Spring and early summer are the busiest time of the year for real estate closings — we write homeowners insurance. Let us walk you through some do’s and don’ts in that process.
CHOOSE THE RIGHT COVERAGE VALUATION METHOD FOR YOUR HOME AND MAKE SURE YOUR COVERAGE LIMIT IS SUFFICIENT
Reinstatement Value Clause (RVC), defines the terms and conditions of payment under a property insurance policy. It defines the value that will be payable after a loss, and the conditions under which this value may be altered even after the claim has been accepted by the insurer.
The agreed amount clause is a property insurance provision through which the insurer agrees to waive the coinsurance requirement. Insurers will require a statement of property value ahead of time, signed by the policyholder, as a condition for activating or including an agreed value provision in their policy.
Indemnity Value (IV) is another optional way your insurance company will determine what to pay out on property insurance claims. IV coverage uses the value of the property at the time of the loss. Payment of the indemnity value is designed to put you back in the same financial position you were immediately before the loss occurred.
The coinsurance clause is a provision in all home insurance policies that requires you to carry a certain minimum coverage amount, a percentage of your home’s replacement value. Failure to meet the requirement can significantly reduce your payout after a loss. Insurance carriers know that most losses are partial losses, yet they require coverage be maintained to 80% or above of replacement cost. This is an important actuarial principle of insurance and one that soundly grounds and protects carrier solvency. If a policyholder intentionally or unintentionally carries a coverage limit below the policy coinsurance percent requirement they are in essence usurping the principles of insurance to their own benefit. The coinsurance clause exists to eliminate the potential of that happening and, more importantly, to establish the enforcement penalty when it does.
A replacement cost clause is a clause in an insurance contract that states that the replacement value of an item will be paid in the event of a loss. Replacement value is importantly different from actual cash value.
Actual cash value (ACV) is an amount equal to replacement cost minus the depreciation factor (depending on the property or items age and condition) of the damaged or stolen property at the time of the loss. The actual value for which the property could be bought or sold at the time of loss.
Coverage for contents: At the time you purchase a home insurance policy, it is important to determine the correct value of the content items to be insured. There is no point in insuring the 10-year old gas stove of your grandmother on a depreciated value, or ACV basis even if it is in good working condition. Contents should always be insured for Replacement Cost. Start by making an inventory of items which you want to insure. Take photos of expensive items and put them aside for safe keeping. Insurers will often ask you for assistance in documenting expensive items after a loss and photographs are a great way to prove not only their existence but their condition too. Plus the easier you make the claim for the company to resolve the easier and quicker it gets resolved. Often times insurers will rely on their policyholder to document and even determine the value of personal property items themselves after a loss so a list or inventory is a great idea.
- USE A REPUTABLE INSURANCE AGENT AND DEVELOP A LONG-TERM RELATIONSHIP WITH THEM. THEY WILL BE THE BEST FRIEND YOU COULD EVER HAVE IF THE WORST THING IMAGINABLE EVER HAPPENS.
Rates are important of course but do not choose an insurer based solely on that single criteria. Know the difference between a sales and marketing organization whose product just happens to be insurance and a Professional Independent Insurance Agency. One works primarily trying to get new customers in the door and the other is completely dedicated to keeping them there. The Independent Agent is much more focused on you, the policyholder, The Independent Agent can beat the rates and prices of the big marketing organizations…. they just can’t spend as much getting that message to you. One of the best and easiest ways to look for a good Independent Insurance Agent in your area is to browse on-line, read reviews and see for yourself what the experience of others has been.
CAREFULLY READ POLICY TERMS AND CONDITIONS AND ASK QUESTIONS WHEN YOU NEED THINGS EXPLAINED FURTHER.
It is important to read EVERYTHING including a carrier’s fine print. Carefully check their terms and conditions to make certain that you agree with and understand everything. If there are any errors, including spelling mistakes or misunderstandings bring them to the attention of your Independent Agent. Better yet, schedule an hour each year to sit down with them and review these things together.
- Never rely solely on anyone, other than yourself, to complete and answer questions on an application for you. This should always be done by you yourself with only guidance provided by your agent.
- Never hide material facts about your property, be it past accidents, renovations, etc. it will always come back to bite you in the proverbial behind. Disclose everything.
- Stay away from over valuing or undervaluing your property. One is a waste and the other is a sin.
5 MISTAKES NEW HOMEBUYERS SHOULD AVOID
- Committing to a property before getting a pre-approved loan statement from your lender. So many people go house-hunting and fall in love(with a new house) without knowing what loan amount they qualify for. Just as many homebuyers take on mortgages that make them immediately toxic, which means their eyes wrote a check their wallet could not cash. The first thing a new home shopper should do is find a good banker or mortgage lender. Do this before committing to a property. Find one with excellent credentials, and most importantly, one that has programs that you actually qualify for. Here is another area targeted by slick advertising. Don’t be fooled, do your homework and start local.
- Failing to get good faith estimates. Buyers know they are getting the best financing only once they have received a “good faith estimate” that breaks down the actual loan into all of its component costs and parts. Only then will a buyer have the clearest picture possible of their closing costs. Most important of all, your annual percentage rate, or APR, that should be clearly disclosed in all good faith estimates.
- Being reluctant to negotiate terms. Surprisingly, most new homebuyers fail to negotiate, they are uptight about being confrontational or having disagreements. But negotiations do not have to be hostile. After all, most buyers are negotiating the single most important purchase of their lives. If done professionally and equitably, negotiations most always work in a buyers’ favor, and lenders and builders expect buyers to negotiate. It is all part of the game. By realizing that you hold a power hand, new homebuyers can shrewdly negotiate and get the best new-home deal within their means.
- Failing to ask neighbors about a builder’s reputation. With new construction, before a homebuyer signs on the dotted line, they should speak to a few of their potential neighbors and gather opinions about the builder. Ask important questions such as: Did they have any problems? If so, what were they? How long did it take for the builder to get to the punch list? If the builder was slow to address a problem or has a bad reputation, this is the time to find that out.
- Failing to have a new home inspected by an independent professional is a big mistake. Amazingly, most homebuyers do not even bother to have their potential home inspected if it is new. They mistakenly assume that because it is new and listed for sale that it is done perfectly and ready to go. Make sure to bring in your own inspector and have him/her help you with your final punch list. It only costs, on average, around $300, and is well worth every cent.