Last week, I introduced Ben and Amy (not their real names) who are first time home buyers in the McKinney / Allen area of north Texas. Because they are buying their first home, this also means they are first time buyers of home insurance, something Ben admitted to me, he knows nothing about.
I believe when working with any potential client, whether they are like Ben and Amy who are buying their first policy or someone purchasing their twentieth, it’s important to educate the buyer on what they are buying. My philosophy is an informed consumer helps us to establish a partnership with each client and enables us to serve them as their everyday risk manager.
The first conversation I had with Ben was to help me understand what they are trying to protect, as well as understand where they are in their life. We discussed the new home, its attributes and their family. That information helps me create quotes with each of the 12 different insurance companies we represent and then present the best one or two to Ben.
In the second conversation I had with Ben we reviewed the best set of quotes I’d found. This conversation is designed to accomplish three things:
- Educate a prospective client on the coverage contained with the policy
- Confirm if there’s anything else that needs to be covered
- Answer all questions
In the first step, I outlined what the policy covers including:
- The home (dwelling)
- Contents or personal property
- Other / detached structures
- Personal property off premises
- Loss of use
- Foundation access
- Water leaks & back ups
Home Coverage: This is the amount of coverage on the home. Each company I work with utilizes a replacement cost calculator to determine how much coverage is needed to replace the home in the event of a total loss. This number is generated from the data input into the system that Ben or any other homeowner provides me. It’s usually different from the purchase price and the value assessed on the home by the local tax authority. It should be enough to cover three things:
- Debris removal
- Rebuilding the home
Personal Property: Everything the homeowner moves into their new home is covered under personal property or contents coverage including:
- Furniture & decorative accessories
- Dishes & cookware
- Electronics, computers, tablets, etc.
- Kids toys
- Jewelry, artwork & collectibles
- Lawn & garden equipment
The amount of coverage provided varies by insurance company and typically ranges from 40% to 70% for the home’s insured value. After explaining what this covers, I ask two key questions:
- Is this enough?
- Are there any items that need to be covered for their face value?
Most homeowners do not know the value of what it would take to replace everything in their home, so I suggest they review what they own and estimate what it would take to replace everything. If they own any jewelry, artwork or collectibles with a value over $2,000, I suggest they schedule that so these items will be protected for the full value.
Personal Property Off Premises: This coverage protects personal property that is not located in the home such as items in the car on a trip or items in a storage facility. The amount of coverage is usually 10% of the personal property coverage.
Other Structures: Coverage for other or detached structures applies to swimming pools, detached garages, fences and any other structure that is not attached to the primary home. The minimum amount of coverage required on Texas home policies is 10% of the home coverage, although some companies provide 20% as a standard offering. In cases where there’s a studio, pool home or guest quarters, this amount should be raised to fully protect it against loss.
Loss of Use: Most people could afford to stay in a hotel for a night or two if something happened to their home. How many people, though, could afford to stay in a hotel or rent an apartment or home for two weeks, a month, or even a year if their home were badly damaged or destroyed? Loss of use provides funds to rent a temporary home while your primary home is being repaired or rebuilt
Medical & Liability Coverage: Stuff happens and it sometimes happens in your home or yard. People fall or get hurt, a dog bites a neighbor’s kid, someone walks into a sliding glass door, etc. These two items are designed to protect the home owner financially when life happens.
- Medical coverage is designed to provide medical care for someone who gets hurt on your property (other than those who live in the home). Coverage ranges from $1,000 to $5,000.
- Liability coverage protects the homeowner if they are sued for negligence.
Understanding a prospective client’s life helps us recommend appropriate levels of coverage to protect them against the unexpected.
Optional Coverage: There are three optional coverage items I add to each policy if they are not included with the base home policy.
- Foundation coverage
- Water coverage
- Sewer backup
Foundation coverage applies when there is a leak either in or below the slab. It covers the home owner when there’s a need to cut through the slab to access the water leak and then egress, fill it back in when the leak is repaired. This coverage does not apply to a slab that cracks or breaks due to erosion or soil movement.
Water coverage usually applies to sudden and accidental leaks and the damage caused to carpet, wood floors, sheet rock, etc. Sudden and accidental leaks that are spontaneous events such as a pipe that freezes and bursts, a water heater fails, or a dishwasher seal malfunctions. A few policies still provide coverage for slow leaks, either as part of the policy or as an option. When it’s available, I recommend that too.
Sewer backup is a separate coverage from water leaks. This is designed to cover a backup of the sewage or drain system into the home. As you can imagine, it can be a real mess when it occurs making this an invaluable coverage in such an event.
One of the items I like to discuss includes owning nice jewelry, artwork or collectibles. It is pretty common for a home owner to have an engagement ring or wedding set with a value greater than $2,000. The best way to protect such an item or items like artwork and collectibles is by scheduling them. This covers them at their stated value with little or no deductible and protects them if they become lost or stolen.
Deductibles: The deductible is the amount paid out of pocket by the home owner before the policy begins to pay. Texas home insurance policies have either two or three deductibles.
- Wind and hail
- All other perils
- Coastal areas may also have a separate deductible for hurricane
Most of these deductibles are a percentage of the home’s amount of coverage, either 1% or 2%, although I’ve seen as high as 5%. Some insurance companies do offer a dollar deductible for all other perils such as fire, theft, smoke damage, water leaks, etc. but all start with a 1% deductible for wind and hail claims.
A good practice for the new homeowner is to begin to build enough savings to cover the deductible in the event of a claim as almost no one can predict when a leak will occur or a hail storm will strike.
Ben said he appreciated the level of explanation I provided and walked away from our discussion knowing he is well covered. As a result of taking the time to provide him with information on something he didn’t know anything about, I am writing his home and car insurance.
Did your agent ask you these kinds of questions and then take the time to explain the coverage? If not, you may want to find one who will, because if they’re not asking they’re only guessing at what is needed. Do you have a question or suggestion? Share them on the comments section of our blog or on our Facebook page. I’d love to hear from you!