Shuman Roy is an entrepreneur, business owner, and musician. He started RoysNoys, LLC in 2013 as a music production and education service company. He also offers small business consulting and advisory services to help businesses get from start-up mode to turn-key operations. Shuman earned his M.B.A from the Stern School of Business in 2001 and has an undergraduate degree from Manhattan College in ...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Joel...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Oct 14, 2021

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Insurance companies are always changing up the way that they do things, though it always boils down to profit, as much as we’d like to tell ourselves that it’s for our protection. You may have read our recent post about State Farm non-renewing 10,000 home insurance policies in Florida. That’ll probably ensure they are making enough money, right?

WRONG. State Farm plans to increase the cost of homeowners insurance policies by 5% in Alabama to increase future profits, according to National Underwriter.

The whole, “like a good neighbor” thing is losing its luster as they continue to raise rates and fight allegations of gouging their insured and illegally denying insurance claim payments in many states.

For the record, State Farm is the largest writer of personal-property insurance in the state.

Why the increase?

We’re positive it’s not being done so they can continue to afford their $500,000,000+ yearly advertising budget…surely that money is spent out of necessity to ‘help’ their current clients. That’s the only reason why they would raise their average cost of a homeowners policy, right?

(Biggest insurance budgets.)

Perhaps not. With regards to the cost of homeowners insurance going up, State Farm Spokesman David Majors says the increases are necessary for, “anticipated future needs.”

Translation? ‘We MAY need more of Alabama’s money in the future…we’re not certain, but taking more of your money is a risk we are willing to take.’ You’ll be paying higher annual premiums for unknown reasons; seems like there are other avenues you could walk down that would give you the same coverage options but at more average rates.

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Is State Farm planning any other changes?

We’re glad you asked. The answer is, yes! State Farm also plans to make some changes to the discount model in the state.

As you may have guessed, the change will also result in higher insurance premiums for Alabama customers. Because we all want additional living expenses, right?

We’ll spare you the mind-numbing explanation of how homeowners insurance rates are determined and give you the truth.

Previously, State Farm was offering discounts on policies if a particular homeowner fortified their home based on standards from the Insurance Institute for Business and Home Safety.

For example, if you fortified your home according to these standards, you would receive a 5% discount on your entire policy premium. That meant no matter what types of coverage you had, you had a discount.

So if your premium was $700 for twelve months of coverage, the 5% discount would push your premium to $665.00 for the year. Basically, a 5% discount on the ENTIRE PREMIUM.

The new plan will only offer the discount for the portion of the premium that directly applies to the hurricane damage your home may suffer. It only covers the one type of coverage.

Translation? Your WHOLE policy discount of 5% is now reduced to the specific coverage for a hurricane. Say what?

Instead of your entire premium reduction in the example above ($35 dollars), you will only get a 5% discount on the $100 worth of hurricane coverage on your policy…or a $5 discount. Fire damage? No discount. Water damage? No discount.

So your $700.00 policy is $695.00 instead of $665.00. Advantage, State Farm! Given the amount of homeowners insurance discounts that are floating around out there, this doesn’t seem like it’s the best deal. Especially if you live in a high-risk area with a wide range of natural catastrophes that occur. You’re suddenly going to be out a more affordable premium, and you can’t even get a basic, across-the-board style discount on standard policies!

When will the changes take effect?

The increased premium will be effective for new business policies issued on November 15, 2011 and for any renewal on January 1, 2011.

Basically, if you’re already a customer, and your policy renews between November 15, 2011 and December 31, 2011, you won’t feel the bite until your 2012 renewal…or one year later. You’ll then see that your annual cost has gone up.

If you bought your original policy after January 1, 2011, prepare to write a bigger check…

Or you can start shopping around for a replacement homeowners insurance company and look for the same insurance policy at a lower price. Consider an independent insurance agent who can look at the rate you’re looking for with multiple carriers all at once to save time. Calling customer service isn’t as bad as it seems. Having someone to help you look for a homeowners insurance quote means you don’t have to do all the work yourself.