Compared to all the time and effort that goes into buying a house or apartment, many homeowners tend to leave the question of insurance on the backburner. However, picking the right kind of coverage is crucial for safeguarding your assets in the case of a major disaster or burglary.
Additionally, if you’re going to be taking out a loan to purchase your new home, mortgage companies will require you to have some form of coverage.
Here are some tips on what to pay attention to when picking homeowners insurance.
Choose the Right Level of Coverage
For your peace of mind, don’t go for any policy which doesn’t protect against the following:
- ⬥Damage to your home’s interior and exterior caused by vandalism, fire and explosions. (Note that if you are buying property in an area where natural disasters have a higher chance of occurring, e.g. earthquakes or floods, you will need to get additional coverage.)
- ⬥Hotel or some other kind of temporary accommodation while your home is being restored (“loss of use”).
- ⬥Personal liability in case of injury (for yourself or anyone else who gets injured on your property, including cases where your pet(s) cause the injury).
A mistake some homeowners make is getting partial insurance, e.g. 80% of the total value of their home, especially if their mortgage company touts they do not require homeowners to have full insurance for the property.
While we hope you never have to file an insurance claim for a major disaster, it would be ill-advised to get partial coverage because you could potentially end up with enormous costs by having to pay 20% out of your pocket.
However, don’t think you won’t have any options when faced with unforeseen circumstances. For example, you could get a budgeting loan which could cover certain aspects of home maintenance and repair.
Compare Insurers and Policies
There is nothing wrong with sticking to your regular insurance provider, especially if they have a good history of processing claims to the satisfaction of their clients.
However, there are many insurance companies which offer a variety of rates and coverage options that might better fit your budget and other specific needs. Comparing prices and getting several offers to choose from will give you room to negotiate a deal that suits you best.
When comparing insurers’ policies, be sure to also compare their deductibles. Deductibles are what you will need to pay out of your pocket when filing a claim. Note that lower monthly rates would mean higher deductibles in case of a claim.
Your potential deductible amount should be something you could afford. Many people like the flexibility of lower monthly payments, but keep in mind that the purpose of insurance is to protect you by helping you cover restoration costs in case a disaster strikes your home or investment property.
Additional coverages may sometimes be included in an insurer’s standard policy, while other carriers would charge you extra for those in their premiums. However, these extra covers might save you tons of cash in the long run.
Extended replacement cost
If homebuilding expenses were to increase following a disaster, this kind of added coverage would ensure that the insurance company pays 20 to 25% over the limit of your standard coverage. However, that includes only the cost of common building materials; if you have to restore special features like frosted-glass windows or use more sustainable materials, you’ll need to purchase something called a restoration-cost policy.
Earthquake, hail, windstorm
Different states and insurance companies have different policies regarding hail, earthquake and windstorm damage, so you might have to either buy an extended coverage for those types of natural disasters or pay more in deductibles.
Contents replacement cost
Basic coverage usually entails reimbursing you for the “actual cash value” of damaged or stolen goods and home possessions, which means that the price you paid for them would be depreciated. You can purchase a special replacement cost coverage to mitigate this.
Umbrella liability coverage
A rule of thumb would be to purchase coverage that is the same value as your possessions. This additional protection is available through umbrella or excess liability coverage and it extends your liability protection beyond the limitations of your house and vehicle policies. However, in order to purchase excess liability coverage, you may need to first increase the liability coverage limits on your vehicle and house insurance plans.
To sum up, when it comes to choosing the right homeowner’s insurance for you, just make sure you have enough coverage to replace your house and possessions and read the fine print before buying—or simply consult an expert to help you better understand your chosen policy.