Home Insurance is a generic term for either Homeowners Insurance (Owner Occupied) or Dwelling Fire Insurance (Tenant Occupied Landlords Policy). The primary purpose of a home insurance policy is to pay for the reconstruction of the home in the event of a fire; in addition to this primary purpose, there are many additional items which are covered against a number of perils listed on the policy form.
In order to maintain sufficient coverage to rebuild the home in the event of a total loss, most policies include an inflation guard endorsement; the main purpose of this endorsement is to increase the coverage slightly each year to keep up with the annual adjustment of building costs inclusive of materials and labor.
It is important for a home not to be underinsured; policies have a built in coinsurance clause which could cause financial hardship to a homeowner in the event there is a large loss and the home is found not to be sufficiently insured; the coinsurance clause would only provide coverage on a percentage basis equal to the same percentage of insurance purchased against the actual replacement (reconstruction) cost of the dwelling.
Some companies will allow the inflation guard to be removed by the insured (by signed request); however, the prior paragraph may explain why this is not the best option for a homeowner. Although the endorsement has no monetary charge (premium), removing it may heavily impact the policy if a loss were to occur in future years.
The inflation guard endorsement may increase coverage amounts by 2 - 5% based on the current year's costs of construction and an equally small increase in the annual insurance premium; however, it is commonly to the homeowners' surprise that insurance premium is adjusted each year by all carriers based on the prior year's loss experience to the carrier for the aggregate rating zone (all homes in the area).
We receive calls each and every year requesting to remove the inflation guard blaming the endorsement for an increase in annual premium; many times, carriers may have a 5% increase in a given area and a 2.5% increase in coverage limits. Insurance carriers are heavily regulated by the Department of Insurance in each State; they are also carefully audited by rating agencies most commonly by A.M. Best Company who issues Insurance Company Ratings.
It is important for insurance companies to offer excellent customer service, excellent and expedient claims service and pay the full replacement value of all claims presented that are covered by the subject policy; over and above this, the carrier must maintain financial reserves in order to hold their secure position to handle future losses and offer the security that customers expect from an insurance company.
If for example, a Homeowners insurance Premium is $500 per year, one could imagine that there isn't much profit to be made after the aforementioned responsibilities and performance guarantees. On extraordinary years where insurance companies post great gains, the auditors and Department of Insurance would require a rate reduction since the profit percentages of the carrier are limited and closely regulated by the Government.
Although it isn't common, following many years in the property insurance market, we have seen reductions in annual premium following profitable years.
The operation of an insurance carrier isn't as simple as issuing a policy and collecting a small premium; there is so much more to the contract and operation. For those interested, it is worth contacting a Licensed Representative of your present insurance carrier and inquiring to gain a better understanding.
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In order to maintain sufficient coverage to rebuild the home in the event of a total loss, most policies include an inflation guard endorsement; the main purpose of this endorsement is to increase the coverage slightly each year to keep up with the annual adjustment of building costs inclusive of materials and labor.
It is important for a home not to be underinsured; policies have a built in coinsurance clause which could cause financial hardship to a homeowner in the event there is a large loss and the home is found not to be sufficiently insured; the coinsurance clause would only provide coverage on a percentage basis equal to the same percentage of insurance purchased against the actual replacement (reconstruction) cost of the dwelling.
Some companies will allow the inflation guard to be removed by the insured (by signed request); however, the prior paragraph may explain why this is not the best option for a homeowner. Although the endorsement has no monetary charge (premium), removing it may heavily impact the policy if a loss were to occur in future years.
The inflation guard endorsement may increase coverage amounts by 2 - 5% based on the current year's costs of construction and an equally small increase in the annual insurance premium; however, it is commonly to the homeowners' surprise that insurance premium is adjusted each year by all carriers based on the prior year's loss experience to the carrier for the aggregate rating zone (all homes in the area).
We receive calls each and every year requesting to remove the inflation guard blaming the endorsement for an increase in annual premium; many times, carriers may have a 5% increase in a given area and a 2.5% increase in coverage limits. Insurance carriers are heavily regulated by the Department of Insurance in each State; they are also carefully audited by rating agencies most commonly by A.M. Best Company who issues Insurance Company Ratings.
It is important for insurance companies to offer excellent customer service, excellent and expedient claims service and pay the full replacement value of all claims presented that are covered by the subject policy; over and above this, the carrier must maintain financial reserves in order to hold their secure position to handle future losses and offer the security that customers expect from an insurance company.
If for example, a Homeowners insurance Premium is $500 per year, one could imagine that there isn't much profit to be made after the aforementioned responsibilities and performance guarantees. On extraordinary years where insurance companies post great gains, the auditors and Department of Insurance would require a rate reduction since the profit percentages of the carrier are limited and closely regulated by the Government.
Although it isn't common, following many years in the property insurance market, we have seen reductions in annual premium following profitable years.
The operation of an insurance carrier isn't as simple as issuing a policy and collecting a small premium; there is so much more to the contract and operation. For those interested, it is worth contacting a Licensed Representative of your present insurance carrier and inquiring to gain a better understanding.