Various Types of Home Insurance
Everyone is familiar with a high-level explanation of what Homeowners Insurance is, but what does it really cover? You know it covers your home and personal items from damaging events like a fire, theft or inclement weather, but what else? We have put together this resource for you to help you navigate your way to protecting your home.
What do I typically get with home insurance?
All mortgage companies require homeowners to purchase home insurance based on the replacement value of the property in order to approve the loan to purchase the home. A home insurance policy is very customizable based on the needs of the owner, however, certain components are standard.
Damages to Your Home
Your insurer will cover damages to your home or perhaps a complete rebuild if certain disasters strike. This includes vandalism, lightening, storms, fire or more. However, some things are not usually included in a standard home insurance plan such as damage from floods, earthquakes, a home not properly maintained, sheds, and other freestanding structures like a garage. However, you can purchase additional coverages separately if you need those protections added.
In the event of a disaster that your insurance policy covers, things like your clothes, appliances, furniture, and most things in your home will be covered. But how much is covered? A good rule of thumb is that approximately 50 to 70% of the amount you spend on your home insurance is what most insurance agencies will cover for your personal belongings and possessions. If you have a lot of valuable possessions like expensive jewelry, fine art, you will want to consider itemizing out what you have and purchasing a rider since a general home policy would only cover typically $1500 of stolen valuable possessions.
Personal Liability for Damages to Others
Lawsuits are costly and accidents happen. Liability coverage protects you from lawsuits others may file against you. This includes protection if your dog bites a jogger, the medical bills will be covered; or if a visitor slips on your wet floor and sues for lost wages, or pain and suffering, you’ll be covered.
Umbrella Policies for Extra Coverage
A few hundred dollars more on your policy can get you about $1 million more with an umbrella policy. Things that are not covered in your standard home policy, can be covered with an umbrella policy.
Temporary Stays While your Home is Rebuilt or Fixed
In the event that you are not able to stay in your home for a while, your additional living expenses portion of your policy would reimburse you for your hotel or renting costs. Make sure to look up your policy as there may be limitations as to what level of accommodations will be covered.There is a range of limitations options depending on how much you’d like to spend on your policy.
Various Types of Homeowners Coverage
You have a lot of options when it comes to home insurance. Not all plans cover the same items. The more you want covered, of course, the more it will cost. Essentially there are three levels of coverage to choose from:
1. Actual cash value
Actual cash value covers the cost of the house and the value or your belongings after depreciation is taken out. What those items are worth is what you’ll get back, not what you initially paid for them.
2. Replacement cost
Replacement policies will cover the actual cash value of your home and belongings without depreciation taken out. This would allow you to rebuild your home up to what you originally paid for it.
3. Guaranteed replacement cost or value
This is the most inclusive option offered and covers the costs to fix or rebuild your home even if it goes beyond your policy limit. This helps against inflation. But there is a ceiling that is usually 20-25% more than your policy limit.
What is not covered by home insurance?
Not all acts of God are covered in your homeowners policy. Depending on where you live, you may be in a flood zone or a place known for hurricanes or earthquakes. In these instances, you’ll want to purchase a rider for the protections you’ll need for living in those areas. Lack of properly maintaining your home will cause damages not to be covered. For example, insect and rodent damage to your home, mold and rot, and general wear are not covered. Damage from smoke from industrial or agricultural operations, and things like identity theft is not covered. Attacks from certain breeds of dogs typically are not covered. However, if your dog breed is covered and attacks, there are limits as to how much damage it will cover and you could be responsible for the remaining amount.
How much will you pay for home insurance?
Insurance agencies consider their risk from how likely the homeowner will file a claim. They’ll take a look at previous home insurance claims that were submitted by the homeowner, and claims that were previously filed on the property, and credit score. Other factors such crime rates in the area, building material availability, security features, condition of the home, heating type, pools, and what riders you purchase all add into your annual premium. A home in poor condition could increase your rate because the odds of filing a claim are higher.
How to save money on insurance?
Add in safety features.Purchasing a security system that is tied into the police, installing smoke alarms, carbon monoxide detectors, sprinklers and dead-bolt locks can help reduce your cost of insurance.
Consider increasing your deductible to lower your premium but know that smaller “fixes” to your home could add up to be costly and come out of your pocket if you choose this route.
Packaging your policy with auto or health insurance at the same company may allow you to save on two premiums. Shop around to find an insurance company that offers discounts.
When renovating your home, consider what materials you will purchase. Materials less flammable typically cost less to insure.
When you pay off your mortgage, you can see your premiums drop because your insurer assumes that since you own the residence in full, you’ll take great care of it.
Review your policy annually to see if you still have the best policy for the best price, as well as look for changes to your home that could lower your premium since last time you’ve reviewed your coverage. If you’ve removed a pool, trampoline, or playground, installed security systems, or upgraded your electric, plumbing or roof, reach out to your insurance company to see if it saves you money.
Choose paperless billing and making your payments automatic from the bank could make you eligible for a discount.
Certain careers have special discounts such as engineering, firefighting, and teaching.
Make sure that your policy is based on how much it costs to rebuild your home, not it’s real estate value—or your premiums could be much higher that they need to be.
Limit the number of claims you make, as they increase your premiums or your insurer may drop you and therefore make it difficult and expensive to find coverage again.