Homeowners' Insurance 101: Interview with Scott Smith

We had the pleasure of interviewing State Farm’s Scott Smith a few weeks back about the ins and outs of homeowners’ insurance.  This is one of those items on your closing checklist that is a must-do, but which people often view as little more than just that - a box to be checked.    Scott and his team work in PA, WV, and a number of other states.   Here are some edited excerpts from our recent conversation. 

QUESTION : We encounter a lot of people who purchase homeowners' insurance as a "check the box" step of a long and often emotional transaction.  Any advice for getting people to pay a little bit more attention to this decision? Why is it so important?  

I think everyone needs to consider the asset they are insuring. For the vast majority of people this will be the most valuable asset they own in their lifetime. With that in mind, what type of consideration would you put in to protecting your most valuable asset? Take the time to review the plan that is going to be protecting this asset. Be sure to ask questions about the plan and understand how it actually works. You want a plan that provides you the broadest coverage at the most affordable price.

QUESTION: What are some things you wish more people know about homeowners' insurance? 

Not all policies are created equal. Dwelling coverage, personal property, and liability coverage could be different on each policy or quote that you receive. The difference between two policies could cost you thousands of dollars if you are ever involved in a claim.

For example, most policies are going to cover the actual dwelling, your personal property, and liability. Get them to explain to you what’s the difference between these elements of your potential policy.  They are all treated as separate coverages with separate payouts in the event of a claim.  So for a dwelling coverage, for example, if it’s a total loss you would get the full amount of the policy.  Personal property is usually a function of the dwelling coverage.  So for example, if your dwelling coverage is $1 million dollars, personal property is often a percentage of that.  

QUESTION: How do you define personal property for the purposes of homeowners insurance? 

The easiest way to define it, honestly, is if you take your home, turn it upside down, and shake it what’s going to fall out?  

QUESTION: What's the right way to shop for insurance?

The right way to shop for insurance would be to first do your research. Ask yourself: what type of company do you want to enter into a relationship with. What is important to you and your family? Do you want to have a local office you can go to? Do you want an agent you can speak to locally? What is the financial strength of the insurance company? If having a local agent is important to you then you will also want to do some research on what separates one local agent from another. 

Take a look at some Google reviews to see who has some of the highest ratings from customers. This should give you some good insight as to how the local office functions and treats their customers.  I’ll always take a meeting with any of my clients at their request.  Not everyone is willing to do that, especially because we do deal in pretty high volumes. 

QUESTION: What’s the difference between market value and replacement cost? 

This is a common misperception. Your homeowner’s insurance policy does not protect your home’s market value on any given day. It covers the cost of replacing your property in the event of a loss.  How do we calculate the replacement cost? State Farm uses a software that’s updated regularly and it is broken out by region to keep the numbers as accurate as they can be for the current cost of building construction ie: lumber, steel, labor, materials, and more. 

The calculator we use can be very simple - we can get a pretty good ballpark from the listing photos, or we can get down to the nitty gritty.   Sometimes we answer up to 100 questions about the home to get as fined-tuned a sense of replacement costs as possible. This might include special security systems, speaker systems, or built in appliances.  But generally speaking, for the typical customer, all the information we need comes from the pictures in the MLS. It’s shocking how accurate it is. I would make sure you ask if your insurance provider uses a third party software to come up with this number. That puts some independence and objectivity into their assessment. 

QUESTION: Unlike a home warranty, homeowners insurance isn’t a warranty. What does that mean? 

The most important thing to consider when you are thinking about your insurance is what caused the damage? If the roof is 35 years old and a few shingles fell off, that’s not a surprise. Insurance isn’t meant as a warranty product, so it doesn’t guarantee that the elements of your home will continue to function.  The life cycle of furnaces are getting shorter and shorter - everything the life cycles are getting shorter and shorter - i don’t want to say they are building them cheaper but they are - we replaced a washer dryer unit probably in october - you’re never going to get the life out of these like you used to - if the house gets struck by lightning there’s going to be a claim there whether it is repair work or replacement. Home insurance isn’t a warranty product - what caused the thing to break? If it’s just leaking because you haven’t replaced it that’s probably what caused the leak 

The home warranty is going to mainly cover home systems and appliances, and this is typically going to cover mechanical breakdown. The coverage for cause of loss is going to be a little different. If it's weather, hail, wind, or fire, we got you.

QUESTION: What separates an ok insurance agent from a great one? 

Selling a policy versus building a plan. The average agent will sell the policy to satisfy the loan requirement of the bank. But an agency that takes the time to get to know the customer and understand their needs and concerns will be able to build a plan that properly protects their asset and put their worries at ease

QUESTION: What advice do you have given homes you insure for home owners' looking to maximize and protect value in their largest investment (ie: roof type, home security system, etc)

The best advice I can provide is to keep up on your maintenance of the home. It becomes a bit of a snowball running downhill once we get behind on typical maintenance of the home. Clean your gutters, replace filters in the HVAC system, keep an eye on your water pipes during the winter, trim trees that could have overhanging limbs near the home. All these actions can help prevent a claim in the future, and will save you money and stress down the home while also protecting your home’s value longer term. 

QUESTIONS: What are the sorts of home finishes or elements that make coverage more expensive? 

Knob and tube absolutely makes a policy more expensive. Plaster finishes could make covering your home more expensive.   All the information we gather and the questions we ask will add to a total score that is given to your potential policy.  Another big factor is the applicant’s credit worthiness.   Generally speaking, customers with higher credit pay their bills regularly and are more likely to steward the home responsibly.   We also look at the prevalence of claims in other homes in your neighborhood, and with previous homes you have owned. 

QUESTION: What are some of the most frequently overlooked riders or endorsements that might be worth looking into? 

Here are a few that we like to discuss with our customers:

Backup of Sewer and Drain – Protects against any sewer or storm water backup into the home. This mostly takes place in the basement so we wanted to make sure we included this if you have a finished the basement.

• Energy Efficient Upgrade – will replace the HVAC system or water tank with a more energy efficient unit if it is damaged by a covered loss.
• Home Systems Protection - provides coverage for the abrupt and accidental mechanical or electrical breakdown of permanently installed dwelling equipment. This includes hvac, water heater, pumps, permanently installed appliances, furnace, etc.
• Service Lines Coverage – will provide coverage for repair to any drainage, electrical line, sewer, cabling, gas, etc. The main usage of this coverage typically is if a storm water drain gets clogged or crushed or if a water line bursts. Without this coverage you will be responsible for any repairs.
• Endorsements can be added to add additional protections and broaden your coverage like we discussed. For pennies more each month you can build a really comprehensive plan that will meet your needs.

QUESTION: What are things that homeowners' policies rarely if ever cover, but people often think they do? 

The most common situation that is not covered is flooding from outside water. Virtually every home insurance policy from any major carrier will exclude outside water damage to the home. FEMA offers flood policies with some limited coverage for homes that sit in a flood zone.

QUESTION:  How might someone know if it's time for them to consider switching to a different home owners' insurance provider? 

I always suggest people look at comparing insurance rates and coverage every few years. Most people think it is a painful process but we can get a quote for auto and home insurance done in just minutes with some basic information from the customer.

QUESTION: Any advice for first time home buyers? 

Take home insurance seriously. A cheap, basic plan could end up costing you thousand of dollars. Take the time to sit down with an insurance agent (in person or virtually) to build a plan that provides you the proper protection.

What's the best way for people to get in touch with you? 

Just call our office! We are open through the week from 9am-5pm. Our office number is (304) 842-6974 and Brittany, Erica, Casey, or Katelynn would be happy to help you put together a personal plan for your home insurance.