Purchase Your Homeowners Insurance and
Be Sure That You Get the Very Best Coverage and Value
Since maintaining adequate Homeowners’ insurance is a vital component of owning a residence, your Homeowners’ policy needs to be chosen carefully. This lesson discusses the policy provisions that you ought to contemplate when deciding which Homeowners’ insurance policy to buy so as to be positive that your property is adequately insured and that you are acquiring the most insurance value for your dollars.
This lesson suggests questions to ask your insurance broker or agent and instructs you to use effective methods for shopping for the right insurer. We have also offered some useful suggestions on how you may be able to qualify for a discount.
What Homeowner’ Insurance Generally Covers
Homeowners’ insurance typically covers the loss of your belongings in case of fire, theft, and certain other casualties. In the event you must repair or replace property that’s damaged, destroyed, or stolen, your insurance will usually pay for all or a component of the cost. It also protects you against liability lawsuits- if you are sued by a person who is injured or whose property is damaged, your Homeowners’ insurance will normally cover a specific quantity of that liability. Homeowners’ insurance is usually required by mortgage lenders and when you are purchasing a home, you typically have to purchase the insurance and provide proof of insurance before you can close on your home purchase.
Although exact coverage and policy limits vary, Homeowners’ insurance generally covers damage carried out by the following events/catastrophes:
• Theft, such as check forgery and counterfeit currency
• Unauthorized use of credit cards
• Falling objects
• Ice, snow, or sleet weighing on vehicles
• Freezing of plumbing
• Flooding due to plumbing overflow
• Hot water heater bursting
• Heating system malfunction
• Power surges
Basic coverage could also contain food spoilage, lock replacement, temporary repairs, or removing debris. If these items aren’t initially included inside your fundamental coverage, it’s possible to have them added.
If you incur expenses for temporary living quarters because your home is rendered uninhabitable by an insured event/casualty, most policies will reimburse you in part for this so-called “loss of use.” When you are shopping around for policies you should ask if these items are covered.
NOTE: Floods, hurricanes, and earthquakes could have to be protected against separately-either with a separate policy or with a floater or endorsement.
There’s usually a deductible of $100 to $500 for personal property losses. Raising the deductible can reduce the premium.
What’s the DIfference? Actual Money Value Or Replacement Cost
If you insure your belongings for their “actual money value” then, if you have a loss, you will not get their replacement value at the time of a loss. Actual cash value refers to the value of your belongings after taking into account depreciation and wear and tear. For instance, the actual money value of a television you bought ten years ago might be worth only $50. On the other hand, “replacement cost” coverage supplies you with the costs to replace your belongings. Thus, you’d get the $500 you’ll want to replace that ten-year-old television, not the $50 “actual money value.”
Limits On Coverage
You decide on the limits on the amounts of coverage on your house and personal property. The premium you pay will depend on the limits you decide on. Regardless of the policy limit, there will probably be a separate limit on the replacement of high-value items, such as jewelry and computer equipment. Should you want increased coverage for certain items, you should buy an endorsement or floater (also recognized as a “rider”). You must generally pay extra for the following:
• High-value items (e.g., jewelry, furs, silverware, weapons),
• Personal computers and other home-office equipment,
• Business operated inside the residence
• Earthquake, flood, and hurricane (depending on location).
Policy Coverage To Contemplate
You will have choices about how much policy coverage you should purchase. If you are willing to pay the premium for full protection, here are the policy coverages you may take into account.
1) 100% of Rebuilding Costs – The quantity of insurance you purchase ought to be based on the cost of rebuilding, not on the price of your house. The cost of rebuilding your house will normally be higher than the price you paid for it, and even the price you could sell it for right now. Most insurance organizations recommend you insure your house for 100% of the cost of rebuilding it. Note: The cost of rebuilding is affected by local construction costs and by the type of house you might have. The following (among other elements) will enter into the calculation:
2) The type of exterior wall construction – frame, masonry (brick or stone) or veneer
3) The square footage of the structure,
4) The style – ranch or colonial, for example
5) The number of bathrooms and other rooms,
6) The type of roof and the materials employed,
7) Whether the house was custom built,
8) Whether the property has an attached garage, a fireplace, exterior trim, and unique features such as arched windows.
TIP: For a rough estimate of the cost of rebuilding your home, calculate the square footage and multiply it by local building costs per square foot for your kind of home. Ask a real estate agent or appraiser for average building costs inside your area.
If your home is ever totally destroyed, and it is insured for less than 100% of the rebuilding cost, you risk not having sufficient funds to replace it with one of comparable size and quality.
Be sure your insurance agent or broker knows about any improvements or additions to your house that have been made since you last discussed your insurance policy. In case you select not to boost your limits to cover the cost of rebuilding the new deck, second bathroom, or other improvements that have increased the value of your residence, you risk being under-insured. Depending on the kind of policy you have, your insurer may possibly pay only a part of the cost of replacing or repairing damaged items if you lack sufficient insurance.
Take a look at your policy to see the maximum quantity your insurance firm would pay if your house was damaged and had to be rebuilt. The limits of the policy generally appear on the Declarations Page under Section 1, Coverage A Dwelling. Your insurance business will pay no more than this amount to rebuild your property.
Some banks require you to purchase Homeowners’ insurance to cover the amount of your mortgage. Nonetheless, if the limit of your insurance policy is based only on your mortgage, your policy is unlikely to cover the cost of rebuilding.
CAUTION: Make particular that the value of your insurance policy keeps up with increases in local building costs.
CAUTION: If the limits of your policy have not changed since you bought your house, it really is likely that you might be under-insured.
TIP: Ask your agent about adding an “inflation guard clause,” which automatically adjusts the limit to reflect current construction costs whenever you renew your policy.
Contemplate buying replacement cost coverage for structural damage. A replacement cost policy will pay for the repair or replacement of damaged property with materials of comparable kind and high quality. The insurance firm won’t deduct for depreciation – the decrease in value due to age, wear and tear, and other factors.
If you are buying an older house, you may not have the ability to purchase a replacement cost policy. Instead, you may only be able to purchase a modified replacement cost policy. This policy will pay for repairs utilizing the standard building materials and construction strategies in use today, as opposed to repairing or replacing features typical of older homes, like plaster walls and wooden doors, with similar materials.
Insurance organizations differ significantly in the way they insure older homes. Some refuse to insure older homes for 100% of replacement cost because of the expense of re-creating unique features like wall and ceiling moldings and carvings. Other firms will insure older homes for 100% of replacement cost as long as the dwelling is in great condition.
CAUTION: In case you can not insure your property for 100% of replacement cost-or choose not to do so because the cost of replacing a large old home is prohibitive – make sure the limits of the policy are high enough to provide you with a home of acceptable size and quality.
Guaranteed Replacement Cost Insurance
A guaranteed replacement cost policy will pay whatever it costs to rebuild your property as it was prior to the fire or other disaster, even if it exceeds the policy limit. This policy protects you against sudden increases in construction costs due to a shortage of building materials, for instance, or other unexpected situations, but it generally will not cover the cost of upgrading the house to comply with building codes.
TIP: Building codes require structures to be built to minimum standards. If your home is severely damaged, there could be an extra cost in rebuilding it to comply with newly enacted standards. Complying with the code might require a change in design or building materials. Typically, homeowners’ insurance policies won’t pay for this extra expense, but some insurers offer an endorsement (a form attached to an insurance policy that changes what the policy covers) that pays a specified quantity toward these costs. Note: A guaranteed replacement cost policy might not be obtainable if you own an older house.
If your house is in a region prone to flooding, contact your insurance agent or the Federal Insurance Administration (800-638-6620) and ask about the National Flood Insurance Program. Your Homeowners’ insurance policy does not cover flood damage. If you are in a flood prone area and you decide to buy a federal government flood insurance policy, contemplate insuring your property for 100% of replacement cost and buying insurance to cover the contents of your home too.
This list need to include everything you and other members of your household own in your residence and in other buildings on the property, except your automobile and certain boats, which must be insured separately. Among the items you must include are indoor and outdoor furniture, appliances, stereos, computers and other electronic equipment, hobby materials and recreational equipment, china, linens, silverware and kitchen equipment, and jewelry, clothing and other personal belongings. The Veenstra Team has free Household Inventory software that can ensure that you keep a good record of your possessions. TIP: Estimate the value of your personal possessions at present costs. The total is the quantity of insurance you’d need to replace the contents of your property with new items if everything were destroyed.
Check your Homeowners’ policy to discover the limits of the insurance you have for the contents of your property. The limit of the policy is shown on the Declarations Page under Section 1, Coverage, Personal Property. The contents limit typically is 50% of the amount of insurance on the dwelling. On a residence insured for $100,000, for instance, the contents limit would be $50,000. Now compare the contents limit with the total value of the items on your list of personal possessions. In case you believe you might be under-insured, discuss this dilemma together with your insurance agent or broker.
As discussed prior to, you will find two ways of insuring your personal possessions. If you have a homeowners’ insurance policy, find out whether or not claim payments for damage to your personal property would be based on replacement cost or actual cash value. Check your policy under Section 1, Conditions, Loss Settlement or ask your agent. As with insurance for the structure, a replacement cost policy pays the dollar quantity required to replace a damaged item with one of comparable type and quality without deductions for depreciation. An actual money value policy pays the quantity required to replace the item minus depreciation.
Check the limits on specific kinds of personal possessions, such as jewelry, silverware and furs. This info is in Section 1, Personal Property, Unique Limits of Liability. Some insurance businesses also have a limit on what they’ll pay for computers and other home office equipment. If the limits are too low, consider buying a special personal property endorsement or floater. Note: An endorsement is an addition to your policy. A floater is really a form of insurance that permits you to insure valuable items separately. Under a floater, you’ll be able to insure these items for higher amounts than under a standard Homeowners’ policy.
TIP: Should you have a claim, the more information you might have about the damaged items – a description of each along with the date of buy and purchase price – the quicker the claim can normally be settled. As soon as you purchase your house, videotape or take photographs of rooms and their contents — inluding insides of cupboards and closets. Note where and when you bought each item as well as the price. Write down the brand names and model numbers of appliances and electronic equipment. Add new items as you buy them, and keep receipts with the list. Store the list, photos, and other records in a secure location outside the home – in a bank deposit box or open a free account at Dropbox.com. Dropbox is an online file storage company and they offer small amount of space free of charge. If you upload these pictures to Dropbox, you will not lose the pictures in case of fire or accident.
Shopping For a Policy
The price you pay for Homeowners’ insurance can vary by hundreds of dollars, depending on the insurance business. Businesses supply various types of discounts, but they don’t supply the exact same discount or the same amount of discount in all states. Here are some things to take into account when buying Homeowners’ insurance:
Even though it could take a few phone calls to shop for the most effective insurance, you could save a couple of hundred dollars by taking the time to do so. Conduct a preliminary search by compiling a list of achievable insurers. Check with your insurance broker or agent, ask your friends, check the Yellow Pages, check consumer guides, and/or call your state insurance department. A thorough investigation of offered insurers will give you an idea of price ranges and tell you which firms or agents have the lowest costs.
TIP: Don’t think about price alone. The insurer you select must supply both a fair price, great coverage and excellent service. Top quality service could cost a bit more, but it supplies added conveniences. Talking to insurers will give you a feel for the kind of service they offer.
When talking to insurers, ask them what they would do to lower your costs. Once you’ve narrowed your search to three firms, get price quotes and ask about the following:
Raise Your Deductibles
Deductibles on Homeowners’ policies typically begin at $250. You might save up to 12% of the premium by increasing your deductible to $500, up to 24% by increasing it to $1,000, up to 30% by going up to $2,500, and 37% by raising it to $5,000.
Considering Buying House And Car Policies From the Same Insurer
Some firms that sell homeowners’, auto and liability coverage will take 5 to 15% off your premium if you acquire two or more policies from them.
Be Sure to Consider Insurance Cost Prior to Buying A Property
When you are looking for a home to purchase, do not overlook the insurance costs. These might affect the price you are willing to pay for the home.
What are some of the things that may impact the cost of the policy?
- The home’s construction in relation to the geographical region. (For example, brick houses may possibly result in less costly premiums in some communities. Choosing your house wisely could cut your premium by 5 to 15%.)
- Whether the area is prone to floods (if so, you could have to pay $400 or so a year for flood insurance).
- Whether the house is new or pre-existing (insurers might supply you a discount of 8 to15% for a new property).
- The electrical system, plumbing, and structure.
- Whether the town has full-time or volunteer fire service and whether the residence is close to a hydrant or fire station (the closer it is, the lower your premium will be).
Don’t Insure Land
When deciding which kinds of homeowners’ insurance to get, don’t include the value of the land under your home. It is not at risk against theft, windstorm, fire, or other disasters, so why pay for wasted coverage.
Improve Home Security
You can typically get discounts of at least 5% for a smoke detector, burglar alarm, or dead-bolt locks. Some companies offer to cut your premium by as significantly as 15 or 20% in the event you install a sophisticated sprinkler system and a fire and burglar alarm that rings at the police station or other monitoring facility. Even though these discounts are incentives to invest in home security and yard maintenance systems, be conscious that these systems are not inexpensive and that not each system qualifies for the discount. TIP: Prior to acquiring an alarm system, locate what type your insurer recommends and how much you’d save on premiums.
Some insurers supply lower premiums if all the residents in a house do not smoke.
Check Discounts For Seniors
If you are at least 55 years old and retired, you could qualify for a discount of up to 10% with some insurers.
Investigate Group Coverage
Employers, alumni and business associations can typically benefit from an insurance package at competitive rates. Ask your company’s human resources department or your association’s director if such a package is accessible.
Stay With An Insurer
If you’ve kept your coverage with the same company for several years, you might get a reduction in your premiums of 5 or 10%, depending on the insurer.
Check Your Policy Once A Year
Compare the limits in your policy with the value of your possessions at least once a year to ensure your policy covers major purchases and/or additions to your residence. TIP: Do not invest dollars for unnecessary coverage. If your five-year-old fur coat is no longer worth the $20,000 you paid for it, decrease your floater and cut your premium.
Look For Private Insurance First
In the event you live in a high-risk area – e.g., one vulnerable to coastal storms, fires, or crime – and have been buying your Homeowners’ insurance through a government plan, you may find that it is possible to get insurance at a lower price within the private market. Check with your insurance agent or broker.
Should you have a difficulty or need more details, call the National Insurance Consumer Hotline at 1-800-942-4242.