As insurance agents, we get requests for quotes from first-time homebuyers all day long. It’s essential to remember that these folks aren’t insurance agents or realtors. They may not understand how home insurance works, what it covers, and why they need it. Many first time buyers will assume a home insurance policy is just like an auto policy.
Vargas & Vargas Insurance is here to help! With this blog, we’re going to cover a few concepts every agent should be reviewing with first-time homebuyers.
1. What Is Replacement Cost Value vs. Actual Cash Value, vs. Purchase Price
Most home insurance policies are written at Replacement Cost (RCV). It’s crucial to explain to new buyers that we’re insuring the home and its contents for what we estimate it will cost to replace the home with a brand new home and brand new contents on the same piece of property.
This is important because:
- Many buyers assume we’re insuring a home for Actual Cash Value (ACV) — what the building is worth today, considering depreciation.
- Buyers may not understand that the purchase price of the property does not equal the cost to replace the home completely.
- The purchase price of a property and replacement cost of a home are not the same thing.
2. Are Their Vehicles Covered When Stored in Other Structures?
First-time buyers might think that their stored vehicles, which aren’t insured with an auto policy, will be covered by Other Structures coverage. This is not the case!
- Vehicles need to be insured to have coverage.
- The state minimums for auto liability coverage will not pay for the loss of a stored car if, for example, a detached garage were to burn down.
3. Will a Swimming Pool Change Their Rates?
Possibly. Swimming pools present a significant risk, even when they’re empty. New homebuyers should consider purchasing an umbrella policy if the home has a swimming pool.
4. Is Your Client’s $10,000 Diamond Engagement Ring Covered?
Generally, no. Most home insurance policies will set a specific limit on valuables like:
- Jewelry
- Furs
- Cash
- Musical instruments
- Artwork
Ask your prospective client if they own these sorts of expensive items, and explain what the limits of coverage are. If your customers do have these sorts of belongings, often in the form of precious wedding jewelry, they probably need a Personal Articles Floater (PAF).
Be sure to put notes in their file, describing your conversation. At Vargas & Vargas, our goal as insurance agents is to be sure that customers have the protection they need so that they won’t face any surprises. Check out our blog for more great insurance topics, or get in touch with us today.
