Everyone who has homeowners insurance, please read! (how much, granite countertops, laminate)

[A_Cooler_Head]

I'm passing this on because of something that just happened to a relative of mine and also to several other people that she knows. All currently have their homeowners insurance with a certain well-known national insurance company.

She just found out that for the past several years there has been false information about her house on her homeowners policy data, meaning that her policy said her house has many many upgrades that she never claimed that it has. Because of this falsified data, her house has been almost 80% overvalued and she has been charged premiums based on the inflated value. She has been paying almost double what she should have been paying if this false data had not been put in there and it has already cost her several thousand dollars that way.

When she told two other people who also use that same insurance company what had happened to her, they checked up on their own polices and both people found at least 10 items listed that they never claimed their house had. As a result, both houses were being overvalued/overcharged by more than $50,000.

Apparantly some insurance companies use a type of valuation software program that goes into a lot of detail, including what appliances your house has, what kind of ceilings, what kind of lighting, and so forth. There are hundreds of possible items that can be checked off to indicate whether a house has it or not. The items that are checked off determine how the software computes the value of your house because it affects the "price per square foot" that is used for the calculation. The more goodies are checked off on the software's list, the higher the cost per square foot. This will seriously affect your insurance premium.

Not all insurance companies figure their premiums this way. Some just take your square footage and multiply it by an average $ per square foot and don't bother to ask about many details. But clearly there's a great potential for misuse and fraud within the companies that do use these detailed software programs.

Insurance companies normally don't show the valuation data to customers unless the customer asks for it. And most people just assume that the replacement value the agent says their house has, is correct. Obviously that can't be assumed.

So to make sure you are not being overvalued and overcharged for homeowners insurance, you may want to contact your agent and ask them for a printout of the detailed valuation data that is being used to compute the replacement value of your home. If they ask why, just say you want to to verify that all the information in your policy file is correct and see exactly how they arrived at the replacement value of your home. You may want to ask first if they use the "Xact Value" software and if they say yes you can ask them to email you the PDF file.

When you get it, go very carefully through every line and every single item to make sure that you aren't being charged insurance for features that your house doesn't have. Especially things like kitchen appliances you don't have, cathedral ceilings that don't exist, skylights that aren't there, extra sinks that you don't have, specialty windows when they're regular ones, and granite countertops when what you really have is laminate or corian. These were only a few of the things that my relative and her friends found listed on their policies which didn't really exist in their homes. If there are any discrepancies, contact your agent and insist that they take all the incorrect things off, recalculate your value, and send you any refund of your insurance premium that you are entitled to if the value comes out lower than you currently have.

IMO money is better in your pocket than theirs. Insurance companies already get far too much of our money. Even if people are being overcharged only $100/yr, if a company has 10,000 customers they do this kind of thing to, that's $1,000,000/yr more for them.

[A_Cooler_Head]

If you think it's a smart thing to be insured for better stuff than you actually have... well, it's not. If that's the case and you ever do make a claim, when the claims adjuster hands in his report and it doesn't match what your valuation data says that you have, guess what? The insurance company can refuse to pay the claim on the grounds that you "misrepresented" to them what you actually had. For instance if a fire trashes your kitchen and your policy data says you have granite counters and a built-in cooktop when what you actually have is laminate and a pullout stove. They won't pay for granite and a cooktop when the adjuster reports that he saw laminate and a stove. They're entitled to refuse to pay anything at all for those items because you "obviously" lied about what you had. So you'd have paid extra $$ in premiums for nothing. Good luck trying to convince them at that point that you never told them you had granite and a cooktop and you have no idea how that info got there. They'll have an excuse to not pay out money and you can bet they'll stick to it.

[golfgal]

I would rather be over-insured than under-insured any day. Most agents walk through the valuation process with the homeowner. The other thing that has me curious is why your relative didn't question why their house was valued so high? Perhaps the agent just took the average information for a house that size, neighborhood, etc. I think you are making a bigger deal out of this valuation process then necessary. You can ALWAYS ask for the value to be reduced. It isn't a big deal.

[ShaneSA]

Every year at renewal, the insurance company reccomends what value to insure the property. You have the chance to review the values and cost and adjust the values as needed. Most insurance companies will value a property at replacement value, not market value. if the property burned to the ground, what would it cost to rebuild? That's the usual value of a policy. Homeowner's should understand the policy values and need for review of those values. If you disagree, then you can reduce the value. The only real requirment is by the mortgage company that the value of the policy be sufficient to cover the mortgage company in the event of a total loss. If you owe $50,000 on a $300,000 house, the mortgage company requires $50,000 in coverage. As the homeowner, you need to require enough to protect your full investment.
Don't blame the insurance company, review your policy. Change it if you do not agree.

[Sloaf]

Take pictures of the inside of your home, especially when you add new things like that huge plasma tv. That way you have proof of what you had if there is ever a total loss like a fire or tornado.

[SXMGirl]

When we have made major changes in our home, our agent comes to our house, views it, and add the valuation changes into the computer at our house. That way, we see exactly what we are being charged for.

[forcedfx]

My agent went through everything with me over the phone as she filled in the values in their program. All it does is recommend a replacement cost for the home, the actual value you decide to insure it for is up to you. As long as your loan amount is covered your mortgage company will be happy.

But it is true that just because you insured your house for 400k and it costs 250k to rebuild it after a fire, you won't get the other 150k in cash or upgrades.

[SVTLightning]

Our agent went over in detail everything we had, I think the OP's friends and relatives got shafted by their agents. We spent a good 30-45 minutes on the phone going over everything, and I think they either got the inspection report or got the appraisel to verify everything.

[CHTransplant]

Originally Posted by A_Cooler_Head

She just found out that for the past several years there has been false information about her house on her homeowners policy data, meaning that her policy said her house has many many upgrades that she never claimed that it has. Because of this falsified data, her house has been almost 80% overvalued and she has been charged premiums based on the inflated value. She has been paying almost double what she should have been paying if this false data had not been put in there and it has already cost her several thousand dollars that way.

How does one not notice for "several years" that the value the insurance company is using is grossly inflated over actual value? Are these people not even bothering to look at their annual policy declarations? Do they ever talk to their insurance agents?

I'm not trying to defend the insurance companies, but if you choose to be an uninformed consumer and end up getting ripped off, you bear some of the blame for what happens to you.

[A_Cooler_Head]

Originally Posted by golfgal

I would rather be over-insured than under-insured any day. Most agents walk through the valuation process with the homeowner. The other thing that has me curious is why your relative didn't question why their house was valued so high? Perhaps the agent just took the average information for a house that size, neighborhood, etc. I think you are making a bigger deal out of this valuation process then necessary. You can ALWAYS ask for the value to be reduced. It isn't a big deal.

Yes she said the agent went through a very long list of questions originally on the phone when she first took out the policy, going room by room. She was asked for each room what the materials were in each one, the size, whether there were any skylights etc etc in great detail, naming each feature for a Yes or No answer. Tell me this, if your agent asked you whether your bathroom has a jetted tub and you say truthfully "No", would you think that he has put down "Yes" instead? Anyone can make a mistake BUT multiply that by 60 or 70 other different data entered similarly wrong into the same policy and it goes beyond the probabilty of simple human error, IMO.

You asked why she didn't question it the value and I think it's partly because of what ShaneS said, that she didn't understand the difference between market value and replacement cost. The replacement cost that the company had come up with was very close to the actual MARKET value of her house, in other words what she could probably have sold the house for (before the economy imploded recently,anyway!!!!!) She has always lived in apartments up till now so this was her first time as a home owner. The other reason is what I said above, meaning that when most people are asked for specifics by a professional in a phone call and they answer truthfully, I think most people assume that the other person is probably doing their job correctly and honestly, especially if they've been a customer or client or patient of that other person for a while. Such as your auto mechanic, doctor, accountant, lawyer, insurance agent, etc. - do you automatically double-check everything those people do for you, or do you assume they are competent and honest in the absence of evidence that suggests otherwise? (how many otherwise smart people trusted Bernie Madoff????!!)

Insurance is expensive in her area and also in mine (coastal NJ), in fact everyone I know pays well over $2000/yr for homeowners, sometimes much more. My insurance company recently dropped me; I have been paying over $3000/yr for the past 3 years and I don't have a mansion by any means. My house is very very similar to hers in size and features. I had no idea that this company has been charging her almost $5000/yr, otherwise I'd definitely have advised her to question it. When they redid her valuation correctly, her premium came out to within a couple hundred dollars of mine.

I agree that it's better to be overinsured than underinsured but at what cost? (premiums) If someone has an extra $2000/yr to spend away on insurance above and beyond what they NEED to have, that's great, more power to them. But not everyone is that fortunate. I'm sure not, that's for sure, and a lot of other people, including my cousin, aren't either.

Btw, you usually cannot reduce the insured value of your home to less than 80% of its replacement value. I tried to do that last year in an effort to get my own premium down and was told it is not possible. 80% of their calculated value is the MINIMUM that these companies will write a policy for. This is separate from how much someone's mortgage is. In other words if your house would cost $500,000 to rebuild and you have a $300,000 mortgage balance, you cannot get homeowners insurance for only $300,000. The insurance company will not insure that home for anything less than $400,000. I think this may be a state law and other states may be different (higher or lower percentages).

In my area agents never come to the house to verify changes. I've owned homes for 30+ years with many different companies here in the northeast and never ONCE did that happen, even after I made major renovations and additions to one house. All I needed to do was call up my agent and say what I added. Maybe they do that for multi-million-dollar houses but not for normal ones hereabouts.

The only reason I posted this information was because I wanted to give other people a heads-up that their insurance company MAY be charging them more than is justified, by way overvaluing their house, without them knowing about it. I thought that if by putting my cousin's experience out there it may end up saving someone some money per year that they'd rather have available for other things (oh, say like gasoline, food, or a doctors bill?). But apparantly people are interpreting my intention as some kind of whining. Okay, fine, so be it. Obviously my cousin and both of her friends were stupid fools for assuming that their insurance agent and/or insurance company were working only with the information that they supplied. Obviously it's their own fault that they were charged money they should not have been if the agent/company had done their job RIGHT (even assuming that it wasn't deliberate). Obviously, ignorance (or trust) is no excuse, and if someone loses money because they didn't know what to look for (shades of Bernie Madoff again!), well that's just too bad for them and they have no right to either complain or to try to warn other people who just MAY be in the same position either now or in the future.

Yes this thing upsets me bigtime --- because my cousin has been out for work for over 8 months and is working 2 part-time jobs at minimum wage to be able to make her mortgage payment while she tries to find a fulltime job. Anyone with a brain knows how tough that is right now, especially for someone over 60 yrs of age with no professional skills. So that extra $3000 or $4000 that she has been cheated out of over the past 3 years via the homeowners policy 'mistake' would be critical help for her right now if she still had that $. My own income has taken a 75% hit in the past year because of the economy and I am barely hanging on myself, otherwise I would help her out in an instant if I could.

I apologize for attempting to give other people who MIGHT not want to be spending more $$$$ for insurance than they want to or need to, a heads-up. Apparantly no good deed goes unpunished.