Kara McGuire: Shopping for home insurance is headache

If there's one financial task I love to put off, it's shopping for insurance. But when my new premium for home insurance came in the mail, I knew it had to be done. I was staring at a 25 percent increase.

I was told the hike was due to rate adjustments for all Minnesotans, plus our decision to switch auto insurers.

Chances are you also have seen homeowners rates go up. Premiums have been rising steadily, according to the Insurance Information Institute, a trade group for the insurance industry. It forecasts that rates will rise about 3 percent, to an average of $879 this year. In Minnesota, hail and wind storms seen in recent years have led to rate increases.

So if you decide to shop around, how do you begin?

First, determine if you're marketable, suggests Gloria Thompson, an independent insurance agent with American Agency in St. Louis Park. If you have a history of claims, you may find it hard to find a good deal until the last claim is three to five years old, she said.

Another rate-raiser is poor credit. If your credit score has taken a hit in this tough economy, you'll have fewer choices and higher prices. For tips on improving your score, visit www.whatsmyscore.org or www.myfico.com.

J. Robert Hunter, director of insurance for the Consumer Federation of America, shops for insurance when there's a big price change, or every three years. He says consumers should start by checking out the buying guide from their state insurance regulator (in Minnesota, that's the Commerce Department). Some states offer price information in the guides. Minnesota's doesn't. That's among the reasons why its website received an "inadequate" rating in terms of helpfulness for consumers in Hunter's 2008 study of state insurance department websites.

While you're there, check a carrier's financial health using InsData, found in the NAIC's Consumer Information Source section. Acknowledging the issues that ratings agencies have had during the credit crisis, Thompson still suggests checking a ratings agency such as A.M. Best (www.ambest.com) and going with a company that gets an "A."

You can find financial and complaint data at www.insurance.mn.gov too.

Back to pricing policies. You can go direct, calling big carriers, or work with an agent who sells policies for a particular company, such as American Family Insurance or State Farm. Or you can go independent, and find someone who will shop multiple companies for the right policy. Try the Independent Insurance Agents & Brokers of America's "Find an Agent" tool (www.iiaba.net).

Beware the low bid

But don't shop solely on price. Lowest-price policies might exclude what you need coverage for most. Some agencies like to sneak in liberal exclusions that reduce the incidents for which they'd pay out claims. Thompson says insurance policies are like that box of Rice Krispies on the grocery store shelf: "The box is the same price, but it has a lot less in it now," she said. Comb through that policy -- even if you've had the same insurance for years -- to make sure you're getting what you thought you paid for.

Consider a mutual company, since they don't have stock shareholders to satisfy. Another money-saving tip: Price your auto and home policies with the same company. Some insurers will give you a multiple policy discount in the double-digits.

Even if you're armed with this list, shopping for insurance can be a maddening, time-consuming process.

How much you're insured for depends on the amount it will cost to rebuild your place and replace the stuff inside. It's certainly not tied to your home's (declining) resale value. Thompson's been doing this for 30 years and still can't figure out how the insurance companies can insist they know a home's replacement cost to the dollar. "How do you know how much it costs to replace your house until it burns down?" she said. Labor costs, the price of gasoline, and other building costs affect replacement cost and are ever changing. And if you have some features, such as old woodwork and other details, replacement cost is higher. If our house burns down, I'd rather chuck the craftsman detailing for a mid-century ranch, but it's next-to-impossible in my experience to negotiate replacement value.

Finally, there's the risk of switching insurance. By statute, an insurance company can drop you within the first 59 days of a policy, no questions asked.