good case for no up front money, only getting paid if the attorney gets the insurer to settle. If the attorney believes that your insurer has not acted in good faith, additional damages may be available beyond the claim itself.

One last point. Ask your insurer if your claim was run through computer programs like Colossus or Exactimate in determining your claim and the money they are offering. If they say yes, ask for the results of the computer program (the output). Also ask if the program was set by management to lower claims payments and by how much. You may see a range of settlements from the computer. You should ask for the high end of the range and even more than that if the computer was programmed to achieve savings for the insurer.