If you’re a new homeowner, the process of researching and purchasing homeowner’s insurance can seem like a daunting task. If you know what to look for, though, and what is expected of you, it can make the task much more manageable. We spoke with a number of insurance and financial experts to learn what you need to know about homeowner’s insurance when starting your purchasing process.
Know what you’re insuring for.
“Insure the structure for what it would cost to replace or repair it, not what you paid for it,” Eric Stauffer of ExpertInsuranceReviews.com recommends. “The land, location, view, etc. will not be destroyed in a fire. As someone who spent a lot of time in California, I saw a number of people who had $800,000 dwelling coverage on a house that would cost $200,000 to rebuild. They lived by the ocean and paid a lot for it, and did not realize they only needed coverage for the replacement of the house itself.”
Understand the difference between cash value and replacement costs.
Chartered financial consultant Amy Rose Herrick explains, “Cash value and replacement costs are completely different terms to clearly understand when choosing coverage. Do not concentrate on the lowest-cost policy only. Replacement cost is preferred because it would provide you with the greatest ability to replace your lost property at current market costs. Cash value means that the item is depreciated to what amounts to a thrift store or garage sale value, in many cases making it impossible for you to replace it without an additional substantial cash injection from your savings, which you may not be able to afford for a major loss.”
Understand the need for cataloging your possessions.
Diane Hamilton of Binary Formations explains, “One thing most people don’t realize when getting personal property insurance for their homes is that without a catalog of their household possessions, they can’t be sure they are adequately covered. Most insurance agents will base the policy on a percentage of the home price. However, this does not consider category limits on items such as jewelry, musical instruments or computer equipment. There are many categories with limited coverage per item and limited coverage for the category. Without a rider, they will not be covered. And without an inventory, this is impossible to determine.”
Understand how to properly catalog possessions.
In order to ensure a fair and speedy payout, you need to have the details of your possessions, such as value, proof of possession and condition documented. A software program like Binary Formations Home Improvement program, or HomeZada’s home inventory program can help keep all of those details organized. Also, the best way to ensure a fair and speedy payout should a claim be filed is to have details of your possessions such as value, proof of possession and condition, all of which will be asked for during the claims process.
Get an idea of what your monthly premium will be.
“When shopping for your first home, secure an insurance agent that can run preliminary insurance quotes on each home so you know what your monthly premium will be,” Carrie Van Brunt-Wiley of HomeInsurance.com recommends. “Your homeowner’s insurance is typically escrowed and combined into your monthly home payment, so the better rates you can get the lower your monthly home payment will be.”
Understand your coverage limits.
“Your homeowner’s insurance agent will likely recommend coverage limits for your home based on its size and location; however, make sure that you are comfortable with those coverage limits. In the event of a claim, your coverage limits determine the maximum amount you will be paid out for a loss, so you want to make sure you’ve got enough coverage,” Van Brunt-Wiley explains.
Know the available discounts.
“Insurance carriers offer a wide range of discounts for all sorts of home features and lifestyle choices. Does your new home have deadbolts, a security system and/or smoke alarms? Make sure your insurance agent knows all of this so that you get the discounts you deserve,” Van Brunt-Wiley explains. She also recommends referring to HomeInsurance.com’s discount chart to familiarize yourself with what’s available.
Keep liability insurance in mind.
Matt Becker of MomAndDadMoney.com warns, “Don’t skimp on the liability coverage. It’s relatively cheap and it protects you (both at and away from your home) from situations that could otherwise be financially devastating. I would even consider adding an umbrella policy on top, but first you’ll have to hit the required coverage on the homeowner’s insurance.”