If you are like most people, you most likely consider your home as one of your most significant investments. However, just like you are required to insure your car before you can get it on the road, you also need to get homeowners insurance before a mortgage company can bring your loan to completion.
If you don’t know how to go about it, picking the right homeowners insurance can be daunting. However, if you know the right questions to ask, you can make the process effortless. Below are some of the crucial questions you should ask:
Here’s the bottom line: if you own the home outright, you are not legally mandated to get active homeowners insurance. However, if you still have a mortgage, the lender requires that you carry insurance and list them as an additional insured. This is needed, so their financial interest in the property is protected.
To calculate the ideal home insurance, you can use a tool called replacement cost calculator. To get the right result, you need to take into account a few key factors, such as:
- Foundation type
- Attached structures
- Roof type and age
- Construction style
- Year built
- Updates or renovations
- Window types
- Other interior and exterior features
Home insurance companies are often only interested in the home’s replacement cost, “the estimated cost to construct, at current prices, a building with equal utility to the building being appraised.”
Put merely, replacement cost is the cost needed to rebuild your home with like-kind materials and quality if it were a total loss. On the other hand, market value is what your property would sell for under normal conditions on the open market.
Since water damage can refer to several circumstances, whether covered or not will depend on the proximate cause. For instance, many home insurance policies cover water damage if it’s internal (has not touched the outside ground), accidental, sudden, and the result of a covered peril. Classic examples include:
- A bathtub that accidentally overflows
- A burst pipe in the basement
- A roof leak
- A snowstorm or rain
- A fire suppression system that damages cabinetry and flooring
Under a homeowner’s policy, not all personal property have the same coverage. Certain classifications such as memorabilia, electronics, fine art, jewelry, and high-end sports equipment may be assigned sub-limits depending on the company.
This means that if you have $5,000 worth of jewelry stolen but your policy limits payouts to $1,500, you will get $3,500. The good thing is you have the option to add to this coverage through a separate endorsement.
What happens after you file a home insurance claim depends on the details that surround your loss. From a high-level perspective, expect a call from a claims adjuster. An adjuster may also visit you to determine the cost to repair your home, depending on the extent of the damage.
The adjuster will also coordinate the repair with the help of various contractors. Once all the repairs have been completed according to your satisfaction, the adjuster closes the claim.
If a friend visits your home and gets injured, the homeowners policy’s liability portion would likely pay for the medical bills and other treatments needed. However, the liability will not cover household members.
Just like endorsements and other coverages, discounts can vary depending on the insurance provider. Below are some of the most common:
- Account discount – carrying an auto and home policy with the same insurer.
- Loyalty discount – staying with the same company for a specific period.
- Protective devices discount – fire and burglar alarms, water sensors, smoke detectors, gated community.
- Pay in full – paying your annual premium at once versus monthly installments
- Home updates – if you own an older home, updating its core systems like plumbing, electrical, HVAC, etc. can impact your insurance rates.
A deductible is the amount of money paid to handle a claim before the insurance company steps in and covers the repair costs. For example, if your deductible is set at $3,000, that will be the amount you need to pay to handle claims before the provider gets involved.
If the deductible is high, the annual insurance premium will be lower. Many prefer paying lower yearly costs. However, it is essential to remember that a higher deductible can also mean you’ll have to chip in more on repairs if your home is damaged.
10. Will I need an umbrella policy?
Think of umbrella insurance as an additional layer of protection in the event of a massive insurance claim. For instance, if you are sued for someone’s bodily injury on your property, and the legal fees exceed the liability limits of the homeowners policy. In those extreme instances, umbrella insurance can come in handy.
Finding the best homeowners insurance can be tricky. However, as long as you do your research and ask the right questions, you’re a step closer to finding the best homeowners insurance option available.
About the Author
Rachael Harper is the Content Marketing Strategist of Bennett & Porter, a wealth management and insurance firm based in Scottsdale, Arizona. When not writing, she makes use of her time reading books and playing bowling with her family and friends.