8 Characteristics of a Good Home Insurance Company

Alice Stevens

Last Updated: December 14th, 2020

list of eight things to look for in a home insurance company summarizing article

Your home is where you eat, sleep, and spend time with family. It plays a central role in your life. You may have spent even more time in your home in 2020 than ever before.

In addition to being an important part of your day-to-day, your home is also a large financial investment that you want to protect.

You need home insurance from a reliable and trustworthy company. Here are eight things to look for in an insurance company:

  1. High financial strength ratings
  2. Substantial industry experience
  3. Appropriate state records
  4. Claims process and payment history
  5. Positive customer reviews and ratings
  6. Coverage options
  7. Premium and deductible amounts
  8. Discounts available

Non-negotiable features

If a home insurance company doesn't have good financial strength ratings, claim history, or customer reviews, you'll want to move on to another company.

1. High financial strength ratings

Whatever kind of insurance you're buying, you'll want to know the insurer's financial strength ratings. These ratings show how financially stable an insurer is and are an indicator of how likely it is to be able to meet its claims obligations.
 
"You should find out how the company is rated by AM Best Co, the most relied upon financial analyst in the industry. They rate from A+ to D-. A definite red flag would be if the company is not rated at least B or B+," advises Dan Boyer, CLU of Green Mountain Insurance Agency.
 
Pay attention to what ratings agencies the insurer is rated by. The most common ratings agency for insurance is A.M. Best. Others are Moody's Investors Service, Fitch, and Standard and Poor's.
 
Jade Plummer, insurance broker for Unity One Insurance, warns against using insurers that are rated by smaller, lesser known agencies:
 
"There are other rating companies that will give out an ‘A’ rating but are not AM Best or Standard & Poor. These rating services are for smaller insurance companies that are unable to obtain ratings in the standard market due to small financial size or future claims paying ability."
 
Claims payouts are usually large lump sums, so you want to be sure as sure as you can that your insurer will be able to pay your claim when you file one. Checking financial strength and noting which ratings agency it's from will help you identify a reliable insurer.

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2. Substantial industry experience

Many insurers have a long history in the insurance industry. With the rise of insurtech, some companies have a shorter time in business. Many of these new insurtech companies sell policies from reputable insurers or are backed by insurers with a long history and good financial strength.
 
However, it's still important to do your research to make sure your policy is from a reliable insurer.
 
"Currently there are new companies that are coming into California in certain fire areas whereas homeowners insurance has become very difficult to obtain. They have cheaper premiums than all of the other companies. What gets overlooked is the real possibility they may go bankrupt. It’s very dangerous what is happening right now," warns Plummer.

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3. Appropriate state records

"A great resource is your state’s Department of Insurance. Make sure the company you're talking to is licensed in your state. You can also look up if they have any complaints lodged against them. Make sure the website you're looking at ends in .gov so you know you're at an official government site," says Jeff Falkowski, House Report Card founder.
 
Although it's likely that if an insurer is marketing its products to you, it is licensed to sell insurance in your state. However, it's worth double-checking to be sure.

Formal complaints can help you know what to pay attention to as you work with the company and evaluate whether working with the company is worthwhile.

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4. Positive customer reviews and ratings

Another excellent insight into the customer experience with an insurer is customer reviews. Reviews are an informal way to assess what a company does well and learn about potential issues.
 
Since reviewers leave both positive and negative reviews, you'll get a fuller picture of the customer experience from buying a policy to filing a claim. Be sure to use a trusted customer review page that puts reviews through a verification process to prevent fake reviews from being published.

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Insurance offerings and the customer experience can vary by state, so give more weight to reviews from your area.

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5. Claims process and payment history

Financial support when you make a claim is the primary reason you buy insurance. You'll want to learn about the insurer's claims process and how quickly it works to ensure that you're choosing an insurance company you can count on.
 
In addition to understanding what customer reviews and formal complaints say about the claims process and claims satisfaction, you'll also want to hear from the insurer.
 
Before you buy a policy, ask a company representative about the claims process. You'll want to understand how to make a claim, how long it takes to process and make a payment, and what customer service looks like.
 
If you're working with an independent agent or agency, they should be able to answer these questions as well.
 
"If you’re working with a good insurance agency, they will have good relationships with carriers and should the worst happen, they will stand behind you and serve as your advocate to make sure everything goes smoothly," says Alan Umaly, Westwood Insurance Agency president.
 
Ask how your agent has helped clients in the past with claims and what they did when there were difficulties with claims.

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Additional considerations

Once you're satisfied that the home insurance companies you're considering are reliable, you'll need to assess the coverage and discounts offered. Be sure that the coverage you buy meets your needs and fits your budget.

6. Coverage options

Before you can evaluate the coverage offered by your insurer, you need to understand your home insurance needs. Even if you've had home insurance for a while, reassessing your needs will ensure that you have what you need.
 
"Homeowners need to constantly evaluate if their insurance needs are covered by their current policy. This is important because homeowners' insurance needs change from time to time," says Matt Rostosky, real estate investor and CashOfferKY owner.
 
There are several types of home insurance coverage. Be sure you understand what your insurer covers in its policies so you can determine if it will meet your needs.
 
Condos, mobile or manufactured homes, and high-risk homes all have their own coverage forms that meet the specific needs of these homes.
 
If you're a homeowner and your house doesn't fit any of these circumstances, you have four options for home insurance coverage:

  • Basic form — Coverage for actual cash value of home under specified circumstances or perils.
  • Broad form — Coverage for replacement cost of home under a larger list of circumstances or perils.
  • Special form — Coverage for replacement cost of home and actual cash value of belongings in all circumstances except those listed in the policy.
  • Comprehensive form — Same coverage as the special form and includes replacement cost coverage for belongings and higher coverage limits for itemized valuables.

One key difference to understand is the one between replacement cost and actual cash value. You may think that the cash value of your home is enough coverage, but it probably won't cover rebuilding costs like labor and materials.
 
When it comes to your belongings, the actual cash value will pay the current value of the item. Most items depreciate in value over time. The replacement cost will cover what it costs to replace it. 
 
So, if your old computer got destroyed, actual cash value coverage would help you buy the same model. Replacement cost coverage would allow you to replace it with a newer model.
 
Insurers often brand their coverage options, so there isn't name consistency across insurers. However, these are the four main types of coverage you can get for your house and living space.
 
Within each type of home insurance, you'll find coverage for dwelling, contents, personal liability, and additional living expenses. Flood and earthquake coverage is not included in typical home insurance. If you want that kind of coverage, you'll need to purchase a separate policy.

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7. Premium and deductible amounts

Once you understand the kind of coverage you need and how much coverage to get. You'll need to look at pricing. 
 
"Shopping around will help you reduce your monthly premium because different insurance providers offer different rates," says Rostosky.
 
As you compare pricing, be sure that you're comparing similar products. If there's a big difference in cost, you should double-check to make sure the coverage is the same. You don't want to sacrifice needed coverage for lower prices.
 
You should also pay attention to your policy's deductibles. If you opt for a higher deductible you can usually lower your premium.
 
Boyer also notes your policy may have different deductibles for certain circumstances:
 
"My agency does business in Kansas and Missouri primarily and so many companies require a significantly higher deductible for wind and hail so be aware of separate deductibles for those perils."

Understanding your deductible options and how they may vary based on what caused the damage will help you understand how your policy works and plan financially.

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8. Discounts available

Insurers offer different kinds of incentives and discounts with their policies. Some insurers have long lists of discounts. Others have a more limited number of discounts.
 
A discount on policies when you bundle home and auto are commonly offered. Other common offerings include discounts for home safety features and client loyalty.
 
Agencies and quote websites like Policygenius may also regularly shop your policy to make sure that you still have a good deal for the coverage you need.
 
In addition to discounts on premiums some home insurers offer programs that lower your deductible or offer claims forgiveness. These features help you save on out-of-pocket costs.
 
Keep premium discounts and deductible features in mind as you evaluate home insurance policies.

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