Tips on Homeowners Insurance

June 15th, 2015

1. You’re a statistic.

To an insurer, you’re not a person; you’re a set of risks. An insurer bases its premium (or its decision to insure you at all) on your “risk factors,” including your occupation, who you are, what you own, and how you live.

2. Know your home’s value.

Before you choose a policy, it is essential to establish your home’s replacement cost. A local builder can provide the best estimate.

3. Insurers differ.

As with anything else you buy, what seems to be the same product can be priced differently by different companies. You can save money by comparison shopping.

4. Don’t just look at price.

A low price is no bargain if an insurer takes forever to service your claim. Research the insurer’s record for claims service, as well as its financial stability.

5. Go beyond the basics.

A basic homeowners policy may not promise to entirely replace your home.

6. Demand discounts. Insurers provide discounts to reward behavior that reduces risk.

Americans waste money every year because they forget to ask for them!

7. At claims time, your insurer isn’t necessarily your friend.

Your idea of fair compensation may not match that of your insurer. Your insurer’s job is to restore you financially. Your job is to prove your losses so you get what you need.

8. Prepare before you have to file a claim.

Keep your policy updated, and reread it before you file a claim so there are no surprises.

Why home insurance costs so much

Insurers will not only judge you on your record, but on your demographic as well.

It boils down to one word: risk.

To an insurance company, you are a collection of risks. Your sex, your age, your marital status, and what neighborhood you live in all contribute to an insurer’s prediction of whether you’ll file a claim.

If, for example, you are a homeowner who lives in a coastal area prone to storms, or a rural region far from fire stations, you are judged to be a higher risk because people in such situations have tended to file more — and their claims usually are more expensive.

The good news is that all insurers don’t price the same risks identically. While insurers are highly regulated in many states, they still operate as competitive businesses, focusing on certain markets and avoiding others. What’s more, some operate their businesses more efficiently than others, passing on the savings to consumers.

That means you may be able to save hundreds of dollars a year by shopping regularly, even if your insurer rewards long-time customers. A great quote from a new carrier may trump the loyalty card.

In the following sections, we’ll look at some sensible ways to find the best coverage, whether you live in a mansion or studio apartment.

Properly value your home

Know how much homeowners insurance to buy.

First, you need to determine the cost of rebuilding your home.

Insure your home for its replacement cost — that is, the amount it would cost to rebuild it if it were totally destroyed. That means determining the average local building cost in your region, and applying it to your home’s size, style, and quality of construction.

Your best resource for this is a builder. For a flat fee, you may be able to have a local contractor go through your home and provide an estimate. Try to find someone who builds individual, custom homes that don’t benefit from the economies of scale that tract homes offer.

If you want the same antique moldings, stone fireplace, and plaster-and-lathe walls as before, make sure the builder takes that into account. Otherwise, the estimate may reflect less costly modern materials.

You could also invite an insurance or real estate agent to your home. An agent who visits your home can eyeball the construction quality and point out any special features.

If you deal with a direct marketer (a company with no local agents), you can better ensure proper coverage by accurately reporting your home’s details — built-ins, antique wood, glasswork, upscale kitchen appliances, marble bath tile, etc.

Getting the proper home insurance coverage

Here are some tips to help you make the right choices about homeowners insurance.

Just as there are different home styles, insurers offer a menu of different policies. For the majority of single-family homeowners, the most appropriate policy is the HO-3, sometimes called the special policy (in Texas, for some reason, it’s known as the HO-B). It insures all major perils, except flood, earthquake, war, and nuclear accident.

You’ll need deep coverage, up to and including 100% of your home’s replacement cost. By insuring at, say, 90%, you’re making the reasonable bet that your home won’t ever be a complete loss. That may be a reasonable bet bit if you want to play it safe, insure at 100%.

Insurers generally cover a home’s contents up to between 50% and 75% of the home’s value. Make a list of your home’s contents for a more exact estimate of your needs. That also provides a written record that’s useful when you file a claim. The industry-sponsored Insurance Information Institute provides useful instructions on how to put together an inventory.

You’ll also have to pick a deductible, which is the amount you pay yourself before the insurance kicks in. The higher you go, the more you’ll save.

Buy the guarantees

Traditional guaranteed replacement cost coverage promises to pay whatever it takes to rebuild your home, even if it costs more than the original limits you purchased. That’s crucial in the event that labor and building costs balloon after a major disaster. In many states, large insurers now cap the guarantee at 120% to 125% of purchased limits.

Your safest bet is to seek a company with no cap. However, if you’ve properly valued your home’s replacement cost, the caps shouldn’t scare you. It’s unlikely that building and labor costs will go up to more than 120% of your home’s insured value.

If it’s not built into your policy, ask for replacement cost coverage for your home’s contents. Without it, you’ll end up with just the depreciated value of any object that’s damaged or stolen.

Get these types of important coverage, too:

Inflation guard

This option annually increases your premium at the rate of local building-cost inflation.

Ordinance-and-law coverage

This rider, which covers the costs of bringing your home into compliance with current building codes, is a must if your home is more than a few years old.

Limit your liability

Your homeowners policy protects against lawsuits for accidents that happen on your property. It also covers you if your dog bites someone.

You might also consider umbrella liability coverage, which is additional coverage over and above your regular homeowners liability limits.

Consider these options:

–Displacement

Your homeowners policy also provides for living expenses if you’re displaced; replacement of structures such as garages and sheds; and limited medical coverage for someone injured on your property. Don’t buy more than the minimum offered. Depending on your situation, however, several other types of coverage may be worthwhile:

–Floods

Floods aren’t covered by ordinary homeowners insurance. Flood insurance is available through the Federal Emergency Management Agency. In California, you may need earthquake coverage; check with the California Earthquake Authority.

–Home business coverage

Business property worth more than $2,500 isn’t covered by a homeowners policy, so buy a separate policy — also known as a rider — to fill the gap. Business liability coverage must be purchased separately, too.

–Riders for valuables

A standard policy provides only minimal coverage for antiques, collectibles, furs, silver, jewels, cameras, computers, musical instruments, and firearms. For these, you need separate coverage.

H/T Source: Money.CNN.com

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