Don’t Overlook the Little Things
Insurance companies have their way of doing things. They want to close deals as fast as they can. The more deals, the better rewards/commissions.
They also tell you their process is fairly standard, and they have algorithms that calculate these insurance premiums. Sounds so darn savvy, right? Al-go-ri-them….
Many homeowners take the quotes as they are, besides the pre-calculated insurance premiums are based on data on their homes anyway. It’s, therefore, an objective pricing (on top of this, you have already looked through and compared other insurance companies’ quotes. So you feel confident that you are getting a good deal).
“Mr. Spender, your annual insurance quote is $700 for one year.” Now, if your home is worth $200,000, the insurance premium looks really cheap.
So, you say, “Send me the documents. I will sign and send you the check.” Done! Easy!
I recently renewed my Dwelling & Fire Insurance coverage.
The new agent who replaced the old one we used to communicate with probably thought that we’d just take her quote and sign without checking the details.
We are not like that. I told her to give me a few days to review the documents.
Let me share a summary of the categories of the insurance policy I recently purchased and their associated premiums.
Please note that the values below only pertain to the structure as land is not insured – they don’t’ really burn.
The Broker Pricing was $588.21 and after my input, it went down to $498.65. One will notice the difference between (C) Broker Pricing vs (D) Broker Price After My Input for one of rental properties (E): $89.56.
How did I Get to Lower the Assessment?
Answer: Research & Due Diligence
1. For the Dwelling Coverage, Broker Assessment (A) overprices the structure, quite a bit at $196/sq. foot vs. my assessment of $164/sq. foot. My assessment came from a couple of local home builders. What is also interesting is that the range is anywhere from $125 to $165/sq. foot, the latter being of very good quality. So the $196/sq. foot broker quote is way overpriced. And besides why would I want to pay the highest amount for a rental property unless I am renting it out to high end celebrities ?
2. What about the Personal Liability? This is a sham! When I asked the broker what the Personal Liability was for, she said that it is for extra/potential accidents – like someone gets hurt due to a falling branch or a broken wheel chair railing. This is the coverage.
Well, I don’t have big trees with big branches on my property! I don’t have wheel chair railings either or any other hazards that normally could cause accidents. What is also surprising is that the value they put is so outrageous. $300,000.
Usually, when people get injured they go to the hospital and give their own medical insurance to cover the medical expenses, and they usually don’t reach $300,000 (this cost is more like cost for doing brain surgery). So, I told the agent to change it to $100,000. At first, the agent said that their policy only allows the minimum of $300,000. But when I pressed some more (asked them if this is regulated by the State), they said that I only need to sign a waiver to lower it to the amount I requested. That is what I did!
Was It Worth It to Save $89.56?
This number is very small relative to my net worth. But it’s actually the small things that count. Warren Buffett is known for his attention to detail in his insurance business. I have a few rental properties that if unchecked on these costs, can lead to larger but unnecessary insurance premiums.
Marketers also have a way to make costs seem really cheap. Instead of saying the total amount, they would break it up into smaller amounts like $7.46/month. This is how they justify the expense to you. But if you look at it from a % rate (divide $89.56 by $566.21 which was the original value), that is a savings rate of 15.2%. If we were talking $1,000,000.00, that is a savings of $152,000.00!
The lessons here are 1) check and research the line items, and accordingly ask for adjustments; 2) do not let the marketers dictate how savings is perceived. The key is to look at how much you are saving. It is money saved, however small it may be perceived.