Help understanding home insurance quote - First time homeowner

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Topic Author
DMB41
Posts: 38
Joined: Fri Nov 20, 2020 2:55 pm

Help understanding home insurance quote - First time homeowner

Post by DMB41 »

Hello BH,

I am in the process of building a home - my first home, in fact - and have been learning a lot about the whole process, with much of that learning coming from this forum. One of the more important aspects of the home buying process is the home insurance. Since this is my first home, I've never had to quote home insurance or otherwise understand the details of the coverage. I've got a quote from State Farm, who I also have car insurance with, and I wanted to have some of you Bogleheads look it over and offer any insight to what they are providing, as well as ask some questions that I had regarding it.

State: Alabama
House purchase price: ~$430k
Total annual premium: $1,068/yr ($89/mo)
Deductible: 1%/$3,990

Coverage:
Dwelling (Coverage A) $399,000
Increased Dwelling - Option ID $79,800
Dwelling Extension $39,900
Personal Property (Coverage B) $299,250
Personal Liability (Coverage L) each occurrence $100,000
Medical Payments (Coverage M) each occurrence $1,000
Credit Card / Bank Card and Forgery $1,000
Damage to Property of Others (Each Occurrence) $1,000
Loss of Use $119,700

Loss Settlement Option - Dwelling: A1 - Replacement Cost - Similar Construction
Loss Settlement Option - Personal Property: B1 - Limited Replacement Cost

Premium: $3,858

Charges/Credits:
Claim Record -$238
Home alert -$71
Home / Auto discount -$1,097
Loyal customer discount -$463
Utility rating plan -$913
Year built adjustment -$8

Policy Options and Endorsements:
Jewelry and Furs $1,500 / $2,500 Option JF included
Silver / Goldware Theft - Option SG $2,500 included
Business Property - Option BP $1,500 included
Building Ordinance or Law - Option OL (% of Coverage A) 10% $39,900
Firearms - Option FA $2,500 included
Fire Department Service Charge Increased Limits $500 included

Questions:
1) General thoughts on the coverage/policy being offered here? This is the quote they sent me right out of the gate with no other information provided to them other than address and purchase price. From my research, their cost seems to be in line with what other local insurance companies are offering.
2) What's the difference between increased dwelling and dwelling extension? Google only seems to talk about increased dwelling.
3) Personal property seems to be really high compared to what we actually own. I can't imagine I own more than ~$50k worth of personal property, excluding vehicles, especially with this being our first home and moving from a small apartment. How do you properly determine how much coverage you need and is it worth getting less (or more, I guess)?
4) Thoughts on the 1% deductible? I am of the mindset of many other BHs here that I would only make a claim on a large expense (~$5k+) so I have no desire for a small deductible/more expensive premium. However, what is the sweet spot here? I was thinking $5-10k?
4) What other discounts should I ask about or what other ways are there to get the cost down?
5) Some of those policy options and endorsements I don't need, but since they are included is there any point in asking them to remove them?

Thanks all!
exodusNH
Posts: 1007
Joined: Wed Jan 06, 2021 8:21 pm

Re: Help understanding home insurance quote - First time homeowner

Post by exodusNH »

DMB41 wrote: Tue Oct 12, 2021 11:42 am Hello BH,

I am in the process of building a home - my first home, in fact - and have been learning a lot about the whole process, with much of that learning coming from this forum. One of the more important aspects of the home buying process is the home insurance. Since this is my first home, I've never had to quote home insurance or otherwise understand the details of the coverage. I've got a quote from State Farm, who I also have car insurance with, and I wanted to have some of you Bogleheads look it over and offer any insight to what they are providing, as well as ask some questions that I had regarding it.

State: Alabama
House purchase price: ~$430k
Total annual premium: $1,068/yr ($89/mo)
Deductible: 1%/$3,990

Coverage:
Dwelling (Coverage A) $399,000
Increased Dwelling - Option ID $79,800
Dwelling Extension $39,900
Personal Property (Coverage B) $299,250
Personal Liability (Coverage L) each occurrence $100,000
Medical Payments (Coverage M) each occurrence $1,000
Credit Card / Bank Card and Forgery $1,000
Damage to Property of Others (Each Occurrence) $1,000
Loss of Use $119,700

Loss Settlement Option - Dwelling: A1 - Replacement Cost - Similar Construction
Loss Settlement Option - Personal Property: B1 - Limited Replacement Cost

Premium: $3,858

Charges/Credits:
Claim Record -$238
Home alert -$71
Home / Auto discount -$1,097
Loyal customer discount -$463
Utility rating plan -$913
Year built adjustment -$8

Policy Options and Endorsements:
Jewelry and Furs $1,500 / $2,500 Option JF included
Silver / Goldware Theft - Option SG $2,500 included
Business Property - Option BP $1,500 included
Building Ordinance or Law - Option OL (% of Coverage A) 10% $39,900
Firearms - Option FA $2,500 included
Fire Department Service Charge Increased Limits $500 included

Questions:
1) General thoughts on the coverage/policy being offered here? This is the quote they sent me right out of the gate with no other information provided to them other than address and purchase price. From my research, their cost seems to be in line with what other local insurance companies are offering.
2) What's the difference between increased dwelling and dwelling extension? Google only seems to talk about increased dwelling.
3) Personal property seems to be really high compared to what we actually own. I can't imagine I own more than ~$50k worth of personal property, excluding vehicles, especially with this being our first home and moving from a small apartment. How do you properly determine how much coverage you need and is it worth getting less (or more, I guess)?
4) Thoughts on the 1% deductible? I am of the mindset of many other BHs here that I would only make a claim on a large expense (~$5k+) so I have no desire for a small deductible/more expensive premium. However, what is the sweet spot here? I was thinking $5-10k?
4) What other discounts should I ask about or what other ways are there to get the cost down?
5) Some of those policy options and endorsements I don't need, but since they are included is there any point in asking them to remove them?

Thanks all!
You could ask for lower specific limits on some things, like personal property, but those usually don't change the pricing all that much.

For $343,900 of dwelling coverage with roughly the same percentages as everything else you have listed, except my medical limit is $5,000 and I added a sewer back up rider as I have a toilet in my basement, my premium is $987 after all discounts. My agent said my premium is a bit higher than typical because my house is old (1927) and they have no idea how far off from today's building code the structure is. (E.g. unretrofitted balloon frame.)

Dwelling extension covers unattached structures, like a garage. An attached garage is covered under the main policy.

Regarding Option ID, I have that too. Here's what the policy says:
Option ID – Increased Dwelling Limit.

We will settle losses to damaged building structures covered under COVERAGE A – DWELLING according to the Loss Settlement Provision shown in the Declarations.
1. If the amount you actually and necessarily spend to repair or replace the damaged dwelling exceeds the limit of liability shown in the Declarations for Coverage A – Dwelling, we will pay the additional amounts not to exceed the Option ID limit shown in the Declared the Option ID limit shown in the Declarations.
2. If the amount you actually and necessarily spend to repair or replace damaged building structures covered under COVERAGE A – DWELLING, Other Structures exceeds the limit of liability shown in the Declarations for Other Structures, we will pay the additional amounts not to exceed 10% of the Option ID limit shown in the Declarations.
It seems to me like it's a buffer on top of the coverage limit to make you whole. Searching for "Option ID", this seems to confirm that:

https://www.insure.com/home-insurance/r ... costs.html

Basically, if a hurricane hits your area, the construction costs are going to be higher than anticipated. While you could increase your base coverage to this amount, it likely saves you money to have the rider.
Topic Author
DMB41
Posts: 38
Joined: Fri Nov 20, 2020 2:55 pm

Re: Help understanding home insurance quote - First time homeowner

Post by DMB41 »

Thanks for the insight exodus. I don't have any detached structures so I'll ask to get that removed. The increased dwelling makes sense though.
talzara
Posts: 1956
Joined: Thu Feb 12, 2009 7:40 pm

Re: Help understanding home insurance quote - First time homeowner

Post by talzara »

DMB41 wrote: Tue Oct 12, 2021 11:42 am 3) Personal property seems to be really high compared to what we actually own. I can't imagine I own more than ~$50k worth of personal property, excluding vehicles, especially with this being our first home and moving from a small apartment. How do you properly determine how much coverage you need and is it worth getting less (or more, I guess)?
State Farm requires the personal property coverage limit to be at least 75% of the Coverage A limit. You are already at the minimum limit, so you cannot go any lower.
DMB41 wrote: Tue Oct 12, 2021 12:17 pm I don't have any detached structures so I'll ask to get that removed.
State Farm requires the Other Structures coverage limit to be at least 10% of Coverage A. You are already at the minimum limit, so you cannot remove it.

State Farm has a very outdated rate structure. There are other homeowners insurers with more modern rate structures that allow greater customization of policy limits. Allstate allows you to reduce coverage for personal property, and it's the third-largest homeowners insurer in Alabama. You just have to call around to get more quotes.
Duzz78
Posts: 47
Joined: Sat May 15, 2021 9:10 pm

Re: Help understanding home insurance quote - First time homeowner

Post by Duzz78 »

1) You want the Loss settlement option dwelling A1 - replacement cost
You want the Loss settlement option personal property B1 limited replacement cost

Replacement cost is the cost is will take to rebuild your structure or replace you personal possessions after the loss without depreciation. Your quote has this included. You want this coverage.
talzara wrote: Tue Oct 12, 2021 5:56 pm State Farm requires the personal property coverage limit to be at least 75% of the Coverage A limit. You are already at the minimum limit, so you cannot go any lower.
DMB41 wrote: Tue Oct 12, 2021 12:17 pm I don't have any detached structures so I'll ask to get that removed.
State Farm requires the Other Structures coverage limit to be at least 10% of Coverage A. You are already at the minimum limit, so you cannot remove it.

State Farm has a very outdated rate structure. There are other homeowners insurers with more modern rate structures that allow greater customization of policy limits. Allstate allows you to reduce coverage for personal property, and it's the third-largest homeowners insurer in Alabama. You just have to call around to get more quotes.
Most insurance companies will value your personal property at 50% - 75% of the amount of dwelling.
DMB41 wrote: Tue Oct 12, 2021 11:42 am
Policy Options and Endorsements:
Jewelry and Furs $1,500 / $2,500 Option JF included
Silver / Goldware Theft - Option SG $2,500 included
Business Property - Option BP $1,500 included
Building Ordinance or Law - Option OL (% of Coverage A) 10% $39,900
Firearms - Option FA $2,500 included
Fire Department Service Charge Increased Limits $500 included
Coverage B of your policy should cover most jewelry owned by the average person. So unless, you have really expensive jewelry and furs that you need a special rider to cover their cost in case of theft, you don't need the additional coverage. Same for silver and precious metals on your property. If not, don't need this option either. Seems like State Farm is bundling these small options together. I believe State Farm call this their additional personal articles policy. Since you did not provide any information other than address and purchase price, I would definitely verify that the agent did or did not add this policy in your quote. Not sure if you have an option to accept or reject. Not sure how much it adds to the cost of your premium.

My company offers such options. They are options. I decide if I need and pay an additional premium for such. Note, some of those have a separate deductible that must be met before insurance will pay.

Ways to save
A. Bundle, which you are doing
B. Raise your deductible which you are considering
C. Cover your dwelling only. The land under your house is not at risk to wind, storm damage or theft. Don't include the value of your land in your how much insurance your need. (some people don't know this or forget this)
D. Home security. See if you get a small discount for just having smoke detectors and dead bolt locks in your home.
If you have a security system that is connected to the fire and police department or another monitoring service, your insurance might give you a bigger discount. Verify with your insurance company first before installing. Note cost of equipment, installation and monthly monitoring fees should be considered against the insurance savings.
E. Maintain good credit
F. Get quotes from several companies before you purchase insurance. Compare apples to apples.
Topic Author
DMB41
Posts: 38
Joined: Fri Nov 20, 2020 2:55 pm

Re: Help understanding home insurance quote - First time homeowner

Post by DMB41 »

Thank you Duzz! I do think I'll have some extra home security options I can add to get the premium down, however little it may be.
talzara
Posts: 1956
Joined: Thu Feb 12, 2009 7:40 pm

Re: Help understanding home insurance quote - First time homeowner

Post by talzara »

Duzz78 wrote: Tue Oct 12, 2021 11:06 pm
talzara wrote: Tue Oct 12, 2021 5:56 pm State Farm has a very outdated rate structure. There are other homeowners insurers with more modern rate structures that allow greater customization of policy limits. Allstate allows you to reduce coverage for personal property, and it's the third-largest homeowners insurer in Alabama. You just have to call around to get more quotes.
Most insurance companies will value your personal property at 50% - 75% of the amount of dwelling.
That's the default limit, but the large insurance companies have been lowering the minimum limit in the latest rate filings.

Farmers allows you to reduce the personal property limit to 40% of Coverage A in most states.

Travelers allows you to reduce the limit to 25%.

This is a very recent trend that is driven by competitive pressure. If one insurance company insists on high limits, they'll lose customers to another insurance company that allows lower limits.

State Farm is bucking the trend, but State Farm is playing a different game from the other insurance companies. State Farm has some of the deepest multipolicy discounts in the industry, as much as 35% in some states. It's very hard to beat a 35% discount, even if you reduce the personal property limit.
Topic Author
DMB41
Posts: 38
Joined: Fri Nov 20, 2020 2:55 pm

Re: Help understanding home insurance quote - First time homeowner

Post by DMB41 »

talzara wrote: Wed Oct 13, 2021 4:13 pm
Duzz78 wrote: Tue Oct 12, 2021 11:06 pm
talzara wrote: Tue Oct 12, 2021 5:56 pm State Farm has a very outdated rate structure. There are other homeowners insurers with more modern rate structures that allow greater customization of policy limits. Allstate allows you to reduce coverage for personal property, and it's the third-largest homeowners insurer in Alabama. You just have to call around to get more quotes.
Most insurance companies will value your personal property at 50% - 75% of the amount of dwelling.
That's the default limit, but the large insurance companies have been lowering the minimum limit in the latest rate filings.

Farmers allows you to reduce the personal property limit to 40% of Coverage A in most states.

Travelers allows you to reduce the limit to 25%.

This is a very recent trend that is driven by competitive pressure. If one insurance company insists on high limits, they'll lose customers to another insurance company that allows lower limits.

State Farm is bucking the trend, but State Farm is playing a different game from the other insurance companies. State Farm has some of the deepest multipolicy discounts in the industry, as much as 35% in some states. It's very hard to beat a 35% discount, even if you reduce the personal property limit.
I wonder if State Farm will go lower? Guess it doesn't hurt to ask, especially if it lowers my premium in any significant margin. Their discounts do seem to look good on paper, but I wonder how much if that is just fluff to make it look like you're getting a good deal. For example, I have a quote from an insurance company related to the builder that is building the home that I would not expect to have offered a competitive rate (no home/auto bundle, no loyal customer discount, no claim discount, etc), but their monthly premium is only $5/mo more. So either State Farm would be completely non-competitive on the pricing without the deep "discounts" I am getting or their premium is higher so they can offer me these "discounts" to make it look like I am getting a good deal. Regardless, I am happy with the price so far, but it is interesting to see how the game is played.
Lalamimi
Posts: 832
Joined: Mon Jun 24, 2019 4:22 pm
Location: Texas

Re: Help understanding home insurance quote - First time homeowner

Post by Lalamimi »

Can you get discount for bundled coverage of your autos? If you pay in full, e billed, etc. Be sure to purchase flood insurance separately. Home Owners does not cover flood damage. Talk to an insurance broker, they have access to numerous companies. We have Allstate, with a 5% deductible for named storm. Not sure how we got that, but it keeps our premium at $1700, broker can't beat it.
Topic Author
DMB41
Posts: 38
Joined: Fri Nov 20, 2020 2:55 pm

Re: Help understanding home insurance quote - First time homeowner

Post by DMB41 »

Lalamimi wrote: Thu Oct 14, 2021 9:17 am Can you get discount for bundled coverage of your autos? If you pay in full, e billed, etc. Be sure to purchase flood insurance separately. Home Owners does not cover flood damage. Talk to an insurance broker, they have access to numerous companies. We have Allstate, with a 5% deductible for named storm. Not sure how we got that, but it keeps our premium at $1700, broker can't beat it.
Home/auto discount is already included and is the largest discount at $1,097. I am not in a flood zone so no need for flood insurance.
Topic Author
DMB41
Posts: 38
Joined: Fri Nov 20, 2020 2:55 pm

Re: Help understanding home insurance quote - First time homeowner

Post by DMB41 »

State Farm got back to me on cost for increased deductible. Here are my options:

Deductible - Premium
1% ($3,990) - $1,068/yr ($89/mo)
2% ($7,998) - $986/yr ($82.16/mo)
$10k - $979/yr ($81.58/mo)

Like I mentioned in the OP, I am all for taking a higher deductible in order to reduce my premium since I don't plan to make a claim on anything other than very large expenses, but with such a small difference between them, I just don't see how it is worth going with the higher premium. ~$110/yr difference seems like splitting hairs at this point. Even if I stick with the lower deductible, I don't plan to make claims more often since it's lower, so keeping it low, in this situation, seems like the best option so that when it does come time to make a claim in the future, I am already up $6k (~$4k vs $10k premium). Is my thought process way off or do you guys agree?
Lalamimi
Posts: 832
Joined: Mon Jun 24, 2019 4:22 pm
Location: Texas

Re: Help understanding home insurance quote - First time homeowner

Post by Lalamimi »

DMB41 wrote: Thu Oct 14, 2021 9:30 am
Lalamimi wrote: Thu Oct 14, 2021 9:17 am Can you get discount for bundled coverage of your autos? If you pay in full, e billed, etc. Be sure to purchase flood insurance separately. Home Owners does not cover flood damage. Talk to an insurance broker, they have access to numerous companies. We have Allstate, with a 5% deductible for named storm. Not sure how we got that, but it keeps our premium at $1700, broker can't beat it.
Home/auto discount is already included and is the largest discount at $1,097. I am not in a flood zone so no need for flood insurance.

Sorry. I did not see that discount until later. Please reconsider Flood Insurance. We are in Katy Texas and you heard about Tax Day Flood, then Harvey?? My SIL was not in flood plain - house had 3 ft of water in it for 3 weeks. They had flood insurance but it was a $1.5M house. Cost over $450K to repair . Daughter's MIL forgot to pay that year, so no insurance. Took them 2 yrs to repair. Its not that expensive.
talzara
Posts: 1956
Joined: Thu Feb 12, 2009 7:40 pm

Re: Help understanding home insurance quote - First time homeowner

Post by talzara »

DMB41 wrote: Thu Oct 14, 2021 7:18 am I wonder if State Farm will go lower? Guess it doesn't hurt to ask, especially if it lowers my premium in any significant margin.
No, the 75% minimum limit is in the rate manual. Alabama is a prior approval state. State Farm is required by law to follow its approved rate manual.

Sometimes this works out in the customer's favor. Here's a thread where another Alabaman got State Farm to change the deductible when the rate manual disagreed with the agent: viewtopic.php?p=6273475#p6273475

In this case, it works against you. The rate manual says 75%, and it is illegal for State Farm to deviate from the rate manual.
DMB41 wrote: Thu Oct 14, 2021 7:18 am Their discounts do seem to look good on paper, but I wonder how much if that is just fluff to make it look like you're getting a good deal. For example, I have a quote from an insurance company related to the builder that is building the home that I would not expect to have offered a competitive rate (no home/auto bundle, no loyal customer discount, no claim discount, etc), but their monthly premium is only $5/mo more. So either State Farm would be completely non-competitive on the pricing without the deep "discounts" I am getting or their premium is higher so they can offer me these "discounts" to make it look like I am getting a good deal. Regardless, I am happy with the price so far, but it is interesting to see how the game is played.
Over time, that $5 price difference will probably grow to 10%.

State Farm offers a loyalty discount (new customer penalty) of about 10%. Most other insurance companies offer a new customer discount (loyalty penalty) of about 10%. State Farm is playing a very different game from the other insurance companies.
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