How to Choose the Best Home Owners Insurance for You
When you buy a home, you have to protect that major purchase with the appropriate insurance. Not only is home owners insurance usually required under most mortgages but it is also a good way to give yourself peace of mind. However, making an insurance policy decision can be a real challenge. Below are some tips that will help you make the best choice for your needs.
Structural Coverage
As far as your mortgage is concerned, the structural coverage is the most important part of your insurance. This portion covers any damage done to your home which would require replacement or repairs. Most structural coverage will include damage done by fires, theft, vandalism, and storms. Earthquake and flood damage usually requires separate policies.
Cash Value or Replacement Cost?
When it comes to the amount of structural coverage you need, there are two choices and you should discuss these in detail with your agent. Many consumers opt for cash value policies because their premiums are typically lower. With this type of policy, you receive compensation equal to the value of the part of your home at the time of damage or a set percentage of the repair costs based on your home owners insurance coverage amount. You receive whichever is larger but neither is likely to pay for the full repair costs. Plus, you’ll have to subtract your deductible.
If you opt for the higher priced policies which provide replacement cost, you receive the full cost of what it takes to make you whole again less your deductible. If you have the budget for the higher premiums, going for the replacement cost is going to save you money in the long run.
Personal Property Coverage
Again, you’ll need to decide between cash value and replacement cost when you’re purchasing insurance to cover your possessions. Keep in mind that most policies do have limits on some categories, such as electronics and jewelry. If the value of your items exceeds those limits, you may want to add some coverage known as floaters which are intended to protect certain high-value items. These do cost extra but usually do not have a deductible that must be met. In some cases, you may also be able to increase the coverage on just one of those areas, such as electronics, to protect your possessions completely.
Take Inventory
Many people wonder how you can ever really know how much home owners insurance to purchase. They argue that it’s more like a guessing game. But that’s because they don’t take stock of their possessions. Doing an inventory of what you own can help you get a ballpark idea of what you would need in terms of coverage to replace everything you own — ideally that is the type of coverage you want. Then that inventory should be updated periodically. If you have receipts for new purchases or even for existing purchases, keep these in a save place with your inventory because you might need them when you head to the insurance company to file a claim.
Liability Protection
With most policies, the liability coverage is about $100,000. That’s not a bad amount but in some cases you may need more. For example, if you have young children and their friends are frequently playing in your home that increases the risks of accidents so you may want to increase the liability coverage portion of your home owners insurance.
Another reason to increase that amount is if you have a pool. Pools are actually one of the most dangerous things you can have in your home. They actually cause more deaths each year than dog attacks, including those associated with pit bulls. According to the Consumer Product Safety Commission, 250 children under the age of 5 die annually in swimming pools and another 1,600 end up in emergency rooms from nearly drowning. That’s just children under 5. In comparison, only 23 dog attacks were fatal in 2008 for all age groups.
While increasing liability coverage if you have a pool is important, you should consider upping the coverage if you have a dog, as well. Dogs can knock people down, cause them to trip, nip at them, attack their dogs, and cause injuries in other ways for which you want adequate financial protection.
Do I Need Flood Insurance?
Most people can determine for themselves whether they need earthquake coverage or not, but flood insurance is not as easy. As mentioned above, home owners insurance policies do not usually cover flood damage. This insurance is purchased through the National Flood Insurance Program in amounts up to $100,000 for possessions and up to $250,000 for the structure. However, the deductibles are around $1,000. Premiums are high so talk to your realtor about seeing a flood plain map of the location before you choose a home. That should give you an idea of whether this is a necessity or not.
Deductibles
We’ve already mentioned deductibles a few times above. As you probably already know, this is the amount you need to pay out-of-pocket for any damages done to your home. If you need to lower the costs of your home owners insurance, one way to do that is by increasing your deductible. Typically, these start as low as $250 and can go to $1,000 or more.
Update Coverage
To make sure you maintain adequate coverage, check your policy amount every couple of years to make sure you have enough coverage in case you need to make a claim. That’s the worst time to find out you were underinsured.
March 16, 2009, Posted by Rainy Day Mitch