Just like with owing a car, home ownership requires insurance. It protects your home and the belongings inside in the event of a number of mishaps, including certain natural disasters. It requires some knowledge and a bit of research to make certain you are properly covered. To help, below are what you need to know when buying homeowner’s insurance.
Though your mortgage lender will require you to obtain homeowner’s insurance as a condition of funding your loan, possibly including additional coverage if you live in a flood or other hazard zone, but they can’t dictate the company you choose to purchase the insurance from.
- Get the right amount of coverage
Determining the proper amount of coverage for your home is the first step. You’ll want to know the replacement value of your home should it be damaged or destroyed. You will be paid on the value of the dwelling not the value of your land.
There are various coverage levels but the most common include:
HO-2 – Broad policy that protects against 16 perils that are called out in the policy.
HO-3 – An even more comprehensive policy that protects against all perils except those expressly excluded in the policy. This is the most common policy issued.
HO-5 – A comprehensive, premium policy that usually protects newer, well-maintained homes. It covers all perils except those specifically excluded by the policy.
HO-6 – Insurance for co-ops/condominiums, which includes personal property coverage, liability coverage and coverage of improvements to the owner’s unit. Insurance for the actual structure is generally covered through the home owner’s association.
HO-8 – Policy expressly for older homes, with coverage similar to an HO-2 policy but only covering actual cash value.
- Get quotes from at least three insurance agencies
It is critical to get a number of quotes from different companies to compare coverage, cost and customer service. As with all insurance companies, each has its own formulas to determine the cost of its policies. It’s always wise to compare value versus price alone. Be sure you’re comparing apples to apples when it comes to coverage; don’t have one company provide an estimate for an HO-2 policy while another gives you a price for an HO-3 or 5.
- Understand the details of the policy
Comprehending the terminology used in the policy will also help you determine which is best for your situation.
Deductible – This is the amount you are required to pay out of pocket before your insurance kicks in; the higher your deductible, the lower your annual premium.
Liability Coverage – This coverage pays medical or legal bills if someone is hurt on your property, usually due to negligence.
Personal Property – Also referred to as the contents of the inside of your home, this is tangible personal property including furniture, electronics and clothing. It’s also wise to create a list or visual documentation of your personal property and store it someplace safe, where it can be accessed in the event of a disaster should your personal property be damaged or destroyed.
Premium – The price you pay for your insurance policy, which can be paid in an annual lump sum or monthly for an extra service fee.
Replacement Cost – This is the type of insurance that covers the cost of replacing your dwelling and/or personal property, up to a maximum dollar amount. Most standard policies offer replacement cost, but you want to be sure the maximum amount is sufficient. This is where knowing the value of your personal property and the value of your home comes into play.
Actual Cash Value – This gives you the market value (with depreciation) for personal property or your dwelling.
Sub-Limits – Homeowners insurance policies will include limits, but they will typically also have sub-limits. For instance, the sub-limit on personal property for a $1,000,000 policy would typically be $500,000, or 50 percent of dwelling coverage.
Riders – These are policies you can attach to your primary insurance policy to cover specific, high value items such as jewelry, artwork and antiques. These should be covered under their own policy because their individual value will not be fully covered under the regular personal property portion of your insurance. Some HO-8 policyholders may get supplementary riders for items like heating, ventilation and air-conditioning (HVAC) systems, which are part of the home but are expensive to replace.
- Look into combining other insurance policies
You can often realize a cost savings by combining your other insurance policies, such as auto insurance, with the same agency. This isn’t always the case but is definitely worth looking into. Again, be sure if your quoted for auto or other insurance, its comparable to what you already have in place.
- Vet the agency’s customer service reputation
Should you ever have to place a claim against your homeowner’s insurance, you want to know that the company you’ve chosen will come through in a timely manner. Do some sleuthing into their customer service and pay-out process. Since odds are you’ll be placing a claim under challenging circumstances, you’ll want to minimize having to jump through numerous hoops as well as be treated fairly and compassionately during the process.
Whether you live in Sunnyvale or Los Altos, your home is sure to be the most valuable item you own and making sure it and the contents it holds are safeguarded properly is worth the effort.
Click here for an in-depth article about homeowner’s insurance, the 16 perils covered in Ho-2, HO-4 and HO-6 policies and more.