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Understanding Homeowners Insurance Coverage Policy Limits

Understanding Insurance Premiums for Homes

Hey, Brian Freeman here. Hey, thanks again for joining us here on the Real Property Show today and listening along. I want to talk to you today about homeowners insurance policies and we’ll talk about landlord returns policies as well. I want you to understand a little bit about them and how you can make sure you have the right amount of coverage for your home or your investment property that you have.

2007 Witch Creek Fire Impact

Back in 2007, there was a Witch Creek fire in the San Diego County area, and we were down there in that area building homes at that time. We ended up doing probably over a hundred different scopes of losses for these homes that were total losses in the Witch Creek fire. It was like 600 homes that burned down in the town that our office is located in, down in Ramona, California. I wanted to share with you what our experiences were with that and what we learned about insurance policies so you can make sure you’re covered in case something happens.

Partial Home Insurance Loss vs Total Home Insurance Loss

Oftentimes you’ll have a partial loss which you probably will have enough insurance to take care of that, but if you end up having a total loss you can definitely be underinsured, and we saw that a lot in those wildfires that came through and wiped out homes just completely down to the slab. There was nothing left of the house so you know the foundation was all that was there.

Evaluating Home Insurance Policies From Year to Year

I’m going to talk to you about how you can evaluate the policy you have so if you’re buying a home or if you’re already in a home, and you want to look at your policy and make sure that you have enough insurance, this is really important today because the costs of building are going way up. With the inflation that’s happening you’ve got to make sure that you have the proper amount of insurance. I mean we’re talking about some of these projects that are getting built from year over year 20% increases on costs to build, so if your policy went into place maybe May of 2021 and now we’re into 2022, this time now it could be 20% different on the cost or it could be underinsured.

Homeowner and Landlord Insurance Policy Examples in Middleton, Idaho

You want to make sure that you evaluate it and we’re going to look at some examples. We’re going to look at a landlord policy and also a homeowner policy, a couple of properties actually located in Middleton, Idaho. These are definitely going to be different numbers depending on where you look. If you’re evaluating this from around the country the prices of the real estate where you’re at are different but this is for the Middleton, Idaho area. You’re going to see a couple of different properties there as far as the actual costs that we’re talking about.

I’m going to share my screen with you and we’re going to go through these. There are I think four or five documents here I want to show you what we’re talking about, so we’ll get this switched over. If you are listening to the podcast make sure you go to our youtube channel, Real Property Show, and you’ll be able to see these examples a lot more there. You’ll be able to actually see what we’re actually going through and talking about.

Landowner Insurance in Boise

Let me skip back over to this first document, this is we’re going to look at the landlord policy, initially first so we’re going to look at this, and let me get switched on so I can annotate on here. We’ll want to be able to draw on this, so okay what we’re looking at here is the landlord policy. You can see the dates on these, some of these have the dates on them and this one’s actually written with Boise River Insurance LLC. who is the broker and Safeco is actually the insurance company.

This is a 12-month policy, a landlord policy, this has a date from 9/16/2020 to 9/16/2021. I’m also going to show you the increase, these are actually examples of the 20%. This is why it’s an older policy, I want to show you what’s actually happening. Today, we had gone back to the insurance broker and asked them for updates on these particular properties and you can see how much it actually increased, pretty crazy, and I’ll show you that in a minute. They have on these policies what is called a ‘Dwelling’ or ‘Coverage A’. Dwelling is more of the newer term, Coverage A is an older term, but coverage is essentially this is the base policy limit.

Homeowner Insurance Examples

This one particular home has a $240,000 base policy limit Coverage A, so if you have a loss they’re going to pay up to that $240,000 for the actual structure of the home.

Then you have another ‘Coverage B ‘ which covers other structures, which would include concrete flatwork that’s outside the house, or maybe a shed, driveways, those sorts of things that are actually not attached to the actual house. There are some technicalities going to that you can actually have, like a deck ledger that’s pushed up against the house but not connected with screws. That’s considered another structure because it’s separated from the home, as soon as it has a screw into it going to the home it’s considered an actual part of the dwelling, Coverage A, so there are some technicalities to this but essentially this is everything detached from the home.

Then you’re going to the next thing here, personal property ‘Coverage C’, it’s always a lot lower mostly, on anything if it’s a landlord policy. If you have something that’s fully furnished you want to make sure you have more in here but this is mostly saying that the renter, the tenant, should have their own personal property coverage. Whereas you as a landlord might have a washer and dryer in there, you may have a few other things in the home that possibly could need coverage for personal property, but your policy will be lower or your coverage amount will be lower for this right here for personal property. Much higher on your personal residence.

The loss of rent, this is if you actually cannot rent the home, they’ll pay up to $24,000 to do that, so it’s ‘Coverage D’.

Medical payments if someone gets hurt, and then you got your basic liability on the property at $300,000.

Understanding Insurance Specifics

One thing to look at on a policy to make sure you’re covered properly is you can have what’s called an ‘Extended Dwelling Coverage’. I highly recommend getting this. It is an additional 25% and this is based on the Coverage A amount, so you’d actually take $240,000 and multiply that by 25%, it’s going to be $60,000, so that number right there is gonna be extended, so you could actually go up to $300,000. If let’s say you got the bid back to build the house after a complete loss in a fire or whatever it was, he comes back to you and you have an issue with the being over $240,000 to actually replace this home.

Flood insurance is separate so make sure if you have a small flood in your home your insurance will take care of it but you could potentially need flood insurance if you’re in a flood plain.

So the $240,000 plus the $60,000 would be $300,000. If you’re if your bid comes in over $240,000 they will go up to $300,000 adding an extra $60,000 if you have this 25% extended coverage. You want to make sure you have that, that’s going to help you if there is this inflationary environment where you have all the prices going up, up, up to build, this will protect you up to 25% of that so make sure you have that. This is kind of just an extra buffer you really want to get this Coverage A up to the actual cost to rebuild your home so it’s just less squabbling with the back and forth with the insurance company as far as making sure you get paid, it’s easier to negotiate with this number being up closer to what it the real number would be to rebuild it. Then this number here will increase you can see this is 10% of the $240,000 of the coverage, that’s 10% this number could be a percentage of it or you can this can be adjusted and you can request these to be different but these are this is what’s typical.

Understand Code Upgrades

The one thing you’re not seeing here up here is this ordinance and loss this is your code upgrades a lot of times this is called, so code upgrade is another 10%. This could be added to this already if you had $240,000 plus $60,000 or 25% extended covered plus another $24,000 so this is like say, hey they all of a sudden this year they started requiring fire sprinklers to go in your home where they didn’t prior when that home was built, then that’s considered a code upgrade, so you’d be able to cover the cost let’s say it’s $3,000 for a fire sprinkler system to go in the house. We’ve done negotiations where you actually get down to where they require more sheer panel in the house so they have more diaphragm nailing, more framing costs, or possibly upgrading the windows to where they’re tempered or they’re more energy-efficient these are things like different code upgrades that happen due to regulation changes with the local building departments. Make sure you know that you have this, it’s really important, code upgrades are very, very important. This is on landlord policy or your homeowner’s policy so make sure to check on that.

These are the basics, everything’s based on Coverage A, you’re going to have 10% of those other structures it’s all detached items and then you’re going to make sure you want to have this code upgrades and then very very important have this 25% extended dwelling coverage that will help you out if anything goes up.

Simple Ranch House Insurance Case Scenario

Let’s take a look here at the thing I wanted to show you is what they’re recommending for this dwelling coverage right here, $240,000. we’re going to jump over to the next to this policy now this is actually with a $1,000 deductible, this particular premium was $889, so this was without any claims. This property ended up having a claim on it so it actually bumped it up significantly for the next year, there was a large windstorm that blew down a bunch of fencing that needed to be covered. You can see kind of where these premiums lie, this house here is I think it’s 1600, 1676 square feet built in 1978 so just a little simple ranch house is what this particular one is here.

Understanding Increases to Home Insurance Costs

Let’s jump over to this other tab, all right so now what we’re looking at this. This is an actual letter that was given back in let’s see when the date on this was August 30th, 2021 so this is last year so middle of last year, and this is the next policy period, so they’re renewing this particular policy. It ran through September so they’re notifying us a month ahead of time that this is going to be changing so remember this $240,000. This is $240,000, so your property dwelling limit Coverage A changed from $240,000 to $258,500. Other coverage limits listed below also change since they are factors of your dwelling limits, other structure limits Coverage B changed from $24,000 to $25,850 this is 10% of this Coverage A, personal property limits Coverage C changing from $15,000 to $16,160, and your loss of rent additional living expenses limits Coverage D changed from $24,000 to $25,850. If we run those numbers we say $240,000 and divide that out by $258,500, so that’s about an eight percent increase or so on cost and this is last year, this is when the market was actually really heating up so at this point in time you’re going to see a much larger increase in this next one I show you but this is so this is essentially where this thing went this is just because of increased building costs, so a replacement cost for this particular structure.

Then you can see there’s actually a claim on this and look what happened to the policy limit, the policy price went from $889 to $1,066 so that’s what occurred, so it’s not true that the premiums don’t go up if you actually have a claim, they did go up on this particular one so that’s what we’re seeing here, and this is a landlord policy so a little bit more money than the actual homeowner’s policy.

Middleton, Idaho Home Insurance Case Scenario

Let’s look now at the email that actually came in today, and so this is an email that was sent out to the insurance company and they are saying okay this $258,500 which is the limit, the newly revised limit, for that previous policy. This thing doesn’t renew until August 2022 which is coming up in four or five months but they’re now saying that amount the adjustment should be at $325,000 so here in Middleton, Idaho this is what’s happened in the costs. It’s gone crazy here with the cost to build, and it has everywhere but the real estate prices have really gone up. We’re talking $258,500 divided by $325,000 is roughly a 21% increase year over year, and we’re not even to a year yet since that letter came out.

What the recommendation is to actually do, and this for a Coverage A amount, everything goes up so now our code upgrades go to $32,500, our Coverage B goes to 10% of $32,500 so this is what they’re recommending this be increased to. The insurance premiums obviously go up due to the increased coverage that they have to provide.

Differing Replacement Values on Different Homes

We’ll look at this on another house we’re going to look at but this is a personal residence but this is $466,000 and they’re suggesting that this home go up to $650,000 and they’re also verifying here yes both homes do have a 25% extended replacement cost, which is good. That’s what we were talking about you want to make sure that you have just as a buffer to make sure you’re covered on any movements in price in between policy periods.

An Increase in Homeowners Insurance

Let’s look at this other doc so this is this one here this is an actual primary residence, okay so it’s just an actual homeowner’s policy it’s not a landlord policy, you’re living in this house. This particular one, it’s showing here this was the renewal that happened in July, just a little bit before July 2021 and it says their policy went up 5.5%, so 5.5% is what they recommend. I think the other one we said was closer to around 8% or 9% that went up, but this particular policy they’re recommending that, and this policy runs through July 2022.

The Dwelling Coverage A is written out a little differently, but it looks like it’s the same thing. Coverage A is with Main Street America I believe is this insurance company, this is in Middleton, Idaho as well for the pricing that you’re seeing. Dwelling is $466,310 for Coverage A and then you’re looking at a premium, this is obviously discounted down here for a couple of different reasons, but $466,310 that’s what they’re saying coverage needs to be.

Homeowners Insurance for Other Structures

For other structures, you can see again this is 10% which is our detached structures, Coverage B. Coverage C, personal property is much higher,  the other one was only like $15,000 increasing to $16,000. Personal property for this one’s $233,155 so this is assuming all of your contents in your home are all destroyed, you have $233,155 to get those replaced.

Documenting Physical Property for Home Owner Insurance

You have to document everything too so it’s actually a really good idea to get videos of everything in your home every so often. Make sure you do it at least once a year, renew your policy, and get everything in your house you added or any changes you made, make sure you do that so it’ll help you prove the level of finishes in your home, so when you go to actually prove the cost to rebuild it you can show them what was there so there’s no question of that. This really helps during the fires when someone has lost everything.

The Risk of Underinsured Policies

We had to recreate a lot of these things because people didn’t have that, so it was tough. Fortunately, because it was a disaster they paid out on it pretty well but we had people that were way underinsured like hundreds of thousands of dollars short on building their homes, so that was a major problem. They could avoid that by doing exactly what we’re talking about here, evaluating what it’s going to cost to build your home. One thing before I forget too is to make sure you go talk to a builder and say, hey what is it costing to build these days, right here, right now, what could you build this house for, I need a number to verify that these insurance companies are actually right. How do you know the recommendation is accurate? No one ever said that you know that the recommendation here of this going to $325,000 is accurate, so if you’re not in the building industry you may not know that that’s accurate so you need to go to a builder that does it every single day and make sure that he tells you that it’s right. Maybe get a second opinion too on it from other builders, hey is this about right can you rebuild this house this 1676 square foot house for this much money and you’ll get some good feedback, so make sure you do that.

Loss of Use for Home Insurance Policies

All right so now we’re looking here, we got a loss of use so much higher on this one too. Loss of use is going to pay for hotels, and other housing for me to go to, so this is what that is, first property is way higher as well. Personal liability is actually the same about $300,000. We have medical payments a little bit lower, and let’s see if we go to this, this is just premium discounts it shows your total policy premium of $839. This is a lot lower, this particular house is I think 3,600 square feet so versus the other one was 1,676 square feet, that policy was even higher, the landlord policy before they increased it due to the claim so you have $839. It’s cheaper to have the homeowner policy so I mean looking at this here if you’re looking to figure out you know what policy premiums are up here in Middleton, Idaho you know what you’re going to be paying. This is a 3,600 square foot house and it’s $839 a month and you divide that for a year so I should say $839 divided by 12 that’s about $70 a month roughly for your homeowner’s insurance.

This is actually going to go up because I’m going to show you another email that was sent today and show you the recommended new premiums of what this would be, but we’re going to look at what the new Coverage A recommendations are based on that, it’s actually very significant on this particular property.

There is a $1,000 deductible and this is again the additional coverages, you’re looking at 25% limited to the liability, and the specified additional amount of insurance for Coverage A dwelling is 25%. Make sure this is your policy, these two policies had to be requested, this was not standard in these policies we requested this specifically to be added to these policies so make sure you’re checking on this.

Trampoline Surcharges with Insurance Companies

Then this is a special one here, trampoline surcharges, if you do have a trampoline the insurance companies are going to run for your kids, they’re going to run by look over the fence, do what they want to do, and then they’re going to charge you $73 a year for your trampoline. So know that happens and you can actually get this removed, you just call back and say, hey look got rid of the trampoline, it blew away in a windstorm and they can actually remove this off of here but they do charge for trampolines.

This is just a little bit more information, this house was built in 2015, which gives you a roof age so they take these things into account when they’re rating the policy.

Reviewing Home Insurance Coverages

That’s mostly everything I want to show you. If we go back, let’s actually look at the numbers again just so it’s fresh in the mind. $466,310 is Coverage A, so that’s what we’re seeing and she rounded this year, but Coverage A on the primary home is $466,310, that’s the number we just looked at. I would suggest going to $650,000 to build these days. We look at the increase we’re talking about, she’s recommending $466,310 divided by $650,000 is a 29% increase in what she’s saying that the insurance company is calculating out for the building costs. So there again we have our standard replacement of 25% and we would still be over and above that, by 4% meaning, we’re 4% short if we totally exhausted our Coverage A plus the costs for the 25% or extended replacement, we’d still be 4% higher. Let’s assume this is accurate and I would not be surprised if it is not, it’s probably very close to what the difference in cost would be for the Middleton area. Just know that this can happen and that is why you want to make sure you update this every single year to make sure have the right policy amount on your home.

Breakdown on Home Owner’s Insurance Policies

That is that’s really a quick breakdown on homeowner’s policies for landlords and also primary residents for homes that you’re living in to give you some idea of the rates and why you need to check up on them every year. Check with builders and make sure that you know that the dollar amounts that the insurance company is going to use are actually right. All right I hope that helps you all, it was wonderful talking to you again today. Have a great rest of your day.

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