Every day in America, insurance agents find themselves answering this very question…and for good reason.
Homeowners are bowled over when a property they purchased for $200,000 is required to be insured for $300,000 or more.
You may be wondering how this is possible, especially in a market where home prices are falling daily.
Your Home Has Three Different Values
Every home has three different values at any given time. It is necessary to recognize all three to understand the insurance company’s calculations…especially the difference between actual cash value and replacement cost.
1. Market Value – This is the value any one individual or entity would pay you at any given time for your home. It fluctuates wildly based on the economy…shocker, right?
2. Actual Cash Value – This is literally the current value of the wood, nails, drywall, roof, brick, etc. The actual cash value of your home, known as ACV, decreases by the minute. Each day that passes, the physical materials which make up the construction of your home depreciate – do not confuse this with the value of a home depreciating.
3. Replacement Cost Value – This is the estimated cost to rebuild your home from scratch; including today’s material and labor costs, removal of debris from the initial loss, cost of permits and architectural drafting, among other things.
How does the insurance company calculate replacement cost of a home?
Insurance companies have the most accurate data regarding what a home costs to rebuild. How? Well, they ‘re the ones who pay to re-build every home that has ever been destroyed (assuming it was properly insured).
That said, no matter how unique a home is from a decorating standpoint, it can only vary in location, size, and the materials used to construct it. Once the location, size and construction materials are known, the process is pretty simple.
Your insurer compares your home to the thousands, if not millions of similar homes they have rebuilt and estimates the cost to rebuild yours accordingly.
For example, if your home is 2,000 square feet, built mostly with semi-custom materials and fixtures, and located in Dallas, Texas, there isn’t much rocket science left. Odds are your insurer has rebuilt or repaired a few hundred similar homes in the area.
But my home has dropped in value, why do I have to insure it for more?
This is another common question insurance agents regularly field. The insurance company isn’t the slightest bit interested in the market value of your home. They stick with measurable constants, such as current cost for labor and materials and depreciation based on the functional life of any piece of property.
Those of you who are thinking, “my house isn’t worth XYZ,” or “I couldn’t sell my house for half that,” are already thinking on the wrong track when it comes to insurance.
You certainly didn’t call your agent and ask them to increase your insurance premium because your home was worth more in 2003-2005, did you? Furthermore, you certainly wouldn’t want your insurance company adjusting your premium every six months based on the most current economic conditions.
When your home was built, there were probably dozens, if not hundreds of other homes being built in the same neighborhood. Applying the concept of bulk purchase, the original cost to build your home would have been greatly discounted because of all the contractors and builders working in the area.
An individual who has built a custom home on their own plot of land will gladly tell you the cost is astronomical compared to having “The Victorian – Model 3” built on lot 207-b in a tract housing development.
So what’s the verdict?
Taking this information into consideration; it should be obvious which loss cost valuation method you should choose to insure your home.
Replacement cost coverage is the safest way to insure your home…if you love it enough to rebuild it with “like” materials to get it back to where it was before the loss. Your lender will likely require that you have a replacement cost homeowner’s policy anyways, which should make the decision pretty simple.
If the home is in poor shape (which may make it ineligible for replacement cost coverage), you own it outright, or it is literally not worth the value to insure for replacement cost, you may choose an actual cash value policy.
This doesn’t mean the insurance company will write you a check for whatever number you pull out of thin air to insure your home for. In the event of a loss, an adjuster will come to (what was) your home and estimate its actual cash value, which is your replacement cost minus depreciation.
In a worst case scenario, this may lead to a court battle between you and the insurer to determine how much money they owe you.
Get insurance quotes online or visit your local independent insurance agent to ensure you get the best deal, no matter what policy type you choose to go with.
This post was written on August 16, 2010
Below is a list of the top auto insurance companies in Texas, based on written premium. Keep in mind that these companies aren’t necessarily the top rated, just the most frequently used.
As you can see, State Farm was the top auto insurance provider in Texas in 2009 (the most recent data available), according to a recent report from the Independent Insurance Agents of Texas.
The company grabbed 20.3% market share with roughly $2.66 billion in written premium, followed by Farmers, which raked in 13.4% market share with slightly more than $1.76 billion in written premium.
Allstate grabbed the third spot with 11.8% market share and $1.55 billion in written premium, followed closely by Progressive, with 8% market share and $1.04 billion in written premium.
Rounding out the top five was GEICO (Berkshire Hathaway), with 6.8% market share and $890 million in written premium.
A number of other notables are in the top 20, including USAA, Liberty Mutual, Amica, MetLife, and Mercury General.
FYI, this report looks at total insurance written for both private passenger liability insurance and physical damage coverage.
You will notice a lot of the usual suspects here. You may also be surprised to find a number of companies you’ve never heard of.
This is proof that a company doesn’t necessarily have to advertise on television to be a top insurer.
Get insurance quotes online and/or contact your local independent agent if you’re in the market for a new insurance policy or want to see if what you currently pay is reasonable.
Remember, the insurance company with the greatest volume may not be the most cost effective choice for you and your insurance needs.
(top photo: littleblackspotonthesuntoday)
This post was written on August 16, 2010
If you’re in the market for health insurance, make sure you go with a company you can trust.
After all, there’s nothing more important than your health – and care can get pretty expensive if things take a turn for the worse (why do I need health insurance?).
That said, you should look for a company that’s been around a while, with a proven ability to pay claims (financially stable) and good customer service ratings.
Remember, it’s a lot more likely an insurer will pay your claim if they’re still in business…
Taking the above information into account; here are the top 10 health insurance companies in the United States, based on premiums written in 2009, per III.
Top 10 Health Insurance Companies
1. UnitedHealth Group: $80.1 billion – Market share: 12.36%
2. WellPoint Inc. Group: $56.3 billion – Market share: 8.69%
3. Kaiser Foundation Group: $48.4 billion – Market share: 7.46%
4. Aetna Group: $28.1 billion – Market share: 4.33%
5. Humana Group: $26.6 billion – Market share: 4.11%
6. Health Care Service Corporation (HCSC): $18.3 billion – Market share: 2.82%
7. American Family Corp. Group: $14.8 billion – Market share: 2.29%
8. Coventry Corp. Group: $13.1 billion – Market share: 2.02%
9. Highmark Group: $12.9 billion – Market share: 1.98%
10. Independence Blue Cross Group: $10.2 billion – Market share: 1.57%
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The health insurance companies listed above may offer a combination of health, life, property, and casualty, along with an array of financial products as well.
It’s not necessary to purchase a health insurance policy from one of the companies listed above to ensure you receive adequate coverage or service – these are merely the largest health insurance companies around.
There are literally thousands of insurance companies out there to choose from; some focus on only one type of insurance or one specific region of the United States, and may be better suited for your individual needs.
If you have questions about your coverage or rates, obtain insurance quotes online and/or contact an independent agent.
This post was written on August 12, 2010
“Packaging your home and auto insurance” refers to obtaining both insurance policies from the same company. Of course, as with most other insurance options, there are potential positives and negatives to doing so.
Depending on which type of insurance company and/or agent you work with, you could ultimately save or lose money. The one certain thing is that the insurance company will benefit.
Benefits to the Insurer
The insurance company wants to package your home and auto insurance for a few reasons:
1. No brainer; they get more premium dollars per household for doing so.
2. The insurer (or agent) has a lower acquisition cost in obtaining the policies, i.e. they don’t have to necessarily advertise for both to sell you both.
3. Insurance company statistics show that they tend to retain your business longer when they have both policies (it’s harder to leave).
4. Actuarial data (actuaries are insurance numbers geeks) shows that individuals with a homeowner’s policy or renter’s policy tend to have fewer claims.
5. Insurers can offer a discount to individuals who package, which makes them more competitive and allows them to sell more insurance overall.
Benefits to the Insured (You)
There are also some benefits to you as the consumer…
1. Similar to #5 above, the discounts offered will potentially save you some money by qualifying for a so-called “combo discount.”
2. Packaging means you only receive one bill each month, which can save you time and cut your payment processing fees (if applicable) and chances of making a missed payment.
3. Some insurers will allow you to pay a single deductible for property damage claims that affect both your home and auto at one time. For example, a hail storm that damages your home and car while it’s in the driveway.
4. Insurers are more likely to make pricing and underwriting exceptions for a customer that has more than one in-force policy with them. For example, they may be willing to lower your auto premium to keep your business if you threaten to move both policies to another insurer to get a better deal.
Downside to Packaging Insurance with One Company
You still need to be a savvy insurance consumer to make sure you’re not getting the short end of the stick on your packaged insurance.
Insurance companies whose insured are not as prone to comparison shop their insurance (State Farm, Farmers) can sometimes get the better of a consumer.
Insurance isn’t much different than any other financial service – you’re susceptible to paying too much if you don’t shop around from time to time.
This is much more likely to be a concern if you use a captive agent versus an independent agent.
Here’s how it can go wrong:
Your insurer may be very competitive on one line of insurance, auto for example, and then sell you a homeowner’s policy that is 25% more expensive than what is available in the marketplace.
Essentially, they get you in the door by advertising a low auto premium, and then sell you the package with an overpriced home policy.
It is recommended that you use an independent agent who can shop several companies to determine which insurer is competitive on both policies at any given time.
Remember, brand loyalty does little to help the average insurance consumer. Just ask one of your neighbors who made one claim after 15 years and were non-renewed!
(photo: LancerE)
This post was written on August 9, 2010
Car insurance discounts are all the rage these days.
Heck, State Farm claims you can save up to 40% via discounts, but that doesn’t mean a whole lot if the starting price on the premium is much higher than competitors.
At the same time, you should always be sure to inquire about any and all possible discounts (such as good student discount, good driver discount, etc) to ensure you receive the lowest possible price.
For example, if you drive a Hybrid or similar low-emission vehicle, you may be able to get a discount, depending on who you obtain your car insurance from.
Why are hybrids cheaper to insure?
Well, they aren’t necessarily cheaper to insure than standard vehicles, but car insurance companies are able to offer a discount for hybrid vehicles because research has shown that their drivers fall into a lower-risk category (how car insurance rates are determined).
Farmers Insurance offers a 10% discount on car insurance to drivers of “Alternative Fuel Vehicles,” available for both electric-and-gasoline hybrid vehicles and dedicated-fuel vehicles that use qualifying alternative fuel.
That’s on top of many other possible discounts, like good driver, safe driver, multi-car, and the presence of anti-theft and/or antilock brakes.
Travelers also offers a 10% discount to the owners of hybrid cars and boats, and Geico offers a 5% discount on certain coverages for insured hybrid vehicles.
Keep in mind that not all car insurance companies offer a hybrid discount, but it doesn’t hurt to ask – the savings could be significant, especially if you’ve got a few hybrids in the driveway.
Tip: If you’re working with an independent agent, be sure to remind them that you may qualify for a hybrid discount when they compare rates from multiple companies.
(photo: joi)
This post was written on August 4, 2010
