Our home is our castle. (At least that is how the saying goes.) As seniors, our home is often filled with a lifetime of memories. It may even be the one where we raised our kids. In any case, as we age, the familiarity of our home wraps around us like a warm blanket. Home is undoubtedly where we feel most comforted when we don’t feel well.
No wonder homeowners insurance is high on our list of ‘must haves’ as we portion out the money in our budgets. One driving force is the idea of losing our home or possessions to a human or natural incident and not having the resources to repair or replace them. That explains why the U.S. industry has grown to over $93 billion in annual premiums, but it doesn’t mean we should pay any more than needed.
Homeowners insurance providers are often the same familiar companies you see offering auto, renters and life insurance policies. If you have a mortgage on your home, your lender will require that you protect the asset, as that is the collateral for the loan. But even if you own your home outright, unless you can afford to self-insure by putting enough money aside to replace any losses, you will want to have homeowners insurance.
Selecting a company calls for doing some preliminary online research and requesting referrals from people you trust: friends and family, an HOA or condo association, a trusted banker or lender. A key determining factor is if that person has had a claim with the recommended company and was fully satisfied with how the claim was settled. As with all insurances, we are dealing with the theoretical until something happens and by then it is too late to switch.
After educating yourself on the different kinds of homeowners plans, and the broad range of items they can cover, you want to contact your short list of companies for quotes. You can then compare those quotes to find the homeowners' insurance policy that offers you the best balance between peace of mind from adequate coverage and affordability.
Your home is likely your most valuable investment, one which also happens to provide a roof over your head. In case of a disaster, whether from a fire, storm or another event, you want to be able to repair or replace it. But would you be able to do so? A quick look at the net worth of many seniors will show that the equity in their homes is usually far larger than available cash.
Homeowners insurance is not required by law. But, even if you don’t have a mortgage that requires it, there are still many reasons you would want homeowners coverage. It helps repair your home and other structures in case of damage. It helps repair or replace personal belongings should they be destroyed, stolen or lost – both inside your home and when you are away from it. It also extends protection against personal liability: any claims against you resulting from damage to others, again at your home or away from it.
Having adequate homeowners insurance:
- Protects the foundation of your personal security, that is, your home;
- Protects the investment you made in your home and possessions, whether against a human or natural disaster or theft;
- Safeguards the asset you count on passing down to children as part of your estate;
- Shields your finances against lawsuits by others whose person or property you may be responsible for injuring or damaging; and
- Provides general peace of mind that allows you to enjoy your later years.
In short, at a time when our income-generating days may be behind us, homeowners insurance protects us from having to dip into the resources we do have to cover any losses related to our homes.
Decisions on homeowners insurance are based on price, coverage and ease. For example, you want to know about the premiums you will have to pay, how easy it is to enroll in the plan, what is actually covered, when the plan goes into effect and how available the customer support team is when you need them.
Once you have gone through the first level of questions, you want to know more about the intricacies of the policy: on the pricing side, available deductibles, any discounts and credit for safety devices. On the policy side: any upper limits to your coverage, how claims are processed and how easy it is to cancel a policy.
Before you can select a homeowners insurance policy, you want to understand the different types of coverage, so you can design your ideal plan.
Standard coverage: this is the part of the policy that is included automatically and will vary from company to company. Look for:
- Dwelling protection,which may or may not include attached structures.
- Other structures protection, which includes standalone structures.
- Personal property coverage, which covers the cost of belongings lost or stolen in an incident at home or away from home.
- Loss of use coverage, or additional living expenses, which covers the cost of housing when yours is not available.
- Personal liability coverage, which helps pay for injury or damage to third-party persons or property, at home or away from home.
- Medical payments coverage, which covers the treatment of injuries to third parties at your home, or you and your family when away from home.
Optional coverage, or endorsements:this part of the policy is designed by you from the coverages available through your insurance provider. Consider:
- Special personal property coverage, which broadens the covered causes of damage to being all-inclusive, except for a short list of exclusions.
- Water or sewer backup, which is normally not covered and could cover only damage to the structure or the structure and its contents.
- Identity theft protection, which covers the cost of recuperating from identity theft.
- Scheduled personal property, which extends coverage beyond the normally low limit for items such as jewelry, furs, silverware and art by ‘scheduling’ them at their full value.
The list of possibilities is endless, although there are some problems few homeowners policies cover, such as flooding, earthquakes, nuclear hazards and hurricanes. (Flood, earthquake and windstorm insurance might be purchased separately.) The best way to ensure you have not overlooked anything critical is to ask your potential insurance providers to supply you with their exhaustive list.
Coverage Limits: Dwelling coverages should be calculated as replacement cost in your region, and not on how much you paid or today’s market price. Your goal is to replace what you lost. On personal possessions, the rule of thumb is that this coverage should equal 50 percent of your dwelling coverage. A careful inventory will tell you if that is too high or too low. (Having a detailed inventory is a valuable, regardless, in case of loss.)
You need to choose between Replacement Cost (what you would pay today to have the same thing) and Actual Cash Value (which takes depreciation into account). Premiums for Replacement Cost are more expensive than with Actual Cash Value.
Deductibles:Particularly on property damage, a deductible is the amount deducted by the insurance company from what it pays on a claim. Different forms of deductible are available: an ‘all-perils’ deductible is comprehensive, applying to all hazards except those specifically excluded. A ‘named-peril’ deductible applies only to what is named, or listed in the policy.
The deductibles people select typically run $500-$1,000. The higher the deductible, the lower the premium, but you must be able to pay that amount toperform the repair or replacement of each filed claim, since it will be deducted from the check you receive from the insurance provider.
Discounts: You want to review a full list of possible discounts to see what might pertain to you. That list might include:
- retiree/senior citizen (usually 55+);
- multiple policies with the insurance company (or bundling);
- protective devices such as smoke detector, security system or sprinklers;
- a claims-free history;
- disaster-resistant roofing;
- new or newly renovated house;
- loyalty as a long-time client;
- continuous coverage (active policy still in place); and
Once you have defined what you want the homeowners insurance policy to cover, you want to identify 4-5 insurance companies with good reputations and solid finances based on their Financial Strength Rating by A.M. Best. Also, J.D. Power publishes a “U.S. Property Claims Satisfaction Study” and a “U.S. Home Insurance Study” that rank customer satisfaction by company. A simple internet search will find the latest reports.
Contact each candidate company on your list once you have your coverage and deductible information in hand. Ask about discounts, since sales representatives will rarely volunteer the option. Request a quote, either online, by phone or through a broker. Once you have several quotes, then select the best option for you.
Note that if your home is in a condominium, your homeowners' insurance will play a slightly different role as structures (walls and floors) are usually carried by the condominium itself, and not you. However, many of the other elements apply.
While seniors share the basics of decision-making with homeowners who are younger, two additional areas should be explored with each potential insurance provider: age-friendliness and health-related value.
Age friendliness: This measures how convenient and easy a service is in adapting to your changing needs as you get older.In the case of homeowners insurance, this includes having various ways you can communicate with the company and friendly, supportive assistance from its customer service team. Those representatives should know enough to understand how aging might affect your insurance needs and how changes to your policy might help keep your premiums low. The insurance provider’s website should be intuitive and easy to navigate. Its procedures for bill-paying and claims-processing should be clear.
Health-related value: This reflects how a service might change in value as a person’s health declines. In the case of homeowners insurance, an important factor is who is in your house and how the house is being used. For example, if a senior leaves the house for assisted living, the protection of the dwelling itself may be at risk if something happens when the insured no longer lives there. This potential loophole needs to remain top-of-mind as the insurance company shifts its coverage to a senior’s situation. The insurance company might also provide information on how to keep a home safe as its residents become weaker due to health concerns.
The actual fees, or policy premiums, for homeowners insurance will vary from one insured to another, based on a series of factors that each insurance company uses in a secret calculation formula. Some of those factors include:
- The replacement cost of your home;
- The age of your home;
- The distance from the nearest fire hydrant;
- The fire protection rating of your city;
- Crime rate in the neighborhood;
- Likelihood of damage from natural disasters;
- Your claims history and that of your neighbors; and
- The coverages, limits and deductibles you select.
As you are seeking homeowners insurance coverage, you only have control over the last factor. Beyond that, it is up to any discounts to lower the proposed premium, and some of those are indeed within your control to change, such as installing a monitored security system.
The state where your home is located also plays a major role in your premium, with premiums running three or four times as high from one extreme to the other.States such as Oregon, Idaho and Utah are among the more affordable states, while Florida, Texas and Louisiana are among the most expensive. In a recent Value Penguin study, average annual premiums by state ran from $574 to $2,055, with a national average around $1,083 (up 50 percent in the past ten years).
One thing to keep in mind is that, as expensive as homeowners insurance may appear – especially if you are on a limited budget – it is insignificant when compared to the value of what it covers.
As you start filtering through possible insurance providers, you want to examine annual premiums, how easy it is to enroll, what can be covered, if there is a waiting period and the quality of the company’s customer support.
Cost: It goes without saying that your homeowners insurance must be affordable. You may have to work with your selected insurance provider to adjust the coverages and deductibles to fit the monthly premiums within your budget. To the extent possible, the policy you design should reflect the risk you are willing to take regarding financial and physical loss. Protecting your asset – your home – figures significantly into your ability to remain independent. Be sure to call on every discount offered by the insurer for which you qualify.
Ease of enrollment: The elements of a homeowners insurance policy can sound like a foreign language. An insurer that recognizes this will make your researching and purchasing process as easy as possible. It will provide several ways to enroll, including through a website, by email and by phone to reflect the varying comfort levels of seniors.
Coverage: Coverage begins with what each company includes in its basic or ‘standard’ policy. Once that is determined, the next step is to see how to enhance the offering with optional coverage, or endorsements, that customize the policy to your needs. What is excluded is as important as what is included, so do not take anything for granted. The insurance companies do not.
Waiting period: A homeowners insurance policy can be set up to become effective on a specific date, say to coincide with the date you close on a new home or the ending date of a policy you are replacing. Insurance companies will almost always have a waiting period, from 30 to 90 days, before you can file a claim.
Customer service: Customer service should be evaluated on the hours that company’s representatives are available, how friendly the company website is, how forthcoming the company is with decision-making information, plus how easy it is to pay bills and process claims. When dealing with something as important as our homes, the quality of customer service is especially important to seniors, particularly as they age and decline in health.
As you study the details of homeowners insurance plans, you may start wondering why you have a policy if you own your home free and clear. Looking at the deductibles required to have an affordable premium, the discounts and credits for all the safety devices you have installed and the limits the companies impose to what they will pay, it may seem like a bad deal. Some alternatives do exist.
One alternative is a basic hazard policy that protects the structure of your home, but not its contents. Damage from fire, theft, vandalism or water damage from broken pipes might be covered, as well as windstorms and hail. However, besides your exposure to loss of personal effects, you are exposed to personal and medical liability. The savings may not be worth the risk.
Some states have created Fair Access to Insurance Requirements (FAIR) plans where natural disasters have caused most insurance companies to flee the state. Many companies join a pool to share profits or losses and offer only basic coverage at a high premium. In states such as Florida, California and Louisiana, getting homeowners insurance is becoming a greater and greater problem. More and more of the burden is falling on the homeowner to save up to cover whatever available policies do not.
For seniors, unless they have no mortgage and have a Plan B (such as a family member that would take them in should disaster hit), the best recommendation is to search for a policy that is affordable and offers enough coverage to remove the fear of loss. Going ‘bareback,’ as having no insurance is called, is not for the faint of heart.