Photo: (AP Photo/Nam Y. Huh)
Shortly after Aditi Haridat’s parents bought the home of their dreams, a lamp overheated while they were out of the house. Not only did they lose their pet cockatiel in the resulting fire, but the inside of their home was partially destroyed. That was only the beginning of their nightmare. After their insurance companyarranged for a contractor to redo the inside of the house, that contractor ended up inadvertently causing a major flood in the basement, which led to a black mould infestation. Haridat’s parents, who live in New Jersey, were frustrated when the insurance company offered less than the estimated cost to repair the home. The stress took a toll: “My poor parents couldn’t sleep. They were completely distraught,” says Haridat, a documentary filmmaker. Eventually, the family decided to hire a public adjustor to help them negotiate a higher settlement.
Since homeowners insurance is something many people buy but few are forced to actually use, the average consumer is far from being an expert in comparing policies in advance or navigating the claims process when the unexpected does happen. A new reportfrom the Consumer Federation of America says consumers are often on the hook for more costs than they realised, including deductibles and coverage gaps for certain events, such as flooding, that private insurance rarely covers.
“It’s very difficult for consumers to read a policy and understand it,” says J. Robert Hunter, director of insurance for the Consumer Federation of America and head of the National Flood InsuranceProgram in the 1970s. That means many consumers don’t understand the details of their policies and can be unpleasantly surprised when disaster strikes.
A hard-to-decipher clause called “anti-concurrent causation,” for example, refers to the fact that if an event that is not covered by the policy, such as flooding, occurs at the same time as another event, such as wind damage, which is covered, then the policy might not cover damage from either event. CFA also says many insurance companies have increased their deductibles by 2 to 5 per cent, along with increasing rates. In fact, according to CFA’s research, insurers in 11 states are currently requesting homeowners insurance rate increases of 18 per cent or higher.
Michael Barry, spokesman for the Insurance Information Institute, a nonprofit funded by the insurance industry, says that the industry has paid out billions in claims in response to near record-breaking weather events over the past several years, including the 2011 Joplin, Mo., tornado. He adds that the anti-concurrent causation clause has been around for many years.
“Agents walk people through that,” Barry says, adding that consumers can ask questions if they don’t understand part of their policy. If consumers want earthquake coverage, for example, they probably need to take out an additional policy for that. Similarly, consumers who want flood insurance generally need to get it through the federal government’s National Flood InsuranceProgram, which is run by FEMA.
Here are six more tips to consider when shopping for homeowners insurance:
Check out buyer’s guides. Before buying homeowners insurance, Hunter suggests doing some reconnaissance work online. The National Association of Insurance Commissioners’ website offers adatabase that includes information about complaints filed against insurers, and many states offer buyer’s guides with additional information on their state websites.
Get at least three quotes. Barry suggests getting at least three different quotes before settling on one. “Sit down and compare each page side by side,” he suggests, so you understand what is covered and what isn’t. If you don’t understand something, Barry suggests asking your agent or the insurance company itself to explain how it arrived at the quote.
Online comparisons and websites that offer quotes can be useful, but Hunter says they are often paid for referrals, which means insurers that don’t pay commissions are left out, even though they might be the best company for you.
Check out the financial security of the insurer. While Barry says insurer insolvencies are rare, they do happen, particularly after big weather events that are extremely costly, such as the Joplin tornado. Check up on any financial news or reports on the stability of your insurer before committing to a policy. While states have funds designed to cover claims if insurers go under, consumers often find it harder to get claims paid if their insurer is bankrupt.
Keep detailed records. If you are filing an insurance claim, keep records (and take photos) of the damage, and make a note of any details about the claim and interactions with the insurer. If a claim is denied, ask for an explanation in writing. “If you do get into trouble later, you will have a record of what happened before,” says Hunter. This will make it easier to follow up and lodge any complaints, if necessary. He also suggests complaining to a supervisor early in the process. “The higher you go, the more likely their bonuses are related to consumer satisfaction,” says Hunter.
Get a second (and third) opinion. Aditi Haridat cautions that the first contractor recommended by the insurance company might not be the best one. She suggests getting competing bids, including bids from contractors not affiliated with the insurance company, before moving forward with any renovation.
Seek support. Experiencing major damage to one’s home, whether it’s from a fire or weather disaster, is traumatic. Haridat urges people to seek support from people who have had a similar experience through online forums and other networks. Sometimes, seeking out second opinions from legal advisors, public adjustors, or other professionals can also help, she adds.
Today, almost one year after the fire that destroyed their home, Haridat says her parents are close to reaching a settlement with the insurance company. They attribute their progress in part to the help of their public adjuster, who will receive up to 10 per cent of the total settlement. The public adjuster suggested using an appraiser to estimate the damage, and doing so led to an offer from the insurance company that Haridat describes as “much closer to the number we were looking for.” For now, she’s happy that her parents can finally move on and start living in the home they worked so hard to buy.