Home Insurance Buying Guide
For many people, homeowners insurance is essential to the overall well being of their finances. There are two primary reasons to purchase this type of coverage:
- To protect your assets. In addition to the structure of your home, your policy will cover personal belongings while offering protection against any injuries to others while on your property.
- Satisfy your mortgage lender. Most mortgage lenders require proof of home insurance for as long as you have a loan. If you don’t have coverage, your lender will have to insure the home themselves. Compared to a policy you can purchase on your own, this is going to be much more expensive.
Type of Coverage
The majority of home insurance policies provide a variety of coverages. The main types of coverages include:
- Dwelling. Pays for any damage to your house and structures including but not limited to: electrical wiring, plumbing, and HVAC.
- Other structures. Pays for damage to additional structures such as fences, guest homes, and storage sheds.
- Personal property. Reimburses you for the value of your personal belongings ranging from electronics to clothing to furniture.
- Loss of use. Pays for living expenses while your home is being repaired.
- Personal liability. Protects you against financial loss if you are found legally responsible for injuries or damages caused to another person while on your property.
- Medical payments. Pays medical bills for people injured on your property.
Types of Policies
In order to receive compensation for damage to your property, the cause must be a covered peril (theft, wind, fire, etc.). The perils that your policy covers are based on the type of policy that you buy. The most common types of policies are outlined below:
- Dwelling fire form. Covers only the dwelling.
- Basic form. Covers against perils including fire, wind, hail, explosion, lightning, theft, vandalism, falling objects, snow, and freezing or rupturing of plumbing.
- Modified coverage form. For older homes where the cost to rebuild is higher than the market value.
- Broad form. Same as basic form.
- Special form. The most popular option as it offers protection against all perils, except those that are specifically excluded such as earthquake and flood.
- Tenants form. This is for renters.
- Condominium unit owners form. This is for owner occupants of condo units.
Limits of Coverage
When shopping for a home insurance policy, your agent can help you decide how much coverage to buy. Generally speaking, your coverage should at least equal the full replacement cost of your property.
It is important to review your dwelling coverage often to ensure that it is never less than the cost to replace your property.
Your limits for personal property, other structures, and loss of use are included in your policy as a percentage. For example, your dwelling coverage may be $200,000 with your personal property limited to 50 percent or $100,000.
This is the amount of money you will pay out of pocket before your home insurance company covers the loss. Typically, the higher your deductible the lower your monthly payment.
Having a high deductible is one of the best ways to save money on your home insurance premium. It will also steer you away from making claims. Of course, you need to make sure you can afford the deductible in the event of a loss.
You can add other types of coverage to your home insurance policy. In some situations you can purchase an endorsement. In others, you will be required to buy an additional policy to coverage a specific item or peril.
There are two main reasons to add coverage:
- To cover a peril that most traditional home insurance policies don’t cover. For example, your policy will not protect you against flooding. For this, you will need to purchase a policy through the National Flood Insurance Program.
- To add more coverage. For added protection, you may want to opt for guaranteed replacement cost coverage or personal property replacement cost endorsement.
Most home insurance polices are not designed to cover business uses of your property. However, some policies offer partial coverage for business use. This can include:
- Computers and other business electronics. If you use your computer for business, it may be covered by your home insurance policy.
- Daycare coverage. Believe it or not, some home insurance policies provide liability coverage if you care for another person’s child and are not paid.
Other Types of Insurance Related to your Home
When buying a home, especially for the first time, you may begin to hear about different types of insurance. For example, you will be required to purchase private mortgage insurance if you do not put down at least 20 percent of the overall purchase price.
Title insurance is meant to protect the homeowner and lender against any financial loss caused by errors in the title. This is typically a one-time fee paid at closing when buying a home.
Home Insurance Premium
There are many factors that affect how much you will pay for home insurance coverage. This includes the company that you decide to do business with. Some of the details that will affect your premium include:
- Cost to rebuild your home.
- The material your home is made of.
- The age and condition of your property.
- Your claims history.
- The type of coverage that you choose.
- Your deductible.
- Your credit history.
- Any protection devices, such as a home security system.
- If you are operating a business from home.
How to Shop Around
Many consumers are unaware that different home insurance companies charge different rates for identical coverage. This is why shopping around is extremely important.
Insurance companies use several methods to sell their products, including:
- Direct market sales by phone or online.
- Exclusive agents who only sell the products of one company.
- Independent agents or brokers who represent several companies and have the ability to provide multiple quotes.
Receiving and Comparing Quotes
The best way to learn more about the cost of a home policy is to compare multiple quotes. Before you do this, you need to know what type of coverage and limits you need.
When obtaining quotes, it is essential that each one be for the same coverage and limits. This way you are comparing apples to apples.
To save money, ask your insurance agent if you qualify for any discounts. For example, you may be able to save by purchasing your policy from the same agent who provides car insurance – this will lead to a multi-policy discount.
Questions to Ask
When receiving and comparing quotes, here are several questions to ask agents:
- Are you licensed by the state insurance department?
- If I submit a claim how will my premium be affected?
- Do I qualify for any discounts?
- What types of water damage are not covered?
- How much liability coverage do I need?
When you purchase home insurance you are signing s legal contract. Before you move forward, it is important to read your policy to ensure that you know exactly what you are doing.
Here are some tips to consider:
- Keep a copy of your home insurance policy in a safe place.
- Pay the premium on time, every time.
- Make a list of valuables currently stored in your home.
- Keep your home in good condition to help avoid an unnecessary claim.
How to File a Claim
It is your hope that you never have to file a home insurance claim. If this time does come, the first thing you need to do is contact your agent or company. This is when you will learn more about how to move forward.
Soon enough, your insurance company will assign an adjuster to your claim. The adjuster will meet with you at your home to discuss the damage.
If there is a disagreement along the way – such as between you and the adjuster – you should first attempt to resolve the issue with your insurance agent. Don’t feel pressured to agree to something that does not make sense.
Losing your Home Insurance
There is a difference between a home insurance company cancelling your policy and not renewing it.
When your policy is cancelled, it means that you or your insurer has decided to stop the coverage before the expiration date. You have the right to cancel your policy at anytime.
With non-renewal, it means that your insurance company refuses to renew your policy after it expires. If this is to happen, your insurer is required by law to give you at least 30 days notice.