Do You Qualify for a
Homeowner’s Insurance Premium Refund?
Good Morning Relaxing Retirement Subscriber,
A few years back, one of our long time Relaxing Retirement members, Bob Mitchell, relayed a terrific experience he had that resulted in a premium refund from his insurance company of $2,000!
I just had another member talk about his experience doing what Bob recommended and they too received a refund, so I wanted to take the opportunity to share this simple tip with you again.
What follows is what Bob originally shared with me, and then my comments to clarify a few insurance concepts and the steps you can take:
“As I was reading your “Strategy of the Week” regarding dental insurance, an insurance issue I encountered this Spring came to mind. The issue involved not so much assessing the level of risk I wanted to insure against, but rather reviewing ways to decrease my premiums without reducing insurance coverage.
In the process of looking for and evaluating all possible discounts (paperless billing and policy documents discounts, lump sum vs. monthly premium payments, multi policy discounts, age discounts, mileage discounts, deductible level premium reductions, automatic month premium payment discounts, etc.) I challenged the Dwelling Replacement value placed on our 2 homes (MA and RI).
My initial intention was to consider reducing the insured dwelling replacement value to about 90% (if we’re insured for at least 85% then any loss is covered @ 100%). During my discussion, in order to make sure I was reducing the correct dwelling value number to 90%, I requested that the insurance company (AMICA) do a reassessment of the currently insured dwelling replacement value.
They performed that reassessment and found that they were over-valuing our Massachusetts home by over $100K and Rhode Island by $60K. They proposed a premium refund for the current year and 2 additional years using the new value as a constant for all 3 years of refunds.
After discussions at many levels within the company with no positive results, I finally wrote a letter to a vice president at AMICA’s corporate headquarters to inform them of my issue and disappointment in the company’s response.
That letter gained me a call from a company VP and favorable outcome that netted us a premium refund of approximately $2,000.”
What a terrific outcome, and one that is available to all of us if we’re willing to do a little homework.
Let’s take a moment to clarify a few insurance concepts that are critical to this terrific result.
Guaranteed Replacement Cost Coverage
First, in order to qualify for full guaranteed replacement cost coverage on your home, your homeowner’s insurance policy dwelling coverage must for a minimum of 85-90% (depending on the company) of the actual replacement cost of your home.
To use round numbers, if it would cost $500,000 to replace your dwelling, then your dwelling insurance coverage must be for at least $425,000 (or 85% of the actual replacement cost) in order to receive a full replacement payout in the event of a total loss.
What’s important to note, however, is that this coverage is not on the market value of your home because market value includes your land which remains intact in the event of a loss. In short, your dwelling replacement cost will be less than the market value of your home.
Automatic Replacement Cost Escalators
Given that the value of homes traditionally increase over time, insurance companies instituted automatic replacement cost escalators into your policy. In other words, your coverage amount automatically increases each year by a set percentage to make sure that your dwelling replacement coverage remains inside the 85-90% minimum window mentioned above.
While that’s a good idea because most homeowners would forget to increase their coverage amounts each year and thus subject themselves to a reduced claim, it’s likely not an accurate assessment after several years as our member discovered.
This was especially true in many communities during and after the 2008-2009 crash that led to a sharp reduction in the value of many homes.
Most insurance company cost escalators did not take this into account which is why your dwelling replacement cost is likely too high as our member discovered.
The soltion to this, as Bob recommended and brilliantly acted on, is to simply ask your insurance company to perform a reassessment of the currently insured dwelling replacement value.
The result of this is likely to be a reduction in your homeowner’s insurance premium.
I’d like to thank Bob, again, for calling our attention to this great idea!
Committed To Your Relaxing Retirement,
The Retirement Coach
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(The content of this letter does not constitute a tax opinion. Always consult with a competent tax professional service provider for advice on tax matters specific to your situation.)