My New Blog

HOMEOWNER INSURANCE COVERAGE NUMBERS

BEING MANIPULATED?

I recently received my homeowners renewal policy from State Farm Insurance. My coverage amount had increased to an amount that had my dwelling replacement cost at $130 per foot. This does not include the contents of the dwelling of personal property and remember this does not include the land. This is the cost to remove and re-build the dwelling. Now, I was quite shocked since this was a significant increase from the prior years coverage amounts. Since I am in the business of Real Estate Valuations, which includes my experience in the “ detailed “ cost addendum using quantity survey methods, I knew this was a grossly exaggerated number. I also new that the coverage or replacement number means a higher premium will be paid to the insurance company.

            I have been closely monitoring what local builders and contractors are doing in our market area. The amounts that I am witnessing builder’s build a similar type dwelling is from the low end of $65 per foot to a high end of $100 per foot. My dwelling is not near the upper end and is more towards the mid-lower end. The coverage amount is there to provide a cost of what the amounts are to remove and rebuild the dwelling. This meant that State Farm had overstated my insurance coverage on the low end of $63,000 to a high of $136,500. You don’t have to be rocket scientist to know that there is a very low demand for building supplies which means lower prices to build all around. Our prices have not gone up since the Real Estate market has been spiraling downwards.

            Armed with my information, I called my State Farm representative and questioned them about this significantly incorrect coverage amount. The initial response to me was, “that was what the computer told them”. It was a software program of State Farm in which data is inputted and the computer spits out a number. This meant that some insurance number wizard must had seen that premiums can be increased if the coverage amount can be increased while still leaving the rates alone. This seems like a good scam to me. I was not questioning the fee to insure that cost, I was questioning the beginning trigger number of the coverage amount. Anyway, I pressed the representative and found out that there are overall classifications that affect the coverage amounts. Well, no one ever volunteered that information to me when I originally purchased the coverage. They just took the initial appraisal that was performed for the mortgage and used the cost section, which is not an intended use of that appraisal. And there were no questions to me about the overall classification of the property. It appears as though this was a very convenient way to hide another way of increasing premiums in the following years of a purchase.

            The end result was that I was able to get my coverage amount within $50,000 of a reasonable number. However, I am very disappointed that with all the methods and databases that exist to create accuracy in cost valuations, they could not get closer to a reasonable coverage amount.  I want to urge you to take notice of your coverage amount. Contact your insurance company and find out how you can argue your coverage amounts with them. Some will take another appraisal for insurance purposes while others require a contractors estimate in following years, and in the case of mine, it was just clarifying the overall classification. After witnessing this significant and material misstatement of coverage I can only imagine what the overall general misstatements of Florida residents homeowners insurance really is. I hope someone in a higher position takes notice of this.