I like experts. My clients come to me seeking solutions and part of the solution is helping them assemble the right team to help throughout the process. Everyone needs homeowners’ insurance and I tend to recommend Gary – I’ve found him to be helpful, knowledgeable and willing to share knowledge. I asked him to answer a few questions that most (new) homebuyers have.
Q: What is the purpose of home insurance?
A: For many, your home is the most important investment you make. So it makes sense that you would
want to protect that investment through homeowners insurance. The fundamental basis of insurance is the transfer of risk from one person or entity to another. We make decisions daily about risk in our personal lives, and each of us have a different tolerance for retaining risk compared to our neighbors. As it relates to homeowner’s insurance, the premium we pay speaks to how much of this risk we are retaining versus how much we are transferring to the insurance company.
Q: Tell me more about deductibles.
A: When you file a claim, the homeowner is responsible for a predetermined part of the costs. This is called a deductible. As a general rule, a low deductible will result in higher premiums, and a higher deductible will result in lower premiums. There is no template rule of what deductible to carry. There are some that advocate for the lowest deductible available and some that lean toward the other end of the spectrum, looking for the higher deductible options. It’s best that you figure out what works best for your particular situation.
To help make this decision, consider your financial situation and personal emergency savings in the event of a large loss to your home.
Q: How are rates set? Do weather disasters in other parts of the country impact the rates we pay here in Virginia?
A: At State Farm, we use claims experience from the past several years to project the cost of future claims. The ratemaking process also factors in trends such as the costs for construction, medical payments and other variables.
Rates are based on each state’s claims experience. This means premium dollars stay within the state and do not compensate for losses in other states. So a wildfire in California will not have an impact on our rates here in Virginia.
Q: What about homes that need some work? Is there anything from an insurance point of view you should know when buying a fixer-upper?
A: First, make sure you work with reputable contractors. Get quotes from a few licensed contractors to find the best deal. You also want to make sure the contractor has liability and workman’s compensation insurance to protect you if someone is injured on the job.
Once you are done fixing up the house, make sure you check in with your insurance agent to see if you need to change your coverage. The upgraded kitchen you added could increase the cost to rebuild if something were to happen, and you want to make sure you’re adequately covered.
What’s a CLUE Report? How is it used in the home buying process?
Comprehensive Loss Underwriting Exchange, 7 year database of claim information. Only the owner or the insurer, or lender can access the information. This service is maintained by Lexis Nexis.
When considering making a purchase of a home, involve an insurance company early in the process to run this report. Some carriers may not do this upfront, so be sure to ask if this report is being run at the time of the quote. If there are prior losses on the property, the insurer (and prospective home buyer) will want to research the repairs and get ahead of any potential loss/insurability concerns. I recommend doing this before the home inspection.
Q: Anything else to add?
A: Insurance can be very personal. Meet with your insurance professional on a regular basis to make adjustments to your coverage as needed for updates, improvements, additions, and endorsement review. Our community has many local, reputable insurance agents. If you’re unsure of whom to speak with, ask your neighbor, good neighbors are usually good sources of information.