Homeowners Insurance

How to Buy Homeowner’s Insurance

You absolutely, positively cannot do without homeowner’s insurance if you own your own home. It covers you against most types of damage to your home and loss or theft of its contents. It also protects you financially if anyone is injured on your property. But how do you choose the right policy?

Buy enough coverage. All mortgage lenders require homeowner’s coverage for at least the amount of the loan. But don’t assume that’s all you need. Your policy should cover 80 to 85% of the cost to rebuild or replace your home from the foundation up – which will be more than your mortgage or the resale of your home. Ask your insurer or check with a contractor or professional appraiser to determine this amount.

Balance risks and coverage cost. Standard policies do not cover earthquakes and floods. If you live in an area prone to either, look into the cost of adding this coverage. But be prepared to forgo it if the price of the policy and the size of the deductible make this coverage too expensive.

Know what you’re not getting. Depending on the type of policy you choose, you will usually be covered for about a dozen risks, including fire and theft. But if you want broader coverage in case of damage due to burst pipes or defective wiring, you may need to spend more.

Find out how the policy figures losses. Actual cash value may sound good, but it means, for example, that you’d receive replacement cost of your household goods – minus the value they’ve lost over the years you’ve owned them (depreciation). Loss of a television set you bought for 600 five years ago might bring you half the amount you paid – not quite enough to purchase the same item today.

Replacement coverage, on the other hand, gives you the money you’d need to go out today and replace the items you lost, regardless of their value after depreciation. Replacement coverage typically cost 10 to 15% more than actual cash value, but you can offset the higher premium by taking a higher deductible.

Consider special coverage. Standard policies limit coverage on certain rare or expensive personal belongings like antiques, jewelry, furs, and art. If you own any of these, talk to your agent about a separate policy (known as a floater) or an addition to your current policy (an endorsement or rider) to cover them specifically.

Reduce your premium. Ask your insurance agent about discounts for homeowners who install deadbolt locks, smoke alarms, fire extinguishers, and security systems.

You can also opt for a higher deductible (the amount out of your pocket before the insurance company pays on a claim) to reduce the premium. You may also be eligible for lower premiums by purchasing all your insurance policies (auto, homeowners, etc.) from the same company.