Buying Guide for Homeowner Insurance

Feel like you are up to your ears in insurance payments of all sorts? You could be right. Since homeowner insurance is not required by law, some people who don’t have mortgages roll the dice, betting that they’ll never need it. Like the couple that poured their life savings into building their dream home on a wooded hillside. After all that expense, they felt tapped out and put off buying homeowner insurance. But soon after they moved in, a fire swept through the mountains reducing their house to rubble and their wooded hillside to ash.

If your house has a mortgage, the lender will likely require you to obtain homeowner insurance to protect their investment, but it protects yours as well. Before you buy a policy, you need to know what is covered, how much homeowner insurance you need, how to find a reputable company, and how you can shop smart and still provide adequate coverage for your home.

What Does Standard Homeowner Insurance Include?

A basic homeowner insurance policy protects you in case of damage from fire, smoke, lightning, windstorms, and vandalism. You can also buy more comprehensive homeowner insurance that covers every peril, except those that are specifically excluded, such as floods, earthquakes, and nuclear disaster.

Also typically covered under a homeowner insurance policy is:
– personal property
– landscaping
– other structures on the property
– loss of use of the property if it is destroyed
– and personal liability.

Personal property like clothes, furniture, and sports equipment are generally covered for up to 50 to 70 percent of the value of the insurance on the structure of your home. So on a $100,000 homeowner insurance policy you would be covered for up to $50,000 or $70,000 for personal property. A policy that covers 50 percent is called a cash value policy, which pays you the depreciated amount of your items. A replacement value policy pays 70 percent. Generally, a replacement value homeowner insurance policy will cost about 10 percent more than a cash value policy, but if a disaster happens, it will be well worth the difference. To calculate which homeowner insurance policy is best for you, and to be able to prove your losses later, it’s a good idea to do a home inventory. Visit the Insurance Information Institute (http://www.iii.org/individuals/homei/) for free home inventory software.

Expensive items like furs, jewelry, collectibles, art, and computer equipment are also covered by your homeowner insurance, but for limited amounts. You can increase the coverage by itemizing each piece, or by raising the limits of your liability, which may be the less expensive way to go. Personal property items are protected by your homeowner insurance policy whether they are lost or damaged at your home, or away, unless you declined off-premises coverage.

Trees, plants, and shrubs are covered for most perils, but not for damage from wind or disease. Generally they are covered for 5 percent of the amount of homeowner insurance, up to $500 per item.

The personal liability feature of your homeowner insurance covers you in case of lawsuits for bodily injury or property damage caused to others, by you or family members or your pets. It also pays for your legal defense and any court awards that result, up to the limit of your policy. This is not only true for events that occur on your property, but anywhere in the world. Again visit the Insurance Information Institute for more information about injuries caused by your pets, http://www.iii.org/individuals/homei/ and arrow down to the bottom of the Web page.

What Is Not Typically Covered By a Standard Homeowner Insurance Policy?

Damage from termites, insects, rodents, mold, water damage that occurs over time, frozen pipes while you are away from home, or damage that occurs while your home is unoccupied for 60 days or more. Also, though damage from wind and hail is sometimes covered, if you live in areas where these are common occurrences, check with your homeowner insurance agent. People who live along the Gulf Coast and other storm tossed regions may find that such coverage is not available.

If your home is near a flood plain or in an earthquake area you’ll need special homeowner insurance for those perils. Your agent may be able to help you secure flood insurance, though it is the federal government that actually supplies this coverage. You can get information yourself by going to Floodsmart.gov.

If you are in California where most earthquakes occur, check with the California Earthquake Authority at earthquakeauthority.com. If you’re not in California and you think your property is vulnerable to earthquake damage, ask your homeowner insurance agent if this coverage is available.

How Much Homeowner Insurance Do You Need?

Enough to rebuild your home at current construction costs. Your mortgage lender may only require you to have enough insurance to secure your mortgage. But don’t stop at that if the cost to rebuild is considerably more than your mortgage, or you’ll be left in the lurch if a disaster happens. A rule of thumb to estimate how much homeowner insurance you need is to multiply the square footage of your house by the local cost of construction per square foot. You can get this information from a real estate agent, the local builder’s association, or your homeowner insurance agent.

Keep in mind, after the hurricane disasters of 2005, the cost of construction rose considerably. So if it has been a while since you reviewed your homeowner insurance policy, you may need to dust it off and talk to your agent. Visit this Website for more details about appropriate coverage, based on the features of your home: http://www.iii.org/individuals/homei/hbs/howmuch/

Also ask your homeowner insurance agent about a replacement cost policy to make sure you can rebuild at the current cost of construction (subject to your policy limits). Or you can also buy an extended or guaranteed replacement cost policy which can pay up to 20 percent over the limits of your policy, depending on the homeowner insurance company.

How Can You Find a Reputable Insurer?

Though price is important, it should not be the deciding factor. After all, it’s no bargain if you can’t collect when you file a claim. Start by talking to friends who have had homeowner insurance claims to find out how they were treated in the claims process. You can also use online resources at your fingertips to check out the history and reputation of an insurance company. For instance, check with your state insurance department. You can find them by logging onto: http://www.consumeraction.gov/insurance.shtml

Or, the National Association of Insurance Commissioners, which has information to help you choose an insurer, including complaints against insurers: http://www.naic.org/

Obviously you want to avoid fly-by-night companies, but how can you recognize them? If there is any doubt about the financial stability of the company, check them out at this Website:: http://www.ambest.com/

or: http://www.standardandpoors.com

Ten Ways You Can Save Money on Your Homeowner Insurance:

1. Increase your deductible. Most insurers recommend a deductible of at least $500 for homeowner insurance. If you raise your deductible to $1,000 you can lower your premium as much as 25 percent. But before you do, be sure you have room on a credit card or money in savings to pay the deductible if you have to.

2. Don’t buy homeowner insurance for the appraised value of your home. Remember, that figure includes your land. Even in a disaster big enough to level your home, your land will likely be intact.

3. Guard your credit. Fair or not, a homeowner insurance provider is likely to check your credit before quoting your rates. To protect your credit standing, pay your bills on time, keep your credit balances low, and generally, don’t open more credit card accounts than you need. Check your credit at least once a year to look for errors that can lower your credit score. (Remember every consumer qualifies for one free credit report each year. Log onto: https://www.annualcreditreport.com/cra/index.jsp
or call 1-877-322-8228).

4. Be a loyal customer. If you think your homeowner insurance provider is charging too much, it’s a good idea to shop around. But don’t hop from one company to another. Being a long-term customer automatically nets you a discount with most insurers. A typical loyalty discount is 5 percent off your homeowner insurance premiums for 3 to 5 years of patronage and 10 percent for 6 or more years with the same insurer.

5. Safety and security features. There are generally additional discounts on your homeowner insurance available for adding certain features, some of which are easy to qualify for. For example, having a fire extinguisher on the premises and deadbolt locks on exterior doors are not only smart ideas, but they can also mean 5 percent lower premiums. Other features are more expensive to install, but can save you 15 to 20 percent off your homeowner insurance premiums. These include sprinkler systems and fire or burglar alarms that are directly wired to contact an emergency monitoring system such as the police or fire department. Before you install such a system, check with your homeowner insurance provider to see if it qualifies for a discount.

Here is a list of other safety/security features that may qualify you for discounts off your homeowner insurance.

-Carbon monoxide detectors
-Smoke detectors
-Heat detectors
-Handrails installed alongside stairs
-Easily accessible fire escapes
-Up-to-date wiring that prevents socket overload
-For pool homes, a sturdy fence with a locking gate surrounding the pool
-Updated heating system that is regularly inspected by a professional
-Sidewalks on the premises that are well maintained and repaired as necessary

6. Senior discount. Retired folks may be eligible for 10 percent off their homeowner insurance premiums, based on the theory that they are likely to be home a lot, and able to notice problems before they become disasters.

7. Multiple policies discount. Having your auto and homeowner insurance policies with the same insurer could net you a 5 to 15 percent discount. But before you make a switch, verify that the combined policy really is a better deal than your two separate policies.

8. Make your home more damage resistant. Are you in an area that gets hit by a lot of natural disasters? Ask your agent what you can do that will lower your homeowner insurance premiums and improve your safety. For example, adding storm shutters or reinforcing your roof if your home is in a windstorm area. In an older home, you can reduce your risk of fire and water damage by modernizing your plumbing, heating, and electrical systems.

9. Pick your agent’s brain to find out what other discounts may be available. For example, some insurers give you a break if your home is located near a police or fire department, or even a fire hydrant. It can’t hurt to ask.

10. Review your homeowner insurance regularly. Take a look at your policy at least once a year to make sure you have covered any additions to your hom and that you’re not covering things you shouldn’t. For example, you may have a floater that covers personal property that was worth a lot more when you first insured it, but now it has lost most of its value. Is it still worth what you are paying to cover it?

The bottom line is, if you own a home, whether or not you have a mortgage you need to protect your investment and your future by having quality homeowner insurance. Whether your house is destroyed in a disaster or your dog nips the mail carrier on the leg, you need someone to stand between you and the potential loss you could face. That’s where homeowner insurance comes in. Before it’s too late, get all the coverage you need. But shop smart to avoid buying more than you need, or a policy that doesn’t do what you think it will.

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