Buying your first home and need to know the ins and outs of homeowners insurance? Unless you plunked down a suitcase full of cash at the closing tables, chances are you used a bank to finance your home purchase. The bank will obligate you to obtain proper homeowners insurance, but which company you choose is up to you.
What Does An Average Homeowners Policy Cover?
The main job of a homeowner’s policy is to help you pay for damage to your home’s interior and exterior. The damage can be from weather, fire, vandalism, or other covered perils. After an incident that damages the home, you might need repairs or even a whole new home. Personal items are also covered, but the amounts and limits will differ by policy. You can add on more insurance coverage for expensive personal items like jewelry and artwork with separate riders. Coverage for possessions is typically around 50-70% of the total insured value of your home. Let’s say you had an insured home value of $200,000; your personal items could be covered for up to$140,000 in some cases. In addition to providing risk coverage for your home and possessions, your policy also comes with some personal liability for injuries. If someone falls inside your home and is hurt, then your homeowner’s liability could cover the costs. Your policy might also cover hotel stays while you are put out of your home for repairs. There are strict rules and limitations, however, so read your policy carefully.
Understanding The Three Basic Levels Of Coverage
There are three levels of coverage, which represent the way your home is valued and protected by insurance. You’ll be able to choose the type of policy that makes the most sense for you.
●Actual Cash Value
Actual cash value ensures the home and belongs for how much they are worth right now, not for the value you paid for them originally. In order words, it factors in depreciation.
Replacement cost covers the value of your home and possessions in full, without deducting for depreciation. The amount you paid for them is what they are covered for. That doesn’t always allow you to replace items, and they may be more expensive now than when you bought them.
●Extended Replacement Cost
The most generous coverage protects you from inflation. With extended replacement cost coverage, you’ll be paid the amount it takes to repair or replace your home and possessions, even if they cost more now than when you bought them. The coverage usually adds around a 20-25% buffer.
The most coverage a bank usually requires is 90% of the value of your home, but many financial experts caution that extended replacement is the way to go. You’ll want to have a financial cushion in the event of a total loss.
What Situations Won’t Homeowners Insurance Cover?
Natural disasters, called “acts of God,” are not covered. This would be things like a large meteorite hitting your home or something else unexpected and uncommon. It also doesn’t cover acts of war. If you live in an area that experiences hurricanes, floods, or earthquakes routinely, then you’ll be required to pay for extra riders to cover these known possibilities.
Also, check your policy about vacant homes. If your property is left vacant for a certain amount of time, your insurance will be void. Vacant homes are more likely to be damaged in fires, floods, or invite vandalism.
How Are Homeowners Policy Premiums Determined?
The number one concern an insurance company has when determining your premiums is what amount of risk they are taking on. Insurance is supposed to be there for you when you need it, but insurance companies aren’t doing this out of the goodness of their hearts. Insurance is a business, and they do want to make a profit overall. A number of things come into play when determining risk on a property and its owner, including:
●The number of claims submitted by the owner in the past.
●The number of claims submitted at the property in the past (no matter who owned it).
●The neighborhood crime rate.
●The building material of the home, including the type of electric system.
●The amount of coverage (value of the home, possessions, etc.) the customer is looking for.
●The homeowner’s credit rating.
●Swimming pools, trampolines, and sometimes certain breeds of dogs can also affect insurance premiums and the ability to get insurance.
●Condition of the home at the time it is appraised.
How To Save Money On A Homeowners Policy
Insurance is important, but no one enjoys paying for it. You need adequate coverage that is affordable. There are some ways to get cheaper homeowners insurance premiums to lower your costs.
First, you can raise your deductible. The deductible is the amount you pay out of pocket before insurance kicks in. Deductibles help mitigate risk and reduce frivolous claims. The higher deductible you are willing to pay, the lower your premiums will be.
Next, install a security system for your home. It’s best if the security system is monitored and directly connected to the local police. This can lower your premiums by around 5%.Smoke detectors with sprinkler systems can also lower premiums, especially when installed in older homes. You can get discounts for having multiple policies with the same company. You can get10% or more off your premiums for having auto and home bundled. If you happen to pay your home off, your premiums will drop up to 10% as well. It’s assumed that once you own the property free and clear that you will take better care of it.
The last and probably most important cost savings tip is to comparison shop. Get quotes from several companies to see who can get you the best deal. You can use a web portal or an insurance broker to help you get multiple quotes. You can also compare what making changes to your policy will do to the cost