This article is to give you some suggestions for how to assess your real estate insurance needs. While good premiums are important, the criteria for finding good coverage is larger than just premiums.
Insurance companies do not offer uniform coverage. The coverage differs between insurers, and the differences are important. When working with independent brokers, ask the broker to identify how the coverages between various insurers differs. That should be a question well within their wheelhouse to answer.
Property owners need to know the difference between policies for actual cash value and replacement cost value. Actual cash value policies only insure the value of the property as it is on the date of loss. That is different than the replacement cost value that pays for the cost of repair. Often, I see an actual cash value policy covering about only 70% of the overall cost to repair property.
I would ask your broker about ordinance and law coverage. For replacement cost policies in Minnesota, state law provides some protection for ordinance and law coverage. No matter the specific terms of the policy, the insurer must cover the full cost of repairs for that portion of the property which is damaged. No such protection exists for actual cash value policies. Yet I would not just rely on the statute. I would ask what ordinance and law coverage is provided under the terms of the insurer’s policy.
Whatever an insurance broker or agent says about what is covered should match that portion of the policy that provides the coverage. I would ask for a copy of the proposed policy, or exemplar forms, and read what is covered. It is always dangerous to rely on marketing materials as they do not always match policy terms.
I would ask about exclusions that pertain to water losses. I have read many policies with an extraordinary number of exclusions that relate to water – so many, you must wonder what is covered. I would be careful and thoughtful in this regard, especially if you winter outside the Midwest.
If you live in a floodplain, know that a garden-variety residential insurance policy does not cover floods. You need to be thoughtful in what you are purchasing if you live in an area prone to flooding and consider National Flood Insurance.
When you make these inquiries with a broker I would put them in an email. That is not because brokers and agents are inherently trustworthy. The reason is this rhetorical question: what did you have for lunch last week? Remembering what you asked a broker months later is hard. It is also hard to absorb important information that is verbal. Reading helps you digest what the broker is communicating.
Finally, I would consider the rate at which insurance companies actually pay on claims. In other words, what insurance companies are generous and stingy in paying claims. This changes over time and also difficult for me to say. As an advocate of the insured property owner during the claims process, I see a lot of cases against large insurance companies, but my perspective is skewed. I see the insurance claims that go wrong. I rarely see the claims that go well, and in turn, I do not see the market share of the various property insurers. Two occupations have a better feel for the insurance market and what companies pay claims are public adjusters and storm repair contractors. Knowing a good contractor or public adjuster can really help you understand what insurers do well at actually paying claims.
As always, you can email me with questions at: ed@beckmannlawfirm.com.