Henry says the annual bill an insurance customer receives in the mail is almost always the product of a computer analysis. The insurer calculates that the replacement cost has gone up an average of X percent across the board in the previous 12 months and the computer adds that percentage to every customer's renewal bill.
"Challenge it. More than likely, they'll back down from that increase," Henry says.
What coverage do you need?For some people, the question is, "Do I really need replacement cost insurance?" The answer could be "no," says James Walsh, co-author of "How to Insure Your Home" and an editor at Silver Lake Publishing, which specializes in insurance topics.
Walsh points to several scenarios where cash-value policies may be good enough.
- If you don't have a mortgage or much of one and you can buy an acceptable replacement property for significantly less than the insurer says your home will cost to replace.
- If you own a small home where the replacement costs tend to be driven by the location -- a lakefront property, for instance.
- You own an older home whose architectural details will be costly to replace -- hardwood floors, plaster walls -- but if the worst happens, you're unlikely to replace them.
- If you have a simple property in an area where substituting a mobile home would be a perfectly acceptable solution.
- If you can afford to self-insure a portion of the potential loss on any property.
If you have a mortgage that is close to or greater than the market value, the lender may balk at a cash-value policy. But if you have a small mortgage, chances are the lender won't care, Walsh says.
The risks of not insuringAre there situations where a homeowner should just "go bare" by dropping homeowners insurance altogether?
Probably not. Homeowners insurance generally provides liability insurance as well as covering the structure. If you own a property, having liability insurance is important because if someone has an accident on your property, or some other legal issue that causes them to sue you, you'll need money to defend against the suit and money to pay if you lose. A homeowners policy will cover that and likely prevent the court from taking your property or garnishing your savings or income (even Social Security), Walsh says.
You could buy just liability insurance, but it will probably be more expensive than a homeowners policy, he says, advising buyers in this situation to ask for minimum structure limits -- even if the agent is reluctant to sell that policy. Minimum structure limits refers to the minimum property valuation that the company is willing to sell. For example, it might be $50,000/$100,000 -- giving you $50,000 on the structure and $100,000 liability.
Walsh says if you have a beat-up old house and you're trying to save money, demand the least structure coverage, but don't scrimp on the liability because that could be the big risk.
In any insurance negotiation, don't let the salesman intimidate you, Walsh advises. Insurance companies are loathe to see homeowners renegotiating to lower-cost policies because it reduces the company's cash flow.
"Don't be intimidated even if they act like you're stupid. Renegotiating your insurance policy isn't stupid. It's entirely reasonable," Walsh says.
You can compare home insurance quotes at Insureme.com, a Bankrate company.
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