With the purchase of a new home, you probably are shopping around for the best home insurance rates. Afterall, your mortgage lender most likely requires you have homeowners insurance. But by making such a large purchase, you need to protect the asset which is your home. Homeowners insurance provides coverage should your home become damaged or destroyed. It also provides liability coverage to protect any visitor to your home in the event they injure themselves. We’ll show you what to consider as you shop for your policy.
If you are a first time home buyer, you may have some experience with renters insurance. One similarity exists between renters and home insurance policies and that is personal property coverage. Know that home insurance entails a lot more. Since there is more to lose when owning a home, basic home insurance typically covers:
Additional living expense
A dwelling is the home and attached structures like a garage. Basic home insurance covers “perils” or the things that cause damage to your home. These can include:
ice, sleet, and snow damage
Damage from a vehicle
Fire and smoke damage
Vandalism and malicious destruction
Dwelling insurance also covers cooling and heating systems, plumbing and wiring.
Other property coverage is for structures that are unattached such as a fence, shed or detached garage.
Personal propertycoverage is content coverage for property within the home that includes things like:
There are two choices for personal property coverage: actual cash value and replacement value. Cash value won’t provide you enough to purchase similar brand new items, without you spending additional money. Replacement cost provides you with a payment sufficient to replace the lost items.
Liability insurance covers injuries to visitors on your property. It includes a legal settlement and legal fees up to the liability limit.
Additional living expenses are referred to as ALE or loss of use coverage. If your home gets damaged and you and all other residents of the home are required to live elsewhere while it is repaired, ALE coverage pays for meals and hotel rooms while you are displaced.
How to make sure you are covered.
Home insurance takes the worry out of unfortunate, unexpected events such as break-ins, slippery sidewalks, and fallen trees. Things to know when comparing coverage and prices are:
Buy enough insurance to cover rebuilding your home
Take an inventory of your possessions
Replacement cost coverage is worth the extra expense
A home insurance policy does not cover everything
Cover the Cost of Rebuilding
A mistake many new homeowners make when buying insurance is to purchase coverage equal to the market value of the home. Home insurance is meant to pay for rebuilding a home that is destroyed.
The amount to cover rebuilding your home can be higher or lower than the purchase price. Homeowners who lose a home in a disaster may be caught short if underinsured. A reliable insurance agent can help with the estimate. Additionally, you could consult with a local contractor to ask about building costs in the area. HMFacts is an online calculator we found thatestimates replacement costs.
An inventory will let you know how much coverage you will need. Some insurance companies offer an inventory app. Free online software from the Insurance Information Institute can also help inventory your possessions.
Standard home insurance policies have dollar limits placed on coverage for special collections and valuables. You may require additional coverage for those items. The inventory also helps make the claims process easier if something unfortunate happens.
Replacement Cost Coverage
This is the amont of money it would cost to buy a new, comparable item(s). The replacement cost coverage is more expensive than cash value coverage.
Cash value coverage pays the current value of damaged or destroyed items. With replacement coverage, the five-year-old furniture damaged by a broken pipe would prompt funding for a new piece of furniture. Cash value coverage reimburses the cost of new furniture minus depreciation.
Things Not Covered
Standard home insurance policies do not cover floods or earthquakes. You may need a separate policy depending on where you live. You can find out how much the average home insurance ratesare where you live. You enter your zip code, the approximate cost of the dwelling, the deductible you want, and an estimated amount of liability.
Homeowner insurance companies offer discounts that you may qualify for such as:
Check an insurance company’s website for a list of discounts it offers. Bundling is an easy means of saving money on insurance. Bundling means getting multiple policies from one insurer. Motorcycle, auto, and home insurance can be bundled. Some companies also offer life insurance.
Does my credit score influence my homeowners insurance?
Insurers sometimes use credit scores as a determining factor for insurance rates. Insurance companies see a person’s credit history as a glimpse into the risk of insuring that person.
Alternatively, some insurers use an insurance credit score which is separate from your financial credit score. You could alternatively request a CLUE report. The acronym stands for Comprehensive Loss Underwriting Exchange. The report tells of claims filed by the homeowner and the home’s claim history. Insurance companies want to prevent risks. A house with multiple claims over a few years will mean paying higher rates or being declined to insure.
The deductible is the homeowner’s share of repair costs if an insurance company approves a claim. The higher the deductible is, the lower the premiums will be. A higher deductible saves money and reduces insurance claims.
It is essential to know the tradeoff being made when deciding on a deductible that makes sense for your financial situation. There are three kinds of home insurance deductibles.
A dollar amount deductible is a specific amount the homeowner pays before an insurer pays its portion. A percentage-based deductible is a percentage of the amount covered by the policy. For example, if the deductible is 2% and the home is insured for $200,000, the homeowner pays the first $4000 of a claim.
Split deductibles are hybrids of the other two. Most claims have a dollar amount deductible. Specific events such as an earthquake or hurricane trigger a percentage. Homeowner deductibles are different than health plan deductible.
Health insurance deductibles typically have a yearly deductible. Once you meet your deductible, the insurer will pay for evertyhing else for the remainder of the year. Those payments are still subject to coinsurance and copayments.
Home insurance deductibles apply to every claim. From the insurer’s stance, deductibles cut down on the minor claims that have to be processed and lower payments for major claims. Taking less risk, allows the insurer to reduce premiums when higher deductibles are chosen.
A high deductible can reduce premiums by as much as 20% to 40%. A minimum deductible is imposed by most insurers, but increases are allowed in exchange for premiums that are lower. The lower premium is an attractive deal when claims are unlikely, and the homeowner has sufficient savings that will cover the deductible if a severe loss occurs.
In conclusion, buying a home is an important life event and investment. Protect yourself, others and your home if the unforseen happens. Take time to learn about your options in home insurance.