When it comes to protecting your home, it’s not just about safeguarding against
structural damage or theft—it’s just as much about feeling secure in where you
live. If disaster strikes, your focus should be on reclaiming your sense of
stability. The last thing you should worry about is money.
Homeowners' insurance isn't a luxury, it's a necessity. In fact, most mortgage
companies won't make a loan or finance a residential real estate transaction
unless the buyer provides proof of coverage for the full or fair value of the
property (most of the time this is the purchase price).
The top 8 things you should know about homeowner’s insurance.
- Decide How Much Coverage You Need
The better your coverage, the less you will have to pay out of your own pocket
if disaster strikes. In some cases, your lender decides how much coverage you
need and may require you to buy a policy that covers at least the amount of the
mortgage. It is important to note that the amount of coverage you buy for your
house, contents and personal property will affect the price you pay.
A typical policy will pay for damage to your property and your possessions in
the event of certain storms, fire, theft or vandalism. Like renter’s insurance,
it also provides liability coverage if someone gets hurt on your property and
decides to sue. Homeowner’s insurance also covers shelter costs, so you don’t
have to face crazy hotel bills if you’re temporarily displaced from your house.
Homeowner’s insurance can protect belongings outside the home, too. If something
is stolen from your car, auto insurance won’t cover it—but your homeowners
policy likely will.
- Read Your Policy Carefully
You should be aware that a home insurance policy is a legal contract. It is
written so that your rights and responsibilities as well as those of the
insurance company are clearly stated. When you purchase home insurance, you will
receive a policy. You should read that policy and make certain you understand
its contents. Keep your policy in a safe place and know the name of your
insurer.
The deductible is the amount you have to pay out of pocket on each claim and
applies only to coverage on your house and personal property. Make sure when
choosing a policy that you are comfortable paying the deductible if you make a
claim. Remember, a policy with a $100 deductible will cost more than one with a
$250 deductible. Higher deductibles may be available at a reduced price.
- Why You Should Shop Around
You are not required to purchase insurance from the company your lender
recommends. There are a number of unbiased sources available to find out what
different insurers charge for identical products and services, including your
state insurance department, consumer publications and your public library.
- Look for Multiple Policy Discounts
Many insurance companies give a discount of 10% or more to their customers that
maintain other insurance contracts under the same roof (such as auto or health
insurance). Consider obtaining a quote for other types of insurance from the
same company that provides your homeowners' insurance. You may end up saving on
two annual policy premiums.
- Make Regular Policy Reviews and Comparisons
Investors should, at least once per year, compare the costs of other insurance
policies to their own. In addition, they should review their existing policy and
make note of any changes that might have occurred that could lower their
premiums.
- How Replacement Coverage Differs From Market Value
There are two key distinctions that every homeowner should know: “replacement
cost” versus “market value.” Replacement cost covers repairing or replacing your
entire home. Market value is how much someone would pay to buy your home and
accompanying land in its current downtrodden condition.
When you’re considering the type of coverage to take out, a policy that’s based
on market value is typically less expensive but, as State Farm puts it, “for a
cash-strapped homeowner, buying a policy based on market value offers the best
chance to recoup at least partial expenses after a loss.” In other words, you
won’t recoup as much in the event of a serious disaster.
- Review Your Home Insurance Needs Every Year
Check with your insurance agent at least once a year to make sure your policy
provides adequate coverage. The addition of a room, new insulation or remodeling
add value to your home and therefore may increase replacement cost.
