One of the most important steps to complete when buying a home is purchasing homeowner’s insurance. Why is this so important? Firstly, if you are borrowing money against the property, your lender will require that you have insurance in place before closing, so no insurance, no house. Secondly, often a home is your most valuable asset. Do you really want to risk the loss of not only your valuables and home, but your financial security?
Making sure that your investment is protected will help to prevent financial ruin that many of us would experience in the event of a disaster. Floods, fires, burst pipes, or burglaries are just some of the losses that can happen to any homeowner. These things can happen at any time, and probably will when you least expect it. Although the loss of your home to such a disaster is far from a pleasant experience, losing your financial investment and what it can do to your personal wealth can make the situation many times worse.
What is the single most factor to consider when buying your homeowner’s insurance? The agent. It is very easy to be “sold” a policy based on what you think is most important to you such as cost.
A great agent will take time to explain to you the risks, costs, and educate you on the entire process. After determining your needs, they’ll come up with a plan that fits your needs best.
Please contact us before shopping for your homeowner’s insurance. We refer dozens of people to insurers each year and know the best out there. Please don’t decide to just stick with whomever you’ve used in the past without getting a second opinion. This can cost you hundreds if not thousands of dollars per year in premiums, but more importantly can get you the right coverage for your needs. We can get you to the right people.
Homeowner’s (or hazard) insurance typically covers the contents of the home in addition to the structure; usually both will be on the same policy. Depending on the home and its contents, the contents of a home can have a greater value than the home itself. Particularly if you own a large amount of valuables, such as priceless works of art, jewelry or antique furniture. Also, the contents can often be more at risk than the actual structure of your home, as in the case of theft and accidental damage.
How Much Coverage Do You Need?
This is where the advice of an experienced agent comes into play. In short, your homeowner’s insurance policy should cover the costs of rebuilding your home and replacing its contents should you experience a total loss. Your lender will use the loan amount and the value as determined by the appraiser as a guide when determining the amount of coverage you’ll need to carry as minimum. When figuring out how much coverage YOU need (along with your agent), be sure to take into account the following:
– When estimating the cost of completely rebuilding your home, rely on an expert. Insurance companies have guides that help determine an accurate estimate. The price you paid for the home may have nothing to do with how much it would cost to rebuild. The labor and material required to rebuild your home may not be accurately reflected by its purchase value. You’ll also need to take into account the age of the home, local code requirements and any upgrades that you might have made to the home.
– Very important: Take a complete inventory of the contents of your home, paying particular attention to expensive items such as furniture, firearms, jewelry, electronics, appliances and other valuable items. Be sure to include as much detail as possible about each item in your inventory, including estimated value, the date of purchase and photos. We recommend taking a video of the entire home, slowly progressing through each room and commenting on the items. This video needs to be stored off-site. If you have cloud storage & an electronic copy, just store it on the external site. Another option would be to upload the video to Youtube and set the video type to “private” rather than public. In the case of a house fire you don’t want to lose this valuable piece of information. It will be critical to help you maximize the amount you can recover for your loss. For particularly valuable items, you should consider getting a professional appraisal, and this may be required by the insurance provider anyway.
– Liability coverage covers you from a loss if you are sued when someone has an accident in your home. (There are other circumstances where liability insurance can protect you as well. See your insurance agent.) You might consider buying an “umbrella policy”. This is extra liability insurance that is designed to help protect you from major claims and lawsuits. It provides additional liability coverage above the limits of your homeowners, auto, and other insurance policies. Particularly those with a higher net worth may want to consider an umbrella policy. Again, your insurance agent is the best resource in regards to this.
– The cost of your coverage depends on a several factors. The deductible, total coverage amount, and types of coverage all play into the cost to you. The deductible is the amount that you pay out of pocket in the case of a claim. Of course, the higher the deductible is, the lower your premiums. Choosing the amount of your deductible is a function of two things. Firstly, your lender will limit this to a certain percentage of the total liability. This varies with lenders. Secondly, you need to determine how much money you are willing to have on hand at all times. If you experience a loss, you’ll need that deductible to make up the difference.
– See what coverage you’ll get in the event of a loss that causes your home to be uninhabitable for a some time. You’ll need additional living expenses while you wait for the home to be repaired. Also be sure you understand which circumstances are covered. For example, your insurer isn’t going to put you up in a hotel just because you decided to remodel your bathrooms.
Common Home Insurance Exclusions
Even the most comprehensive home insurance policies will still have exclusions, and you’ll want to fully understand what these are. Although policies vary enormously, you’ll find that most standard home insurance packages do not include coverage for the following: sinkholes, earthquakes, wear and tear, sewer backup, etc. Don’t expect your insurer to replace your 20 year-old roof because it is getting past its useful life. That isn’t what hazard insurance is for. However there are a lot of things that could happen to your home, that even though the risk is very low, the cost could be very high in the event they happen to you.
Insurers expect clients to maintain a degree of responsibility, and they will be less likely to pay out for a claim in cases of poor maintenance or negligence.
A claim won’t be accepted if it is a result of misinformation upon taking out the policy. Be honest about the state of your home, including locks and alarms.
You’ll need to let your insurance provider know about any building work, use of the place for commercial purposes or the presence of another resident.
A typical home insurance policy will require that you do not leave the home unattended for more than 30 consecutive days.
Most policies will not cover valuable items, such as laptops or bicycles, which are regularly taken away from home. These items need additional coverage.
Damage caused by war, terrorism or civil unrest is not likely to be covered by any home insurance policy.
Damage deliberately caused by you or someone living with you will not be covered, and making a claim under such circumstances could be considered insurance fraud.
The list above should serve as nothing more than a guideline, and there will likely be other things that you will not be covered for. However, many policies provide coverage for rarer disasters for an additional fee.
Price comparison websites do a poor job of estimating your premium. It is critical that you speak with a good agent that asks you the right questions and educates you. Insurance premiums vary significantly depending on your insurance score, much of which comes from your credit score. Rate vary considerably by area also: for example, areas where the crime rate is high or there is a greater risk of flooding demand higher premiums. Also, whether or not your area is served by city police and fire departments or volunteer services.
Please don’t make the mistake of only considering the cost of the premiums when making your decision. Home insurance is one of those things that isn’t fully appreciated until it is actually needed. Picking the wrong insurer, type of insurance, or limits of coverage can possibly ruin you financially in the event of a loss.
Remember, take our advice & contact a reputable agent for a quote on your homeowner’s insurance (or second opinion if you already have an estimate). Contact us for a list of great insurance agents that our buyers have used in the past. You’ll be glad you did; we promise.
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