November 2020

Gotcha Covered: Make sure your homeowners policy is right for you

Author: Cheryl Alexander

Owning a home costs a lot of money. The mortgage itself eats up a big chunk of your housing budget, but property taxes, furnishings, and insurance bump up your monthly financial commitment even more. Homeowners insurance protects your home, which may very well be your largest investment, and gives you a sense of security. A standard homeowners policy will provide the following:

Covers the structure. A homeowners insurance policy will cover the cost to rebuild the structure of the home if the damage falls under the scope of the policy. The amount of coverage on the policy determines how much the insurance company will pay toward rebuilding the house, so every homeowner should make sure the amount is accurate. Your insurance company will calculate the amount of necessary coverage for you.

Pays to replace belongings. A standard home policy also covers your belongings in the event of serious damage. Even if you feel like a minimalist, replacing all your belongings would add up quickly. Taking a video inventory and keeping a list will help you estimate how much coverage you need and will come in handy if you must file a claim. High-value items, such as artwork, jewelry, antiques, and furs often need a rider (extra insurance) to ensure coverage.

Provides liability coverage. Sometimes accidents happen on your property that involve other people. For instance, someone might slip down on your driveway and break a bone, or your dog might bite the mail carrier. The obvious hope is that this never happens, however erring on the side of caution and protecting yourself with liability coverage afforded by homeowners insurance is a smart move and will cover injuries others sustain on your property.

Fulfills mortgage contract. Most homeowners carry a mortgage on their homes that requires a homeowners insurance policy because the lender has a financial stake in your home. Most companies will place an insurance policy on your home if you do not have your own policy, so skipping out is not an option. A policy you find yourself is generally more affordable than what the mortgage company will find for you.

Ray Farmer is the director of the South Carolina Department of Insurance (SCDOI), a consumer protection state agency. “Each state regulates its own insurance industry and has its own insurance director that licenses every insurance company that does business in state,” he explained. “In South Carolina, our office has about 90 people who each have a specialty, such as financial examiners, analysts, etc. As an agency, we look at the financials of every insurance company to assure solvency, license agents, and take administrative action with issues of violation. If a consumer has questions or concerns, we are here to help.”

Beyond the standard policy which does protect the property from different perils such as fire and hail, what is not included is flood insurance. It is an extra coverage that Farmer urges South Carolinians to strongly consider.
“One of our biggest priorities is to inform citizens that flood insurance is a completely different coverage,” Farmer said. “Normally only homeowners who live on the coast or close to a river carry flood insurance, but I always tell people, ‘If it rains at your house, it could flood at your house.’”

If you have a mortgage and live in a high-hazard flood zone, flood insurance is required. If you do not live in high-hazard zone, even if you do not think you need it, you should at least consider it. For those in low-hazard areas, it is a relatively inexpensive policy.

“Pause and talk to your agent,” Farmer said. “Go through the process and consider if you would benefit from it. All it takes is one inch of water in your house to cause up to $20,000 worth of damage, and the Federal Emergency Management Agency (FEMA) is limited in what they can offer a homeowner.”

Generally, people buy flood insurance from the National Flood Insurance Program (NFIP), which is managed by FEMA and delivered to the public by a network of approximately 60 insurance companies and the NFIP Direct. However, according to Farmer, new legislation provides more flexibility for coverage within the private market.
Farmer also urges South Carolinians to consider wind insurance offered through the South Carolina Wind and Hail Association.

“Any company will come in and write the homeowners piece of a policy,” Farmer said, “but since our state is at risk for hurricanes, some companies won’t write wind coverage near the beach. The Wind and Hail Association is the market of last resort for wind coverage. If your company will not write you a policy for wind coverage, this wind pool will, though it is more expensive.”

Recently, to increase competition, the SCDOI recruited 90 additional companies to compete for property insurance. The Wind and Hail Association has lost about 67 percent of their business, which is good news because it means the market has gotten more competitive.

Farmer also encourages homeowners to study their premium notices and not to hesitate to look around for better prices. “Don’t feel you must be loyal,” he said. “Shop your coverage. Call other companies or local agents.”

The SCDOI offers a market assistance plan for consumers. If you want help shopping your coverage, this agency will help. They offer an insurance locator service that will put you in contact with agents in your area who will look at policy information and tell you if you’ve got appropriate coverages at a reasonable price, if you should go with another company, and even how much money you can save if you switch.

Farmer also stressed the importance of knowing what coverage you have. “The absolute worst thing that can happen is when a homeowner is not covered for something and they thought they were,” he said. “Insurance is the best way to protect your assets, but unfortunately most people don’t think about it until they need it. Once a year, sit down with your policy and go through it. Talk to your agent or company to get assistance or call the SCDOI Office of Consumer Services to ask any questions about provisions. Make sure you have flood insurance, check your deductible, and set up a catastrophe savings account for when you need to pay a deductible.”

Many homeowners are not aware that they can hire an advocate in the event of a major claim. When you suffer a loss, your insurance company will assign an adjustor who is an employee of the insurance company or who is a person contracted by your insurance company. Their job is to adjust your claim (determine how much the repair will cost). To protect yourself and your home, while you may not need an attorney, you may want a public adjustor who is licensed by the SCDOI. Generally public adjustors are useful for big losses, such as if your home has been hit by hurricane and suffered substantial loss. You may not be comfortable with what the liabilities are with your insurance company, so you might seek assistance from a public adjustor. Farmer urges South Carolinians to look for someone who is local, not just someone coming into town for a big catastrophic event.
“My main admonition is to shop for your coverage and understand what is in your policy,” Farmer said. “The last thing you need after a catastrophe is a surprise for which you aren’t prepared.”

Keep in mind, too, that after a major event where you have suffered a fire or hurricane, and you need to tell the insurance company what was lost, there is little likelihood that you will remember everything. The best thing to do is sit down and do a home inventory now, when no major threat exists. Install an app from your insurance company or from the SCDOI website and take pics of everything that you will want replaced in the event of a catastrophe.

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