Smart Money: Homeowners shouldn't report minor insurance claims

Bruce Williams is a national radio talk show host and syndicated columnist.

Dear Bruce: I just received a 33 percent increase on my insurance premium for my home. They say that this is for additional coverage that I don't understand. What type of insurance should I consider for my home? J.M., via e-mail

Dear J.M.: I have no way of knowing what additional coverage they are talking about. There are basic coverages that a homeowner should take into account. Fire on the building and extended coverage for water damage and similar hazards. Get the same coverage for the value of the contents.

When we say "value" in both instances, we mean replacement value, not fair market value. If you have a 10-year-old dining room table and you put it on the front lawn for a yard sale, it's probably worth next to nothing. If you have to replace it, it's going to cost you today's prices, therefore replacement value on your contents is imperative. The same thing can be said for the building. While you may have an older home that is worth $100,000, it might take $150,000 to replace it.

If you are in special areas subject to, but not limited to, hurricanes, sinkholes, mudslides, tornadoes or earthquakes be certain that these coverages are in place. Frequently, you will have to go to the federal government for some of these coverages. Oftentimes, they must be in place for a certain period of time before the loss occurs.

If a hurricane is knocking on your back door, they are not going to sell you hurricane insurance. While no one likes to pay premiums, it is surely comforting to have the insurance in place when the loss does occur.

Dear Bruce: Regarding whether to carry collision and comprehensive insurance on a low-cost vehicle, my vote is on the side of maintaining your insurance. Let's say that my $3,000 car is struck, the other driver is cited and the estimate to repair my vehicle is $1,400. Without collision coverage my insurance company will take no action. I am left to go it alone against the powers of the other party's insurance company. I have few negotiating skills of that caliber, so I will need to hire a lawyer. Compute that cost versus the premiums.

In my case the other insurance company claimed that they had a rider on the policy disallowing the person who struck my vehicle from operating that vehicle. Their insurance company, who did not write policies in my state, denied responsibility and then refused to communicate with me from that point forward.

If I had paid for collision insurance, even with a high deductible, my insurance company would have gone after the other insurance company for payment or repayment and I would have received some compensation. D.P. Las Vegas, Nev.

Dear D.P.: You are overlooking several things. First, the modest amount of money that we are talking about $1,400 in repair bills with a $500 deductible leaves $900 in coverage. Your insurance company, very possibly, will not subrogate for such a small amount of money or make any serious effort to collect. They will just pay the $900. You, in turn, have paid a substantial premium to receive $900 worth of coverage. For that little bit of money, it is true you will not hire an attorney. In effect, you will be self-insured. Over a period of time for most reasonably safe drivers, there is no economic benefit to carrying collision and comprehensive insurance on automobiles with relatively small value.

Dear Bruce: I am a 44-year-old homeowner of seven years living in Nevada. I have used my current insurance company for over 27 years for home, apartment and automobile. I was recently divorced and refinanced my home in my name only. Shortly afterward I was notified that due to our three recent claims I was being canceled (not being renewed) in 60 days.

In 2001, they paid out $1,275 for a broken main water line under our kitchen foundation. In 2002, our home was burglarized and we received a check for $1,275. In 2003, I backed into our garage wall and damaged a portion that had to be "pushed back" in and redone. We received a check for $1,175.

I felt that the cost of the last incident was very excessive and complained to the insurance company. I was told not to worry about the total cost, and that all I needed to do was to pay the deductible of $500.

I was under the impression that when damages occur you contact your insurance provider. A broker informed me that you should never let them know anything unless it is a huge loss, in the thousands. Otherwise, you get it fixed yourself. What is the point of having insurance then?

I have since learned that other major companies will not insure me now. I have been denied when calling around and was informed I must go through a broker for two years and pay their rates before any company will take me back. I had been paying $686 per year and am now being quoted nothing less than $2,098 for nine months! Is this correct? Is this legal? I understand this may also hurt my credit rating.

People keep telling me that I don't need homeowner's insurance. My lending company says otherwise. I was told I am confusing hazard insurance; that they require homeowner's insurance. What is the difference? Right now I am, or was, covered for personal property, liability, medical and dwelling replacement. I have 60 days to figure this out. Please help me. S.M., Las Vegas

Dear S.M.: Whether you notify a lender is academic since the insurance company will notify them and yes, during the time that you have a mortgage you are required to carry insurance, not necessarily homeowner's but fire, lighting and extended coverage. A homeowner's policy is a better way to go.

The information that you got from an insurance broker was accurate. Small losses should be eaten instead of reported. You have had a high frequency of losses. Insurance companies have come to learn that people who have a high frequency of even small losses are very likely going to have some big ones and they want out from under.

Whether the premium that you are being quoted is appropriate, I have no way of knowing. I do know that in many parts of the country insurers have just stopped writing homeowners altogether and insurance premiums have skyrocketed.

An important coverage in your homeowner policy is personal liability. If you go out and try to cherry-pick coverages don't forget liability insurance. You will likely find that, even though premiums are far more than you expected to pay, they will still be cheaper than getting individual coverages. I do sympathize, but the point cannot be over-emphasized that smaller claims should be absorbed by the insured.

Dear Bruce: Why does the borrower pay for the lender's private mortgage insurance? I can think of no other industry where the buyer is expected to pay the cost of an insurance that is to the benefit of the lender only. M.M., Jefferson City

Dear M.M.: The insurance is not just for the lender's benefit. The insurance is so that a borrower may purchase a home with little or no money down. In most cases in a traditional mortgage, the borrower is expected to put up something in the neighborhood of 20 percent. That way, even if the deal goes sour and the property drops in value, the lender is protected.

On a "no-money-down" deal, if the borrower walks away, in all likelihood the lender is going to take a beating. PMI is simply a hired co-maker and it is to encourage the lender to loan the money to the buyer. As a consequence, it's a cost that's passed on to the buyer.

Dear Bruce: I read your column discussing not having collision insurance for lower-value cars. I have tried to get out of my collision insurance to lower my monthly payments. My car is 10 years old, has 103,000 miles, is worth about $2,000 and runs well. When I called to have this taken off I was told that I have it as a bundled package with my homeowner's insurance and that it would affect my insurance package. Can they do that? They have never told me what my rates would be if I took the coverage off of my car. J.R., Las Vegas

Dear J.R.: I have never heard of a situation where you are required to carry collision insurance on a 10-year-old car that is only worth $2,000. I have no idea what your agent means by "bundling the package with your homeowners insurance."

Ask your insurance agent what would be the result of removing the collision and comprehensive on the premium and were I you, I would also shop around for another insurance agent. I don't believe this guy has your best interests at heart. This may be a peculiar rule in Nevada, but it most certainly isn't true in most states.

Dear Bruce: What is your opinion of long-term care insurance? We are 64 and 65, in good health, with a combined retirement income of about $60,000 a year. Naomi, via e-mail

Dear Naomi: You should carry some type of long-term care insurance. If your income is evenly divided, $30,000 a year is not going to go very far if one or both of you require intensive care. However, it's not necessary for you to carry insurance to cover the complete amount. Somewhere in the vicinity of $40,000 a year on each of you would be appropriate.

While that may take a bite out of your budget, it would make living for the partner, who is not requiring the care, all but impossible in the absence of such insurance.