Attention Mortgage Brokers and Bankers

FIVE BIGGEST MISTAKES HOME BUYER’S MAKE WHEN PURCHASING HOMEOWNER’S INSURANCE AND HOW YOU AS A MORTGAGE BROKER CAN HELP THEM?

Buying a home can be stressful, finding the right lender, qualifying, and making sure the insurance is affordable while having the appropriate coverage are just a few of the issues facing home buyers. As a Mortgage Broker or Banker you can play a key role in making sure your client’s insurance coverage isn’t a deterrent to closing the loan. Obviously the cost plays a major factor in determining the right policy, however cost is not the most important issue in a lot of situations. Here are the five biggest mistakes homeowner’s make when purchasing insurance for their new home:

1.     Picking the right Agency to work with: Many insurance agencies claim to shop your coverage with multiple carriers, however most agencies only have 5 or 6 carriers to compare. It is important to deal with an agent that has 10 or more companies to make sure you are actually getting the best rate. Ideally you want to work with an agent that has 20 to 50 carriers to compare.

2.    Knowing the coverage needed to properly cover the risks associated with your home and location: Are you in a flood zone? Are sinkholes prevalent in your area? Do you have expensive jewelry, firearms, or art work (most policies have minimal coverage for these items unless they are increased by an endorsement or rider.)

3.    RCV vs ACV: Do you know the difference? Replacement Cost Value (RCV) covers the cost to replace your Personal Property at its cost at time of loss. You get the full value of the item for what it costs today. Actual Cash Value (ACV) depreciates the value of your Personal Property and only pays that value. For Example if you lose a 5 year old TV you’ll only get paid its value today after depreciation. Whereas RCV will get you a brand new TV. Sometimes agents competing for business will give you ACV to lower the cost and compare that to a quote with RCV and not tell the client. 

4.    Other Structures (Coverage B): Other Structures covers anything not attached to the home. This could be a fence not secured to the home, a shed, or guest house. Some companies require other structures coverage automatically even if you don’t have an “other structure” on the property while other carriers let you exclude it. Why pay for that coverage if you can never collect on it?

5.    Not Understanding your deductibles: Homeowner’s policies have primarily two separate deductibles, Hurricane/Wind and All Other Perils (AOP). Many homeowner’s don’t understand what falls under each deductible. A typical AOP Deductible might be $1000 and a Hurricane Deductible is a percentage of the dwelling amount 2% for example. If your dwelling amount is $500,000 and you have a 2% Hurricane Deductible, in the event you suffer a loss from a hurricane, your deductible is $10,000 and unless your loss exceeds $10k you aren’t going to receive a penny from the insurance company. Likewise if your AOP deductible is $1000 you don’t want to file a claim unless the damage exceeds $1k. 

Mortgage Brokers have the ability to educate their borrowers on the need for proper coverage. A good insurance agent can help mortgage brokers in this process and make sure they never lose a loan or miss a closing because the insurance costs were too high. It makes sense to build a relationship with a knowledgeable insurance agent to help you close more loans.

Ron Wardell

President/CEO

National Insurance Holdings, Inc.