Friday, May 15, 2009

Some people just don't get it...

"The dreaded month has come," I thought as I opened up our bill for our home owners insurance. That once a year $1000 home-owners insurance  bill is a bit of a blow to the budget and I always wince at the sight of it despite the fact that I know in advance how high it will be. 

As he went through the mail I'd set out on the kitchen counter, Dave paused to look at the bill and noticed that the replacement value for our possessions was exorbitantly high. You could cut the insurance company's projection in half (and include our brand new Prius in the total house possessions) and still not come close to our the cost of our meager belongings. So Dave suggested that I call the insurance company to see if we could set the replacement value lower and save a little money on the bill. I did. Here's how the conversation went (I'm paraphrasing here)...
Heather: I was wondering about the "replacement cost" line on our bill. Could we set that lower, maybe by half, to reduce our bill?

Ins Co: Actually, "replacement cost" isn't included on your bill as a separately charged item. It's automatically 75% the cost of your dwelling." But you have to remember that you're insured to replace the items in your home, not what they are worth now.

Heather: No, I understand the idea of "replacement cost," I just know that there's no way that it would cost us $x to replace the things we have in our home. Most everything we have is second hand or has been given to us. 

Ins Co: You may have second hand now, but you couldn't replace it with second hand."

Heather: Um, sure you can. That's what second-hand shops are for.

Ins Co: But if something happened and you had to go out and replace everything in one day, it would cost a lot.
I could have gone on at this point (like the fact that I wouldn't go out and replace everything in one day - how ridiculous and wasteful), but I had pretty much figured out, he just didn't get it. Obviously, as dedicated non-consumers, we're not the typical American family (which of course, makes me proud, though it's frustrating that I can't get my insurance bill lowered). Does the normal american actually have 75% of the value of their house in belongings? Do we need that much stuff? 

17 comments:

Sue said...

Hi Heather,
Great post--and so true. It is a shame you can't get a lower rate, just because you don't waste money like the average person. We don't get a better rate on our insurance because we don't have TWO vehicles. ?????? Excuse me? Let's just punish people for being careful with money......

The 4 Bushel Farmgal said...

Hi Heather,
Everything I own is secondhand. My stuff doesn't "own" me so if it was destroyed I wouldn't rush out and replace it all in one day (maybe one year?)
Are the high premiums a result of the insurance companies placing these high values on possessions? Seems like they are just encouraging more unnecessary spending.....

Jena said...

I don't know Heather... I agree that the replacement cost may be high and you should be able to change it but I would have reservations about making it too low. When we had our barn fire in November we thought that we had plenty of coverage. However, when it did come time to replace the contents it cost much more than we figured. For example, we needed a pitchfork, shovel, and several five gallon pails. The old ones we had were around for 20 years and didn't have much value. A new pitchfork is $40!! We had collected the pails over the last 5 years and they aren't easy to replace unless you want to buy them. We've scrimped and saved and replaced very few items with models from the store, but I still wish we would have been better prepared. I hope you understand where I'm coming from on this. It is easy to talk about but when you're in the midst of a tragedy there is no such thing as too much coverage, IMO.

JAM said...

Heather,
I just looked at our policy since I needed to check it for something else anyway, and our replacement cost of items is about half of our house cost, so maybe there are different formulae depending on where the house is (just outside of Boston, we're in one of the most expensive areas for house prices, but I wouldn't think our replacement costs would be much higher than anywhere else in the country), but possibly if you called around and got quotes from some other insurers, you might be able to get a lower cost policy with someone else with different coverage levels.

Holly said...

woah! i just calculated what 75% of my house value is. there's no way the stuff inside our house is worth that much money. no way at all. not even half. maybe 25% if they include appliances/fixtures/etc. we just built a new house so i know what everything cost plus what we spent once we moved in. but we live moderately frugal so i guess we're not good examples either.

Donna said...

I'm not sure it would save much even if you could get it lowered. I think a lot of the cost is for liability if someone gets hurt on your property, etc. But I sympathize with your position. You might try shopping around. I remember when I signed up for our policy, the agent had me add up an appox. value of what I had and he based the number on that, so there may be other ways of doing it.

Heather @ SGF said...

Sue - Yeah, they do like to give discounts to people who spend big bucks which doesn't give us non-consumers much of a break.

The 4 Bushel Farmgal - I'm with you. It would take me forever to replace what we have and much of it I probably wouldn't replace at all. Why do we need a nice, expensive TV cabinet when we no longer have a TV?...

Jena - I'm sure it would add up quickly, but we really don't have much. We have a 3 bedroom house, but 2 of the rooms are completely empty - no furniture or anything. We don't any electronics except our two laptops - no tv, no stereo, no radio - nothing. The biggest hit would be that we have a brand new Prius, but I'm not sure the house insurance covers the car (wouldn't the car insurance cover that?). We have a pretty empty house. I don't have anything here that isn't functional (no art, our only decorations are a few family photos, etc). I just don't think it would add up to anywhere close to 1/2 what they're telling us we have to have. But we're pretty hard-core non-consumers. Of course, there would be appliances, but I'm not sure I would replace some of those either. I suppose it's hard to know until it happens...

JAM - Yeah, we're thinking about calling around and seeing what other policies do. It's worth checking out anyway.

Holly - it's a lot, isn't it? Maybe if we had movies, cds, and tv or stereo equipment or something, but we have none of that stuff. We have two tiny shelves of books (I'm a library fiend instead of buying). I don't know we just don't have STUFF. Yeah for non-consuming (though it's not doing me much good with the insurance...)

Donna - actually we have a separate line item for people getting hurt. Actually, what we were expecting is that they could lower it, but it would only be like $10 or something. But to not be able to adjust it at all... I thought that was strange. But what do I know :)

Beany said...

Ugh! How frustrating. I've gone for years without rental insurance for that very reason. Our stuff is worthless. I'd much rather bank the amount I would pay to an insurance company and use that to buy our replacement goods.

Angela said...

That figure is incredible.
I am thinking our "stuff" is worth maybe only 10-20 percent of the price of the house.

I'm going to check our policy.

Glenda said...

I used to work in an insurance agency, and during that time a friend has his mobile home burn. When you go to replace EVERY SINGLE THING you own, that's a lot of stuff, even if you can find some of it secondhand.

Look at EVERY SINGLE THING in your kitchen, in your bathroom, in every single room of your house, and consider replacing all that stuff pretty much all at once. No, it may not equate to 75% of your dwelling's value, but it tends to be a lot more than most people consider when they think "contents". Even if you opt to not replace every single thing you have now, it'd be nice for that to be a choice rather than be forced upon you by an inadequate amount of insurance.

Also, if your house is leveled by a tornado, chances are good many people in your area would offer suffer substantial damage. In that instance, your choice of secondhand items would be much more limited (especially if you consider the people who don't have homeowners insurance because they can't afford it -- odds are whatever they have to have that isn't given to them by family or friends, will be had from secondhand shops).

All that said, I, too, feel that our contents value is too high. But I know how insurance works and I know where it's better to cut back and where it's not. We decreased our cost by (a) shopping around, and (b) opting for a higher deductible.

Heather @ SGF said...

Beany- I hear ya. Seems silly to pay to replace all the little things, most of which is everyone else's throw-aways. Of course, now that we have a house, we need the insurance for the house and with that (it seems) comes the automatic 75% coverage of what's inside the house. I think we'll be shopping around soon. The bill's not due for another couple weeks.

Angela - The highest we could figure was half of the current amount they have us slotted at and THAT includes our brand new car. I mean, I'm sure I'm underestimating, but we really just don't have stuff.

Glenda - I agree. I'm sure we aren't thinking of an accurate number for replacement cost, but there's no way we anywhere near the amount they say. I suppose we would have trouble finding second hand if the whole area was in an emergency, but I also believe that we don't need most of the stuff we currently have. I recently read a quote that was something like: Once you have the basics (food, shelter, clothes) all you have to do with the rest of your life is to become a more peaceful person. I'm all about that. So much we think we need that we just don't. I have a friend who lived for months with just a backpack and it was only half full. I'd love to be so free (I'm working on it...)

Glenda said...

Depending on if you have a mortgage or not, fire insurance is an option to homeowners insurance (at least, it used to be - not positive about now). Another option would be homeowners coverage that is *not* at replacement cost value (it's actual cash value), but if you have a mortgage your lender probably won't allow that. There are big disadvantages to both these types of policies, and I have no idea how they compare costwise nowadays to the usual replacement-cost homeowners policy, but they might be an option your agent is willing to discuss with you if you have flexibility on the type of coverage you have to purchase.

Lisa Sharp said...

Wow!! That's really all I can say to that.

Heather @ SGF said...

Glenda - It's definitely something we'll need to do some research on. We don't have a mortgage though (thankfully our house is completely paid for), so it sounds like that opens up some extra options to shop for. Is there any companies you'd recommend over others?

Lisa - Yeah. 75% of the price of our home is A LOT of STUFF.

Glenda said...

Heather, I haven't worked in an agency in lots of years, so I'm out of touch with who's competitive these days. The best thing to do is check around (something I need to do myself!).

If you can find an agent you can go sit down with, who will explain the pros and cons of different types of policies, that would be my suggestion. Once you get a policy, as much as people hate to read insurance stuff, you really do need to read it, because you simply cannot rely on what someone tells you is or isn't covered -- you need to read it in black and white yourself.

It's also helpful to know the difference between "replacement cost" and "actual cash value". I would never recommend an ACV policy for someone's home, but some people do make that choice.

sharli said...

I think it would make a big difference also on how many people live in the home. Mine would be a little higher than yours even if our houses were valued the same because I have 4 people living there and you have two. Although, I wouldn't be too sad to have fewer toys to trip over!

Heather @ SGF said...

Glenda - Thanks! We'll do some research.

Sharli - You know, you're right. They don't seem to take that into account and I would think it would be a significant factor...