Learn what to consider when purchasing a homeowner's insurance policy.
The types of policies offered are fairly standard across the country, and there are various policies to choose from. The standard homeowner's insurance policy is the "HO-3". This policy provides protection for all perils except flood, earthquake, war, nuclear accident, landslide, mudslide, sinkhole and others specified in the policy. The policy includes coverage for your home, personal belongings, liability coverage and additional living expenses, in case you are unable to live in your home due to a disaster.
There are thousands of insurance companies that provide homeowner's insurance policies. It is important to shop around to find the one that is just right for you.
Because prices for identical policies can vary by hundreds of dollars from company to company, you should obtain several different quotes. However, price is not the only factor you should consider. It is also important to evaluate the company's stability, as well as their customer service history. There are several companies, such as A.M. Best Company, Inc. and Moody's Investor Services that rate insurance company strength, and state insurance departments usually track company complaints.
It is important to accurately determine the amount of insurance you need, so that you are not over or under-insured. You should purchase enough coverage to rebuild your home at current construction costs. An easy way to determine that amount is to multiply the square footage of your home by the price of local construction per square foot. Because the cost of construction and inflation can rise rapidly, you should review your coverage limits every year.
Generally, homeowner's insurance policies provide 50 to 70 percent of the coverage you have on the structure of your home for your personal belongings. To make sure this coverage is adequate you should take an inventory of your personal belongings. Make a list of the belongings you own, including their date of purchase and any receipts of the items. In the event of a disaster, this list would be a valuable tool in settling a claim. You should keep the list outside of your home, in a safety deposit box or with a family member.
You can usually insure your items under "actual cash value" or "replacement cost". "Replacement cost" coverage is a little more expensive, but provides coverage that will replace the item, without deducting for depreciation.
It is also important to note that most homeowner's insurance policies include a per item limit of $1,000 to $2,000. If you own expensive jewelry, art or other items above that limit, you may need to purchase a "floater" to fully cover those items.
When determining the amount of liability insurance you need, determine what your assets are. Liability insurance coverage start at $100,000, but most experts agree that you need at least $300,000. If you have assets in excess of the policy limits, you can also purchase an "umbrella" policy. Umbrella policies provide additional liability coverage on top of the coverage under your homeowner's insurance policy.
The price of a homeowner's insurance policy depends on a variety of factors including: the size of your home, how close it is to a fire station, your home's building materials, etc. However, there are several things you can do to reduce what you pay.
First, consider raising your deductible. An insurance deductible is the amount you pay if you file an insurance claim. Raising your deductible from $500 to $1000 could save you as much as 25 percent. Some insurance companies also offer discounts to homeowners who also insure their car with them, install a burglar alarm or fire sprinklers, are senior citizens, etc. Discounts vary by company, so shop around to find the company that offers discounts that would apply to you.
A standard homeowner's insurance policy does not provide coverage for earthquakes, floods or landslides. If you live in an area that is at risk for these disasters, consider purchasing a special policy. The National Flood Insurance Program offers flood insurance policies and the California Earthquake Authority and some private companies offer earthquake insurance.
Homeowner's insurance is designed to get you back to where you were, should a disaster occur. However, it is important to ensure that your coverage is adequate. Most experts recommend that you review your policy every year, to be sure that you have the proper coverage amount. You should also keep your policy, inventory and important papers outside of the home, so that if a disaster does occur, you have everything you need to facilitate a quick and accurate insurance claim.
