Burning down the house
July 10, 2013 9:58 PM   Subscribe

I recently made a switch to a different company for my homeowner's insurance (details after the jump about why). I fear I may have made a big mistake, but I honestly don't understand ANYthing about insurance and the more I try to read about it and look at my policies, the more confused I get. It's like someone's speaking Mandarin to me. I feel like a colossal idiot and I have no one to ask anymore now that my dad, whom I relied on to help me with this kind of stuff, is gone. I'm wondering how much I messed up here, and what I should look for to fix it.

I'm afraid that if my house burns down, the coverage I have won't even pay for the frame, let alone the lovely remodel and addition I did a few years ago. Former insurance company drove me crazy for years for a bunch of reasons, and they kept being bought by someone else and changing names, so I wanted to get a different company that would actually not keep fucking up my records and that I felt would pay out if my house burned down without giving me crap. I'd seen some friends get fucked over and so I did some research to find a company with a really high customer satisfaction rating -- I was more interested in good customer service than in cost and willing to pay a bit more for that.

My Former Insurer re-up due date came up, so I called New Company and went through the whole enroll questions with a person on the phone, and they said that since my Former Company insurance had lapsed, they had to send an inspector over to check the house. OK, guy came and said the big issue was moss on the roof, which I knew I had to deal with but had just not gotten around to it. They sent me online forms and I filled those out, and sent them a receipt for a fine jewelry item that I needed to add. Moss got taken care of two days later.

But the more I thought about, the worse I felt -- my previous coverage had replacement cost at $189,000, which is... really ridiculous when I think about it, because remodeling the house six years ago cost only a little less than that. If the house burns down, replacing it for that in my market would be really hard. But the New Company is giving me only $129,000 -- a few more if I get a new roof in the near future (I don't need one, the moss didn't damage it yet, but they want that). There is just no way I could rebuild my house for such a piddling amount. I couldn't even put drywall in for that amount.

I'm not sure how this works, anyway. I mean, if my house burns down or pieces of the space station crash into me, they would just give me $129,000 and then I'd have to pay the rest of whatever it cost to put in even shitty builder grade materials? What's the point in even having house insurance if they don't pay you enough to rebuild your house?

My dad was always the one who helped me with this kind of stuff since it is so hard for me to understand. And he was definitely a Depression-era kid who had umbrella policies and such -- I'd been considering one, even without really understanding the necessity, but I'm not sure I want to pay out $$ when I'd need every penny to rebuild in the event of a catastrophe. He passed his "plan for the worst at all available costs" mentality down to me, unfortunately. And this has been making me stress-sick and depressed, because I miss him and my sister and my mom, all of whom I could have talked to, and now I have no one to talk to about these things.

I haven't made my first payment yet (and it's less expensive, but wow, I'd rather pay more to feel like I'm covered). My Former Company has cancelled the old policy. It's been about two weeks, and I'm in sort of limbo, but I feel like I did a really stupid thing here. Can I actually get closer to the value of replacing the house? Is it standard to only have the replacement cost basically be piddly and not enough for a full replacement?

Not sure if these details are necessary but I'm single, female, in my 50s, work from home (but don't see clients, I'm a freelancer), have a perfect driving record (I've been torn about having my car policy there since it's a lot more than my current, but that's another subject) and have never made a homeowner's claim; I own the house outright and do not have a mortgage or loan.
posted by emcat8 to Home & Garden (14 answers total)
If you can't find anybody else who knows about insurance to hold your hand, you can hire a lawyer. Seriously, in an hour or two, s/he can answer your questions and explain how this stuff works in a way that you can understand. (Or they're not a very good lawyer, or you're a lot denser than you appear to be.) Of course, IAAL, but IANYL, and I'm not the guy to explain insurance to you -- I despise everything having to do with insurance and assume that no matter how much I spend, the insurer will do everything in its power to rip me off. But plenty of lawyers know exactly how insurance works and what to watch out for (from both the "make sure your policy has this" perspective, to the "don't let your agent sell you that.")

Having a friendly relationship with a lawyer is not as expensive as you probably think, and it's useful in ways people don't recognize any more (unfortunately). Also, if you don't like/trust/respect your lawyer, get a different one. Seriously. Life is too short.
posted by spacewrench at 10:08 PM on July 10, 2013

Best answer: It actually sounds like you have a good handle on the problem: you don't currently have insurance that would replace your house. I'm sorry about your Dad, but you can do this. Your instincts are right, the point of insurance is to cover catastrophic losses.

You can request more coverage from your insurance company, and you should since you know that you are currently under insured. It's not that the company sets the number for how much to "give" you, you choose how much coverage you want, which you pay for. I would recommend what we did, which is to ask a contractor to look at your house and estimate what it would cost to rebuild, then add 20% to that number since construction always costs more than you think. My experience is that the insurance company will be happy to sell you a more expensive policy. If that's not the case, you can switch to a new company whenever you'd like.
posted by medusa at 10:10 PM on July 10, 2013 [1 favorite]

Best answer: This seems like the sort of thing an independent insurance agent (not tied to any particular company) could walk you through and help you out with. I googled for them in my area and there were bunches, I bet there are some by you.
posted by Ghostride The Whip at 10:14 PM on July 10, 2013 [3 favorites]

Yes, this is precisely why an independent agent is good to have. You can tell them you're concerned about coverage or terms or anything and they can get you an answer or, if you like, a competing quote.

I am a bit confused on the timeline here -- you said that New Company claimed that Old Company's policy had lapsed, then later you say that Old Company has cancelled now that you have new insurance.

I also find it odd that they wouldn't give you coverage up to the value of the structure. What did they base it on? What is your figure? The standard here is the market value of the home, and yeah, that can end up being less than what you paid for it due to the real estate slump. But you can also increase coverage (which you will pay more for, of course).

that I felt would pay out if my house burned down without giving me crap

a company with a really high customer satisfaction rating

These are really not precisely related. Any insurance company is going to do due diligence on your claim. Customer satisfaction is more based on other factors (very few customers are making claims, but all are paying premiums).

Anyway, if your policy is not actually in effect yet you can always reconsider, and get that independent agent to work for you sorting this out and satisfying the goals that you have for this policy.
posted by dhartung at 11:05 PM on July 10, 2013

Have you talked to your new insurance agency about your concern? If not, than do that before you do anything else. They should be able to tell you exactly how they came to the amount they are giving you, and how to go about increasing that. If they cannot answer all of your questions to your satisfaction than you should find someone else.

There isn't a lack of insurance companies who would be willing to take your money, so find one that can give you the answers you're looking for.
posted by markblasco at 11:29 PM on July 10, 2013

Response by poster: I admit to being confused about the independent agents -- all of the ones I looked at listed the companies they work with, and all seemed to include insurers who I've either had terrible experiences with, or saw them fuck friends over. None of the independents I looked at seemed to represent New Company, or even the different insurer I have my auto with. Am I limited to only the companies they work with?

dhartung, I didn't explain myself well -- the policy had lapsed (by a few days) when I called New Company, and the other day I got the official "you bad person, you didn't pay up, so you are cancelled" letter. Apparently New Company requires an inspection if there's been a lapse in coverage.

I honestly don't understand why the new replacement cost is so low. I recently completed rewiring the house because I knew they didn't insure homes with knob and tube wiring, so I thought I'd brought my house up to snuff for them. She mentioned "coverage area" costs being different when I asked why the quote on auto insurance was so much higher than what I pay now. It's a small house, built in '43, but the new addition has made it a pretty nice place. Houses nearby have sold for a pretty decent sum that are the exact footprint as mine before the addition. There are a ton of houses almost exactly like mine in my neighborhood.

I just...basically don't get it, and this cost difference is confusing me even more. I appreciate all the info so far, though. It never occurred to me to talk to a lawyer -- I've been so used to my interactions with attorneys being "here's the answer to your question, now get out and pya the bill" that I never thought about talking to them about questions like this!
posted by emcat8 at 11:39 PM on July 10, 2013

One thing to keep in mind is that there is a difference between the price that a house will sell for on the open market and the cost to rebuild a building on the property.

The price that you pay for a house obviously includes the land itself and the planning/permissions that were needed to build/maintain the house. Depending on the area this can be an extremely significant component (e.g. here in London in the UK, you would struggle to find a clear site with residential planning permission in most desirable residential areas, and if you did you would pay a premium for them) and therefore the price that people are paying for houses can be very different to the costs of actually building the equivalent house.

As Medusa suggested upthread, if you don't have a good handle on actually how much it would cost to rebuild, then you could try speaking to a contractor. You need to then add an amount on to cover demolition costs, any amounts need to obtaining planning/other consents for the new house - a contractor might be able to give you a guestimate of this.
posted by Mattat at 1:56 AM on July 11, 2013 [2 favorites]

If it's any consolation, I'm an engineer with a lot of experience reading obfuscated documentation and reading my policies always leaves me wondering what the hell I am paying for. Between the coverages, which are explicit, and the exclusions, which are even more explicit, I sometimes wonder if I have agreed to do anything other that send them money and hope for the best. You are not alone if you are confused.

I do know that the 'replacement value' policy I have is more costly, but when I encountered a most bizarre fire damage claim on some exotic electronic test gear, it did exactly what they claimed. I keep the costs down somewhat by selecting a rather large deductible. It's more painful for a little loss, but it's not a maintenance contract for silly losses, it's a safety net for catastrophic losses. Consolidating auto and home also often yields lower overall costs, so that's another place for financial tweaking. Last, my insurer pays dividends on several of my policies, and the exact amount varies depending on claims activity overall for the years, but is usually about 15%.

I am extremely happy with my insurer. (I am in the USA.) I'll shoot you a memail with contact info for them.

Don't sweat being confused. It is confusing. Like all choices between alternatives, there are tradeoffs.
posted by FauxScot at 4:20 AM on July 11, 2013 [1 favorite]

And you do need insurance; if there's no mortgage there's less of a problem, but if there is a mortgage, your Mortgage holder may have noticed the lapse and started putting your payments into and/or billing you for their very expensive insurance.
posted by tilde at 5:28 AM on July 11, 2013

The usual "see a lawyer" recommendation is not a good fit here. Most lawyers have little appreciation of the details that the OP is seeking. An independent agent is a better option. The IA will "represent" (sell the policies for) a number of companies, not just one.

For some additional information, see the several links resulting from this search.
posted by yclipse at 5:47 AM on July 11, 2013

Best answer: This seems like the sort of thing an independent insurance agent (not tied to any particular company) could walk you through and help you out with. I googled for them in my area and there were bunches, I bet there are some by you.

There is no such thing as an independent insurance agent. Brokers get commissions and kickbacks and baseball tickets from companies they refer clients to so their financial interests are not aligned with their customers other than in the most minimal "need to be seen to be representing the client" way while still maximizing their own return by finding the highest possible commission for themselves. You aren't paying them so you are not really their customer. You are their product.

Talk to them. Get them to walk you through the coverage options. Ask them for a range of options and what their recommendation is and then walk away and think it through and run the math for yourself. I guarantee you they will push towards what they present as a middle option and talk about the company's reputation and claims handling rather than finding the best deal.

I worked as a home insurance analyst at a multinational insurance company that used brokers for a year and came away with a very strong impression that brokers are simply rent seekers who have inserted themselves between companies and clients while providing pretty much negative value.
posted by srboisvert at 6:07 AM on July 11, 2013

Home insurance is so confusing. I just switched from Progressive to Amica after I read Consumer Reports because it gave Amica one of its high ratings for paying on claims. I've never filed a claimed, so Progressive might've been fine. I was scared by an acquaintance who had a terrible house fire who had to sue her insurance company because it said her house was more habitable than it actually was. Over five years on, they're still mired in this suit. (I can't remember her insurance company. It wasn't Progressive or Amica.)

I wish there were a service on the Internet that you could pay to evaluate and advise on all kinds of contractural choices--health insurance, car and homeowner's insurance, mortgage contracts, etc. I asked about this on one of my earliest AskMetafilter questions, and everybody said: "You have to do it yourself." Well, it's exhausting because companies build traps into their policies that even diligent consumers can't always figure out. As yclipse says above, a lawyer isn't necessarily the right person to read the fine print for insurance policies.
posted by Elsie at 6:19 AM on July 11, 2013

I have all of my insurance with one carrier, mostly to take advantage of multi-policy discounts.

I have 'Replacement Value' on my insurance and it will pay off the entire mortgage should the house go up in flames.

You'll also need region specific coverages, Wind, Earthquake and Flood. Flood is a SEPARATE policy and you need to stack it on top of whatever is is you've got for homeowners. You will probably need to pay about $130 for a 'flood survey' but it's well worth it. In Florida, people with wind damage coverage thought they'd be okay in a hurricane, but if the damage was due to flooding, they were screwed.

You also need contents insurance for all the shit inside your house. That's usually a separate amount, I have about $30,000 replacement value for my furniture, etc. If you have big ticket items, furs (yuk), jewelry, specialized electronics, you may need separate riders for these things. You may need to have them separately appraised for coverage.

Go into a broker or an agency and look an actual person in the face. Ask questions until you totally understand what it is that you have and what you need. Then buy it.

Here is good advice, take all of the receipts for your upgrades, purchases etc and scan them to the cloud. Ditto take pictures of your shit, and video, upload THAT into the cloud. Then, should anything happen, you have proof that you did have a 54" LCD TV.
posted by Ruthless Bunny at 6:28 AM on July 11, 2013

Best answer: This stuff is really confusing. The one place that I got really good, (relatively) easy-to-understand information that helped me make sense of issues like replacement value and what happens with different types of policies when your house burns down was the last chapter of this book: Home Comforts, by Cheryl Mendelson.

Overall, it's probably the most useful book I own--it's an amazing reference for everything from "how to I clean the soft stone on the fireplace mantel" to "what does this this symbol on the label of new shirt mean for laundering" to "how do I understand different types of homeowners insurance". I'd highly recommend it as worth the price just for the chapter on homeowners insurance alone. A relevant passage from that book (p. 817):
Ordinarily, you will want to insure your house for 100 percent of its replacement cost, not what you paid for it or what you might be able to sell it for today. If you do not insure your home for 100 percent of its replacement cost, in the event it burns down, you will have to dig into your pocket for amounts insurance does not pay in order to rebuild. Replacement-cost insurance costs more and is generally subject to various limits with which it is important to familiarize yourself. For example, insurance companies usually impose a hidden penalty if you do not buy a minimum of 80 percent of the replacement cost. Suppose that the replacement cost of your home is $100,000 and you insure it for $80,000, or 80 percent of its replacement cost. Then suppose a fire causes $50,000 in damage. The typical policy will pay you $50,000. But if you had insured the same home for only $75,000, or 75 percent of its replacement cost, and experienced the same amount of damage, the insurance might pay you only 75 percent of $50,000, or $37,500--which leaves $12,500 for you to pay out of pocket.
Another useful piece of information from that book is the difference between "actual cash value" and "replacement cost" policies. If you have an actual cash value policy, then if your house burned down the insurance company would pay you for the what your stuff is worth today, in used condition (for example, your refrigerator may be valued at half what it cost new because it's been in use for years). Replacement cost policies are more expensive, but will pay to actually replace what you lost even if they need to replace used appliances and personal items with brand-new ones.
posted by iminurmefi at 7:07 AM on July 11, 2013 [1 favorite]

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