Homeowner’s Insurance Basics
You have brought your dream house, now it’s time to buy homeowner’s insurance coverage to protect what may be one of the largest investments you make in your lifetime. How much coverage do you need? What is covered? What will it cost? What are riders? Keep reading to learn the basics of buying insurance for your new home.
Determine Coverage
The first step in buying insurance coverage is determining how much you need. Instead of market value, insurance company’s use the homes rebuild cost to determine the price of the coverage. It makes sense because a damaged home will be repaired, not replaced. Depending on where you live, the home may require flood insurance. This is not included in homeowners’ insurance policies and must be purchased separately.
Included in a homeowner’s insurance policy is coverage for the contents, or your possessions. The typical amount of coverage is 75% of the home’s insurance value. There are also usually limits on the coverage for certain high value items. If you own expensive jewelry or collectibles, for instance, you may want to consider additional coverage for those. You will also want to inventory all of your possessions in the event of a claim. Take photographs or a video of all of the rooms in your home to document your possessions and put receipts for expensive items in a safe place. This will save you a lot of grief later if you need to prove what was damaged or destroyed to your insurance company.
Shopping for a Quote
A good as place as any to start comparing property insurance quotes is with your existing auto insurance company. Some, but not all, insurance companies offer multiple types of coverage. You may find that your auto insurance company will give you a good price if you bundle in your homeowner’s insurance with your existing auto coverage. Next, contact an independent insurance agent. Generally, independent agents are registered with, and can sell policies from, several different companies. This is a great way to quickly compare various quotes.
However you approach it, you will want to get quotes from at least three companies. Compare prices and take a look at reviews from existing customers. One or two bad reviews might indicate disgruntled customers who decided to vent online. It is better to get a broader idea of customer satisfaction by looking at many ratings and reading several reviews, both positive and negative.
Escrow
Many homeowners prefer to include their insurance premium in their mortgage payment. This can be easily set up with your mortgage company and is usually preferred by the bank as it gives them assurance that the property is covered. On a side note, you can include your property taxes in your mortgage payment as well. This allows you to write one check a month instead of three.
Glossary
Here are a few terms you should become familiar with when shopping for homeowners insurance:
Deductible – This refers to the amount you must pay for any repairs before the insurance company pays for the rest. For instance, if your deductible is $1000 and you property suffers $5000 worth of damage, you will pay $1000 and the insurance company will pay the remaining $4000. Deductibles are yearly, so you only pay your deductible once in any given year even if you experience another loss later that year. The higher your deductible, the lower your insurance payments will be.
Liability Coverage – This type of insurance covers medical and legal costs if a person is hurt in your home or on your property.
Premium – This is the cost of your insurance coverage. It is typically paid in monthly installments.
Rider – This is an additional policy that is in purchased alongside a homeowner’s policy to cover specific, usually valuable items in the home. Riders can be purchased for things like expensive antiques, or artwork.