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You already know that home insurance is a necessity.
But finding a policy that offers adequate coverage and fits into your budget can be exasperating.
And speaking of adequate coverage, how do you even determine how much you need?
We’ve put together this handy guide that contains everything you need to know about homeowner’s insurance because we know insurance terminology and processes can be tricky.
You shouldn’t have to go it alone – luckily, you don’t have to!
What is home insurance? • Is it required? • Flood insurance What does home insurance cover? • Your dwelling • Other structure • Personal property • Loss of use • Liability • Medical payments to others What are the policy options? • Replacement cost policy • Actual cash value policy • Open Peril Policy • Named Perils Policy What about condo insurance? How much coverage do you need? • Rebuilding your home • Replacing your possessions • Liability How are home insurance premiums determined? • Your stats • Value of your home • Each insurer is unique • Discounts What about filing a claim? • Is it worth it? • Keep good records • File right away • Don’t try to go it alone • Get a second opinion Is anyone ineligible for home insurance? • Insurance score • Claim history • Hazards • Your pets • Location You’re ready
Homeowner’s insurance protects you from harm or loss affecting your home and includes the structure itself as well as your belongings.
Each policy will cover specific things, but most will cover damage resulting from hail, thunderstorms, fire and theft.
Home insurance will also usually include liability coverage, which protects you if someone were to be injured on your property.
Many policies will also help if you are displaced from your home while it’s being repaired from damage that results from a covered incident.
Yes and no.
Technically, homeowner’s insurance is optional.
But, if you have a mortgage, your lender will require you to carry coverage because they have a vested interest in the home.
There are a variety of factors that influence the type and amount of coverage that your lender will ask you to have, including:
Some condo and homeowner’s associations will require you to have some level of home insurance. The level will usually vary, but a policy that covers the interior structure is common.
Flood insurance isn’t normally a requirement from a lender’s standpoint, but is suggested for areas that are prone to flooding.
The fact is, all homeowners should consider this coverage because floods can happen anywhere.
Keep in mind that flood insurance is a separate policy from homeowner’s insurance, so it will add an additional cost.
This type of insurance is a package policy so there are different categories of coverage.
These classifications are for different aspects of your home and property.
Let’s take a look at what your home insurance will cover.
This portion of your policy is for the actual structure of your home if it were to be damaged or destroyed by hail, fire, wind or even vandalism.
Specifically, the value of the building is covered, but not the value of the land your home sits on.
It’s important to note that dwelling coverage will not reimburse for you damage resulting from natural wear and tear.
This part of your home insurance policy is for your garage, shed, or any other detached structure.
It’s a good idea to talk with your insurance agent about the exact percentage of coverage that you’ll need for these additional buildings.
Everything inside your home falls under the umbrella of personal property.
This includes furniture, clothing, art, jewelry and all of your family’s belongings.
When it’s time to determine the amount of coverage you need, your insurance agent can guide you through the process of calculating the value of all the items in your home.
If you have items such as art or jewelry that are worth a large amount of money, you’ll want to double-check that your coverage is adequate and that you don’t need to add additional coverage for the full value.
As the name implies, this coverage kicks in if you have “lost the use” of your home.
If there is an event that requires you to leave your home while repairs are made, your insurance will provide for you to stay in a hotel or rental property.
In some cases, even your food expenses and travel costs could be covered – though individual policies will vary.
Normally, there will be a time limit attached to how long you can use these benefits.
If your negligence causes harm to befall another person or their property, you’ll be grateful for your liability insurance.
This coverage extends to pets. For example, if your dog were to get out of your yard and destroy something belonging to your neighbor, your liability coverage would kick in.
Keep in mind that liability coverage won’t prevent you from being sued, but it will help pay for any legal expenses, such as representation and any settlements.
There are also limits to liability coverage that your insurance agent will review with you.
This coverage is for injuries sustained by others while on your property.
For example, if your child has a friend over and the friend breaks her arm on your trampoline, your insurance will cover the friend’s medical expenses – if the family doesn’t sue.
A lawsuit would be covered under your liability insurance, instead.
It’s also important to note that this coverage is not for you or your family, as the homeowner.
When the time comes to file a claim, you may find you don’t have the kind of policy you thought you did.
Understanding the different types of policies can ensure that you have adequate coverage and you won’t face any surprises if you need to file a claim.
Here’s what you need to know.
This is the type of policy you (and most people!) are thinking of when they think of homeowner’s insurance.
With a replacement cost policy, your insurance company will pay the cost of replacement or repair for damages, minus your deductible.
The replacements will be of similar type and quality, but the policy doesn’t take depreciation or the age of your home or other belongings into account.
Age and depreciation of your home and property are factors with an actual cash value policy.
This type of policy will cover less than a replacement cost policy.
For example, if your television is stolen, the insurance company will calculate the amount of the TV when it was new, subtract your deductible and then consider what you could sell them for in the marketplace, depending on age and use to get the amount they’ll pay out to you.
With this type of coverage, all risks are covered except those that are on a list of exclusions.
For example, scenarios such as the replacement of an old roof, peeling paint or gutters that are rotting.
Don’t worry – your policy will specifically state what is not covered.
This option offers more comprehensive coverage than the alternative, but it does cost more.
The peace of mind you gain is probably worth the extra expense!
This policy will list the “perils” that are covered.
Common situations that are covered in a Named Perils Policy include fire, wind, hail, theft or vandalism.
Some people choose a Named Perils Policy because they only want coverage for the damages that are the most likely to occur.
Your insurance agent will be happy to talk you through the pros and cons of an Open Perils Policy and a Named Perils Policy in greater detail to find the one that’s right for your situation.
An insurance policy for your condominium will look different than normal homeowner’s insurance.
Generally, this type of coverage is for the interior of your condo.
It will also cover personal liability and others’ medical expenses in the event there is an accident on your property.
Since there is so much variance in policies, your best bet is to talk to your insurance agent about how much condominium insurance coverage you need.
As with a normal homeowner’s policy, however, you will need to make an inventory of how much it would cost to replace items that are lost, stolen or damaged.
While you may initially be thinking in terms of repairing damage or replacing your personal property, it’s important that you figure out the total cost of completely rebuilding your home.
You’ll also need to think about the other aspects that have already been addressed in this guide, like the cost to replace your valuable possessions and the expenses related to someone being hurt while on your property.
Don’t forget living expenses in the event that you’re displaced from your home for a period of time.
Remember that the coverage your lender requires is going to be minimal and only cover their investment in your home.
It won’t cover your personal possessions, your liability or others’ medical expenses.
As you’re figuring out the cost, don’t forget to add the interior and exterior features of your home.
Do you have crown moldings or any custom work? What about fireplaces or upgraded kitchen appliances?
You’ll also need to take into account the materials and construction costs for your area.
It’s not uncommon for the replacement cost of your home to be different than its actual market value.
Whenever you make any significant improvements to your home, be sure to talk to your insurance agent about assessing and possibly updating your policy.
The best way to determine how much it will cost to replace your personal belongings is to make a list.
Including pictures of each item and relevant information like serial numbers will make things much easier if you ever need to file a claim, plus you’ll be able to calculate the value of your possessions.
The amount you have is up to you.
It’s also important to note that increasing your coverage significantly is inexpensive.
Because it’s often confused, it’s worth repeating that having liability insurance will not keep you from being sued if something happens to another person on your property.
It does provide you with legal counsel and other expenses related to a lawsuit.
Unfortunately, the trend in these types of cases is for the judgement to be made against the homeowner.
If you don’t have any coverage or enough coverage, you’ll be left on the hook for the sum of the judgement.
Having a judgement made against you will also likely affect your ability to secure coverage in the future and your premiums will probably be quite high.
Owning a certain breed of dog and/or having a swimming pool are both considered high-risk and may require that you obtain additional liability coverage, called an “umbrella policy.”
You can actually save yourself some money when you understand the process that insurance providers go through in order to determine the cost of your premiums.
There are a lot of variables that come into play, so let’s take a look!
Basically, your insurance company will view you according to your risks in certain areas.
They will enter all these factors into an algorithm that will give you an insurance “score.”
The score is the deciding factor for how much your premium will be.
Some of the elements they may consider include:
The age of your home, its condition and where it’s located can all have an effect on its value.
If your home is in an area that’s prone to extreme weather, for example, your premiums will be higher.
On the flip-side, your proximity to a fire hydrant or the fire department can have a positive effect on how much you’re required to pay.
These are additional factors that will be considered:
Remember – the replacement cost of your home is different than the market value!
Costs will vary from one insurer to the next.
It’s a good idea to get two or three quotes before making a final decision on an insurer.
The price tag isn’t the only factor to consider, though!
Customer service and the company’s legitimacy account for a lot.
Ask for recommendations from family and friends and look at the ratings and reviews in order to make your decision.
Be sure to talk to your independent insurance agent about any discounts for which you may be eligible.
Sometimes bundling your homeowner’s insurance with other policies will net you a discount.
Other common discounts that some insurers may offer include things like:
Every insurer has their own unique system for determining discounts and your eligibility.
The first step is knowing ahead of time what you need to do if/when the time comes to file a claim.
Chances are if you’re in a position to be making a claim, you’re probably under a lot of stress.
Being prepared can help you keep a clear head when you need to!
This is a question you’ll want to ask yourself and then carefully consider the long-term effects.
One of the reasons to really think about filing a claim is that your premiums could rise as a result.
In addition, filing too many claims could possibly cause your insurance carrier to cancel your policy. If that happens, you may have trouble securing coverage from another company.
It pays to weigh your options.
Is the cost of repairing minor damage less than the cost of increased premiums will be? If so, you may just want to make the repairs out-of-pocket and not file a claim.
Of course, there are some situations that are a no-brainer.
If your home and/or other property experiences major damage, filing a claim is the way to go.
Your list of belongings will go a long way in helping you if you need to file a claim.
It’s a good idea to backup everything online, including receipts for expensive purchases and your photos of your belongings.
If you do experience damage, you should walk through your home, recording everything that has been affected.
This is a big help to your insurance company, along with “before” photos, as they act as proof of what you’ve lost.
If you never got around to making that list of your personal property, you’ll have to try to simply remember what you had, which is not a position you want to find yourself in – especially when you’re already distressed about whatever catastrophe has happened!
You may be able to reconstruct what belongings you had by using credit card and bank statements, though this isn’t an easy task.
When you get to the point at which you’ve decided that filing a claim is necessary, you’ll want to call your insurance company immediately to begin the process.
One of the reasons for filing right away is that the insurance company has the right to deny your claim if you wait too long to file.
It’s important that you’re cooperative and ready to answer any questions asked of you. It’ll help your claim to get processed much more quickly.
These are some of the questions you can expect to have to answer:
After you’ve filed your claim, your insurance company will assign a claims adjuster to your case.
Usually, you’ll only work with one adjuster, though occasionally there may be more than one person, making it extremely important that you document everything.
Their job is to investigate the facts and decide how much money the insurance company should pay you to cover the damages you experienced.
It’s a good idea to record every communication you have with your insurance company, from beginning to end.
Make sure you write down:
These records will come in handy if there’s ever any kind of dispute regarding your claim.
If the loss or damage you experienced was the result of vandalism or theft, you’ll also have to file a police report to be included in your claim file.
You’ll also be asked to show proof of the value of the items that were lost or damaged.
There will probably be some action that you want to take, but it’s important that you don’t throw out any of your damaged belongings or make any permanent repairs until your claims adjuster has had a chance to do an inspection.
For example, if a storm has caused a leak in your roof, of course, you can put a tarp on it to prevent anything from getting into your home.
What you don’t want to do is have the roof repaired.
When in doubt about what’s appropriate to do and what’s not – give your insurance company a call and ask!
If you do make small, temporary repairs, keep the receipts for anything you purchase.
Sometimes your insurance company will reimburse you for these items.
The damage to your property may have been so extensive that you need to hire a contractor.
Depending on your policy, you may be able to choose the one you want to work with. If that’s the case, make sure to get a few estimates before you have any work done.
It’s worth noting that using the contractor your insurance company recommends may speed up the process, however!
The important thing is to talk. Keep the lines of communication flowing between you and the insurance company.
We talked about the factors that insurance companies look at when they’re determining your premiums.
There are times when individuals don’t meet the minimum requirements to be insured.
Take a look at what can keep you from being eligible.
This number is based on your credit history and is designed to be an indication of how likely you are to file a claim.
The idea is that a person who manages their finances wisely will be less probable to file.
The better your insurance score, the lower your premiums will be.
If your insurance score is deemed too low, the insurance company may decide you are too much of a financial risk for them to insure.
If a homeowner has made what the insurance company decides to be an “excessive” amount of claims in the past, they may be denied coverage.
It’s even possible that a new owner may have trouble securing coverage if the previous homeowner filed too many claims or the property has a history of issues.
There are a number of internal and external hazards that can make you ineligible for homeowner’s insurance because these factors make you too much of a risk.
Check out these external issues that can damage your eligibility:
Here’s what can cause issues for you on the inside of your home:
Keep in mind that one of these factors alone may not disqualify you and that it’s ultimately up to the discretion of your individual insurer.
This generally refers to certain breeds of dogs, primates, big cats or certain reptiles.
These pets may not keep you from securing homeowner’s insurance, but the animals probably won’t be covered.
You may be excluded from certain types of coverage based on where you live.
For example, people living in certain coastal areas may not be eligible for hail, windstorm or hurricane coverage.
Your proximity to a fire department can affect your eligibility, as well.
Buying a home is a big deal.
Insuring your home may be an even bigger deal.
This guide has given you all that you need to know about your homeowner’s insurance.
You’re well-informed and prepared to make the important decisions about insuring your home.