Whether you’re shopping for homeowners insurance for the first time or swapping out one policy for another, you want coverage that suits your needs and doesn’t break the bank. (And if you’re looking for a home, check out this offer letter than won over the sellers.)
Most mortgage companies require that you purchase homeowners insurance before closing on your house or condo. If you’re a first time home-buyer, choosing the right insurance company and policy may seem like an insurmountable task, which is where we come in.
Before you shop, make sure you’re familiar with what homeowners insurance is; figure out if you want to shop yourself or go through a broker; gather all the necessary information and paperwork; compare and select a policy; and lastly, choose a billing plan and sign.
When you shop for your homeowners insurance policy, you should know what type of coverage you need and how much of each component you’ll need in order to make sure all your stuff is covered.
Figure out your home’s replacement cost and personal property value
Every policy has hazard insurance coverage. Hazard insurance is the bulk of your policy and covers your home (dwelling coverage), your stuff (personal property coverage), and helps you relocate and pay for temporary living expenses if your home is uninhabitable (loss of use coverage).
Here’s how you determine coverage for each of these components:
- Dwelling coverage: You first need to first figure out the build price of your home. This is the amount it would cost for a full rebuild and is otherwise known as your home’s replacement value. Besides the do-it-yourself approach, you could also opt to hire an independent appraiser to give your home a thorough inspection.
- Personal property coverage: You may want to take an inventory of all of your personal belongings inside the home, value it, and calculate what it would cost to repair or replace your stuff if they’re damaged, destroyed, or stolen by a covered loss.
- Loss-of-use coverage: Loss of use coverage is typically a fixed amount – 20% of your dwelling coverage, and policy limits for loss of use are set accordingly.
Figure out your liability and medical payments coverage
Deciding on your liability coverage is a little less time-consuming, as it’s suggested you just opt for the limit suggested to you by your insurer. Medical payments coverage should be enough to cover guests’ hospital bills if they’re injured in your home.
Figure out if you need any additional coverage
If you live in an area susceptible to floods or earthquakes, you may be required to add flood and earthquake insurance. That’s because a standard homeowners insurance policy doesn’t cover perils like floods, earthquakes, and mold. Luckily, all three of those perils can be covered with add-ons, or floaters, to your policy.
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After you’ve studied up and done your homework on homeowners insurance and have a general idea of your coverage needs, you’ll determine whether you want to shop on your own or go through an insurance broker. Just make sure you are comparing costs across different carriers.
Shopping on your own
If you choose this route, a good thing to keep in mind when evaluating insurers is how they handle the claims process. Some major insurance companies are far better at handling the claims process than others, and you should zero in on this when comparing them, as the single best indicator of home insurance customer satisfaction is the company’s damage estimates. Stay away from insurers who have a reputation for low-balling customers and producing small settlements when you file a claim.
Also try to not limit yourself; the best way to shop for insurance is to cast a wide net so you’re not missing out on any deals or discounts. Having multiple policies to choose from also gives you negotiating leverage if an insurer you’re close to signing with refuses to budge on say, allowing your dog to be covered on the liability portion of your policy; they’re more likely to provide coverage if you can point to a handful of other policies that have no issues with covering your very good pup.
Shopping through an insurance broker
If you’re not into the do-it-yourself approach, going through a broker is your other option.
The advantages of going through a broker that they’re licensed professionals who understand what to look for and what to avoid in a home insurance company and policy. You’re still responsible as the homeowner and policyholder to provide necessary paperwork and information, but the extent of that isn’t nearly as cumbersome if the broker is ironing out all the fine details for you.
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After you’ve given your agent all the required information about your home, it’s time to fetch you some quotes and select a home insurance policy.
Don’t just look at the price
Cheap is good, there’s no denying that, but when selecting a homeowners insurance policy, cheap doesn’t tell the entire story. In fact, what you may find is the amount you’re quoted isn’t anywhere close to the amount you end up paying.
Apart from the policy itself, you’ll also want to look into the insurance company’s background. Be sure they’re a financially stable company, read customer reviews and check their ratings with consumer insights companies like A.M. Best and JD Power and Associates, to name a few. (Here’s what to do if your rates rise.)
Questions to ask
What perils are covered?
In a standard homeowners insurance policy, also known as an HO3, it will list all the causes of loss or perils that your home and personal items aren’t covered against, but you’ll want to double check and make sure that perils not listed are actually covered and you may want to consider adding additional coverage to cover perils (like water damage, floods, and mold) not covered in a standard HO3.
Which of my things are covered?
You’ll also want to make sure certain property-types and structures that you own – pools, trampolines, tree-houses, air-conditioning units, and other appliances – are covered both in the liability and personal property coverage portions of your policy, or if there are specific conditions where they won’t be covered.
Do I have an actual cash value (ACV) or replacement cost value (RCV) policy?
These types of policies determine the amount of a covered loss the insurer will actually cover.
- Actual cash value policies only reimburse you for the replacement cost of whatever was damaged but minus the structure or properties’ depreciation in value over time.
- Replacement cost value is the repair or replacement cost of your house or property but the depreciation amount isn’t deducted from the payout.
If you have a newer home, you’ll probably be safer with an ACV than folks with an older home. But replacement value policies are seen as the most cost-effective option in the long run. Have more questions? Check out these 20 questions on homeowners insurance you may be too embarrassed to ask.
Does my homeowners insurance cover my partner or guest?
Home insurance policies typically cover blood-relatives or spouses but won’t cover unmarried partners or guests in your home. To get your partner covered, check with your insurer to see what their policy is for adding unrelated people to plans and if so, what the additional cost is.
You’ve compared quotes, gotten all your most pressing questions answered and selected a policy, now it’s time to choose a billing plan and policy deductible.
If you’re buying a home and need homeowners insurance to close on your house, there are a few details you need to finalize first:
- Premiums: It’s common practice for lenders to require that premiums for the year be paid in full ahead of closing. Be sure to clarify with your agent if this is the case – they will be in contact with your lender about coverage and billing requirements for how your insurance will be paid moving forward.
- Deductible: You’ll also need to set your policy’s deductible, which is the amount you pay before your claim for damages is covered. From a cost standpoint, what you’re looking for is a low monthly or annual premium. So if you don’t plan on filing many claims, choose the higher deductible.
- Effective dates: Lastly, you set the policy’s effective dates, such as it’s closing date and whether or not you’d like the policy to be automatically renewed after the closing date.
Once your billing and policy dates are set and your lender approves the policy, sign on the dotted line and voila! You have yourself a homeowners insurance policy.
Your home insurance carrier will typically perform an inspection of the property to make sure everything is in order and reported as quoted. If anything is off or you forgot to mention something in your application (maybe your roof is about 10 years older than you stated on your application, or on the flip side, maybe your home has certain safety and security features like burglar alarms and storm proof windows that you forgot to mention) your adjuster will take note of the errors and omissions and you’ll see it reflected – for better or worse – in your next bill.
You should use the inspector’s visit as an opportunity to pick their brain about various discount opportunities and get those rates lowered. Remember, they’ve looked at a number of houses just like yours, and may have some good ideas for that roof that’s currently causing your rates to skyrocket and replace it with something that will actually help you save (storm-proof shingles, anyone?).
With tax season around the corner, read up on if homeowners insurance is tax deductible.
This article originally appeared on Policygenius and was syndicated by MediaFeed.org.
Featured Image Credit: DepositPhotos.com.
