How important is AM Best ratings to insurance, specifically homeowners?
April 13, 2013 8:08 AM   Subscribe

Our current homeowners policy is being changed because the company no longer does business in our state. Our agent has come up with another company that is not a national company. It only underwrites in several states on the east coast. I looked up their financials and they seem to be good but I’m no expert. It also is rated with Demotech which I understand to a paid rating company.

On the other hand, we also called GEICO and they gave a us quote that’s higher but with a company with an A+ rating. However their coverage is lower i.e; GEICO’s company is offering a dwelling replacement amount of $370,000 as opposed to our agent’s unrated company offering a dwelling replacement amount of $500,000. That’s huge difference. We currently have replacement amount of $350,000. Also we would have higher liability coverage with unrated company while rated company would be around $300,000. Our agent explained with all our teen drivers, we should have a the higher liability amounts. I’m very confused. I’d like to be insured with a great company and have asked our agent to find a Best rated company for us. She feels we should have higher coverage (our current policy has been in effect for at least 5 years or more) as our needs are changing.
posted by lasamana to Home & Garden (4 answers total)
Best answer: AM Best ratings are important if you care about the long-term financial stability of your insurer. After all, AM Best gives you some indication of the financial ability of the company to pay claims responsibly, though that's certainly not an indication of the quality of customer service. Yes, I would pursue coverage with a company that has a A+ or greater rating AND a reputation for prompt and fair claims payment.

I am a bit concerned about the advice (or lack thereof) you're receiving from your agent. The replacement coverage on your home is simply the actual cost to rebuild your home at today's prices. The typical ($ per square foot) replacement cost in your area for your home's construction is information a good realtor or contractor can give you. Insuring your home for significantly more than its replacement cost is money wasted. You won't get $500k if your home is destroyed and its replacement cost is only $370k. You always have the option down the road to increase your insured limits as your home’s replacement cost increases.

Secondly, your teens' driving is covered *only* under your auto policy. Homeowners insurance may come into play only if an item is stolen from your auto, and then only if its value exceeds your deductible. Nevertheless, with teens in the home, do consider increasing your liability limits on both policies -- home and auto -- that will qualify you for an additional umbrella liability policy. The cost of the umbrella policy is very reasonable, plus if you carry all three policies with the same company, you'll get additional price breaks.

Good luck!
posted by MyTwoCentsToo at 9:55 AM on April 13, 2013 [1 favorite]

A insurance company not rated by AM Best? Such things exist? A negative rating is probably better than no rating at all.
posted by valkyryn at 10:27 AM on April 13, 2013 [1 favorite]

Do not buy insurance from a non-Best-rated insurer.

I agree with MyTwoCents that no insurance company will pay more than the actual replacement cost for your house, regardless of your policy limits.

You need to be careful about liability limits under homeowners. Insurance companies have different philosophies about them. Some cap them based upon your assets and income, feeling that over-insuring against liabilities will create adverse selection. Others (quite reasonably in light of the actuarial analysis) will sell you lots of liability coverage on the theory that very few claims on homeowners liability are made. I would be very concerned about the use of standard homeowners' liability to hedge the exposure to teenager negligent driving. At best the coverage would be secondary to what you have on your car insurance, and even then loaded with exceptions that will swallow most excess or disallowed liabilities under your car insurance (reckless driving, DUI, etc.)
posted by MattD at 1:10 PM on April 13, 2013 [1 favorite]

I would be very concerned about the use of standard homeowners' liability to hedge the exposure to teenager negligent driving.

Right. Most homeowners policies have broad exclusions for anything remotely having to do with cars. If a car hits your house, okay. But that's about it.

This is what umbrella/excess policies are for. You have your auto policy, and your homeowners policy, and the umbrella/excess provides a second layer of coverage on top of those. But getting from the auto policy to the homeowners policy is pretty much impossible. Even plaintiffs' attorneys don't bother to try; that dog won't hunt.
posted by valkyryn at 2:20 PM on April 13, 2013 [1 favorite]

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