Not All Insurance Policies Are the Same: What to Ask

Have you ever wondered why, when shopping for insurance, you see such a huge difference in pricing for the same coverage? The truth is, although both policies might look the same, they are actually very different!

Myth Buster: Insurance IS in fact a contract, with fine print and all!  If you have never had to file a claim, you might not realize that all companies (and policies) are not the same. The difference is in the fine print. In this blog I am going to teach you about what to look for and what to ask when you are comparing insurance policies. I am focusing on homeowners and auto insurance but can help you with any insurance policy.  If you have questions, leave a comment or contact me.

Homeowners Insurance Policies: What to Ask

1. Do I have an HO3 or HO5 policy? What is the difference?

Typically, an HO5 policy will be a more comprehensive policy with a broader range of home insurance coverage. The main difference here in the coverage is the fine print, and something called All Peril vs Named Peril.  All Peril, usually found in an HO5 policy, means the company will cover all losses except what is specifically named in the fine print. Named Peril means they will not cover any losses except what is specifically named in the fine print.  After assessing risks, you can choose which is best for you.

2. Does my coverage include depreciation?

There are two ways an insurance company can cover your losses.  Some policies will replace your items based on the cost of replacement, or getting something new, while other’s will replace based on the current value of said property. 

Example: Your claim includes the loss of your couch, which you’ve had for 5 years.  One policy may cover the cost for you to purchase a new couch, let’s say $1200, while another will pay out the value of that couch with depreciation, say $300.  That’s a big difference!

3. What is my “loss of use” coverage?

Loss of use coverage covers any additional living expenses, meaning any necessary expense that exceeds what you normally spend, like a hotel or temporary rental. For example, if your house burns down or floods and you need a place to stay while it is rebuilt or repaired, the loss of use coverage will cover that.  However, there are also details in this area you need to pay attention to.  Some policies will cover your expenses, but may have a cap of how much they will pay out, maybe a $30,000 cap.  You can use it quickly or over time, but once you hit that limit you are tapped out.  OR you can have a policy that will cover an unlimited cost, but will have a cap on the time frame, for example 2 years.  This means you will be able to comfortably relocate yourself and your family for up to 2 years while your home is being rebuilt or repaired, no cost limit.

Keep in mind: When there is a catastrophe, like a wild fire or large flood, the market gets “flooded” with people who need an immediate place to live.  With such a large demand, the supply will quickly be depleted creating a surge in pricing for such markets. Make sure you are covered for those expenses when you need them.

4. Am I covered for a sewage backup?

Most policies will exclude this coverage, because most sewage lines are owned and maintained by the state.  This means if you have a sewage backup, the state “should” cover it.  I don’t about you, but I am not interested in trying to get money out of the state in this instance.  Especially because this coverage can usually be added to a policy for as little as $10-$20 a year! That’s worth it to me.

5. How much actual coverage does my home need?

Most people think, I should cover what I paid for the house right? Not always!  Remember when you buy a home you are paying for the location, the school district, and the land.  When you need to replace your home, you are paying for the cost of rebuilding it.  This does not include how much land you have, what schools are in your area, or even your fantastic view!

Your Agent is not a contractor.  This is where it gets tricky.  It is up to you to do research on the cost to rebuild your home.  Keep in mind the cost of lumber and labor; supply and demand could also play a part here in the even of a catastrophe.

Auto Insurance Policies: What to ask!

1. Does my policy include “permissive use” coverage?

In other words, does my auto insurance policy cover me if someone else is driving my car?  If you do not want anyone else to drive your car, that is up to you, but I would advise you to have this coverage anyways.  If something happened to you, your friend/roommate/neighbor needed to use your car to drive you to the ER, and they got in an accident, you want to make sure it’s covered.  If you do not have permissive use, an insurance company can deny coverage in this instance.

Tip: Some companies will include permissive use, with exclusions. I have seen policies where they allow permissive use, EXCEPT your spouse or roommate.  Those are the most likely people to drive my car, so make sure you ask about this.

2. How will the cost to replace my car be determined?

Like the homeowner’s insurance policy we discussed earlier, there is a difference in covering the cost to replace and the current value.  If a car is totaled, you will see a huge difference in the amount being paid out by insurance companies.  For the same vehicle, one company might pay $3,000 while another will pay out $23,000 to cover the loss.  Having a low monthly premium might sound like a great idea, but you could be looking at a difference in $20,000 to replace your car depending on your insurance policy.

3. Not a question, but a recommendation. Read the Fine Print!

I don’t want to scare you, but this is important.  I have reviewed tons of insurance policies and have seen some pretty crazy loopholes in them.  I once saw a policy that said in the fine print the company could deny coverage if they don’t deem the insured to be of good character. What does that even mean?  This is a loophole a company can use to deny coverage to almost anyone in the event of a loss.  I’ll say it again, READ THE FINE PRINT!

The company you have insurance with does in fact matter.  Insurance rates, for all companies, are set by The Department of Insurance.  They decide what is “fair” based on what the company has paid out, what they are willing to pay out for, and how often they pay out claims.

When comparing insurance companies, remember, you get what you pay for. When you find a company that has really low rates, make sure to ask yourself:

What are they willing to cover?

What might be excluded from my policy?

If you need help reviewing your current policies, reach out to my team and me!

For more tips on Insurance and Financial Services, check out those categories on my homepage!