REAL ESTATE

There's No Conspiracy, and 6 Other Things Your Home Insurance Agent Wishes You Knew

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flood-insurance2  ((c) Michael Blann)

Everybody has to have home insurance -- but understanding the obtuse legalese buried in your policy? We're not wizards.

Insurance agents and brokers (generally, an agent works for a specific company; a broker is independent) exist to help you comprehend the various clauses and requirements of your insurance policy. But you need to help them, too -- by being proactive, willing to listen, and inquisitive.

Here are seven things that smart homeowners need to understand -- straight from expert home insurance agents and brokers themselves.

1. Insurers look at replacement cost, not market value

In the event that your home and/or possessions are damaged, don't be surprised if your insurance company offers less than market value. It's looking at replacement value -- "the amount of money necessary to repair or replace damaged property," says Kevin Foley, owner of PFT&K Insurance Brokers in Milltown, NJ.

It doesn't care about what your home might go for if you listed it -- it cares only about what it costs to repair the home. Bought your home for $500,000? That price includes land (which isn't insured) and other factors such as the excellent schools nearby.

"If the house burns to the ground, you will only get what it costs to rebuild," Foley says.

2. You should never, ever ignore flood risk

Planning to skip flood coverage because you're in the middle of the high plains? Think again. Lakes, rivers, and oceans aren't your only watery concerns. Forgetting about your sump pump or sewer can be a catastrophic mistake.

Patti Clement, a senior vice president at HUB International, recommends purchasing an "all risk" policy.

"If there is a power failure and it causes the pumps to fail and you have flooding in the basement, it is a way for the loss to be covered," she says.

3. Don't use insurance for maintenance issues

Making a claim on your insurance will likely cause your premium to rise. That's no fun for anyone, especially your agent, who might get an earful when you receive your next bill.

Plus, too many claims could result in cancellation of your policy. So keep your claim activity to a minimum.

"Insurance should only be used for larger claims or catastrophic incidents," says Jennifer Gregorski, a Farmers Insurance agent near Philadelphia. "It's not intended to reimburse you for maintenance issues that arise from daily wear and tear. To put in multiple small claims will cause the homeowner's premium to increase and make it difficult to move your insurance when you choose to shop."

Not sure if you should make a claim? Foley offers a good rule: "When you use your insurance, it should be with a sense of 'Thank God I have insurance.'"

4. Tell them before remodeling your home

On the to-do list before a major renovation, giving a heads up to your insurance company may fall to the wayside. Don't let it, otherwise you might find yourself paying some big bucks.

Not only do you want to ensure any possible mishaps are covered under your policy, but your insurer likely will need to reassess your property, especially if renovations affect the value of your house.

Some renovations -- like a new roof -- can lower your premiums. But others, like putting in a pool or, God forbid, an in-ground trampoline, can cause your premiums to skyrocket. Double-check with your agent before finalizing construction plans.

5. Buying insurance isn't 'like shopping for gas'

Understanding the intricacies of your policy can be immensely overwhelming, tempting many homeowners to shop exclusively for the lowest price. But being more methodical can make a huge difference.

"Don't view buying insurance like shopping for gas," says Kurt Ostergaard, a CFA with Stirling Insurance Services in New York City. "You're buying protection for the most expensive things you own. The language in a policy needs context and explanation that reading it straightaway will not give you."

Go through your policy with your broker or agent, asking questions whenever you're confused -- and don't feel bad if your list of queries runs long.

"Insurance scares the crap out of a lot of people," Ostergaard says. "It starts with a river of forms and ends with a big check and a document written in legalese by lawyers for lawyers."

6. There's no conspiracy. Seriously.

Believe it or not, your insurance company doesn't set out to smash your dreams of reimbursement with an iron hammer.

"One area that makes things very difficult as an agent are people who think the insurance companies are out to deny every possible legitimate claim," Gregorski says. "There is not a vast conspiracy against the clients."

Insurance companies do want to keep you happy. And sure, they want to protect their bottom line as well -- but instead of being combative, work with them to determine the best outcome that you both can be comfortable with.

7. Don't yell at the agents

Your agent or broker should be your ally. Remember: They're not the ones setting the rates or raising your premiums. You might be upset, but give them a break.

"The customer service person or agent in the office is not the insurance company," Gregorski says. "We understand that increases are difficult on the insured, but yelling or harassing the staff is not going to help your situation."

If you have an issue with your coverage or rate, try to remain calm during discussions.

"Keeping a respectful tone will get you much further to figuring out a solution to the issue than brute force," she says.

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Watch: What Your Mortgage Broker Wishes You Knew