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Keeping the House Covered


Have you been hit with a big increase in your homeowner's insurance premium? No surprise there, if yes. After years in which homeowner's rates have remained relatively flat, they're rising at a projected 6% clip this year, following a 6% gain in 2001. In Texas, California, and Florida, the hikes have been higher, averaging over 15%. And insurers are dropping a growing number of policyholders--not because they don't pay their bills, but because they file too many claims. "The rule of thumb is, if you have three claims in a two-year period, you're gone," says Iris Lynch, personal insurance manager at CAL Insurance & Associates, an independent agency in San Francisco.

Prices will likely keep rising, too. After years of losing money in a bid to boost market share, insurers are scrambling to restore profitability. Insurers decided they could no longer afford the red ink after industry losses more than doubled, to an estimated $8.9 billion, in 2001. The causes include increased payouts for damage from natural disasters, such as tornadoes, and costly lawsuits over mold damage in Texas and other states. If you've been notified of a premium hike, don't accept it as a fait accompli. Instead, try to soften the blow by shopping around or altering your policy or home to qualify for discounts.

Whether your rates are going up or not, it's always a good idea to look for a better deal. Your first stop should be at your state insurance department's Web site. You'll find a link to it at www.naic.org. Here you can find out which companies sell homeowner's insurance in your state and, often, their average premiums. Also, check for consumer complaints and see how financially secure a prospect is.

At Web sites including www.insure.com, www.insurance.com, and www.quotesmith.com, you can compare price quotes on some homeowner's policies. But since these sites offer only a limited sampling, you'll need to hit the phones.

You may find other insurers don't welcome your business. If you have filed a claim recently--or just notified your carrier of damage--don't be surprised if you have trouble finding a reasonably priced new policy. "When I went to shop around, I was told no company would touch me because I had a water leak," says Jim Davis, who lives in West Lake Hills, Tex. Although Davis never filed a formal claim, his premium nearly doubled this year after he notified his insurer that his home had suffered water damage. Many insurers have access to claims information through a national database.

Another downside to switching carriers is you may forfeit discounts reserved for long-term customers. If you file a claim soon after moving to a new company, watch out. You may put yourself at risk of cancellation when your policy is up for renewal. That's because insurers are more tolerant of claims from long-term customers with clean histories than they are of new clients.

Before signing on the dotted line, ask your agent or insurer how many claims you can file before raising a red flag. State Farm, the nation's largest home insurer, says it may reexamine policies in the mid-Atlantic states for possible termination when two claims are filed in three years. Companies are particularly unforgiving of claims that arise due to negligence--for example, a leaky washing machine hose--as opposed to, say, the weather, agents say.

Whether you switch or stay put, a good way to save money is to raise your deductible. For example, State Farm clients can save about 11% by increasing their out-of-pocket payments to $500, from $250. Agree to cover $1,000 instead of $250, and your premium will fall by about 28%. For a $250,000 home in Prince George's County, Md., moving to a $1,000 deductible will cut your premium from $800 a year to $584. The key is to assess what you're comfortable shelling out if a problem occurs. "I have customers with $10,000 deductibles," says Kelly Overcash, an account executive based in Clearwater, Fla., at Acordia, a national independent agency.

Sure, that means you will have to defray more repair costs. But because insurers often raise rates or drop customers who file multiple claims, it may prove cheaper to take care of small items yourself. "Use the insurance policy for catastrophes only," says Overcash.

If you haven't already done so, consolidate your homeowner's and automobile coverage with one carrier. This can save you as much as 15%. And find out if you qualify for discounts. Often insurers grant them to homeowners who take steps, such as installing an alarm system, that reduce the likelihood of claims (table).

Make sure you're not paying for unnecessary extras. If your home is not prone to water damage, for example, you may want to drop sewer and drain backup coverage, which kicks in when your sump pump or sewer overflows and can cost up to $100 a year, says Tom Schneider, owner of the Schneider Insurance Agency in Gahanna and Newark, Ohio.

Finally, since many insurers consider your credit history when calculating your premium, make sure your credit report is accurate. Indeed, as credit scores fall, it's not unusual to see insurance premiums jump by as much as 50%--or for coverage to be denied, says Robert Hunter, director of insurance at the Consumer Federation of America. Ask your insurer which credit-scoring agency it uses. You are entitled to a free copy of your report if your company cites credit problems as a reason for denying coverage or hiking rates, says Hunter.

If you are among the estimated 6% of homeowners to receive a cancellation notice this year--a level that's about twice the average in recent years--don't hesitate to challenge the decision. Sometimes, you can negotiate a reversal. One tactic is to agree to a higher deductible.

Still, since agents report a low success rate for appeals, shop immediately for new coverage. You will generally have 30 to 60 days before your old policy expires. Don't allow your insurance to lapse, since many carriers reject uninsured applicants, says Mike McCartin, owner of Joseph W. McCartin Insurance in College Park, Md. If you feel your insurer has treated you unfairly, file a complaint with your state insurance department.

Don't get flustered by rising rates--or a policy cancellation. By shopping around or changing your policy's terms, you may be able to save on your homeowner's premium this year. By Anne Tergesen


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