Homeowners Insurance Buyers Guide
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Table of Contents
Introduction
Homeowners insurance is a necessity, especially for those who have a mortgage. It safeguards your home and property against destruction and is a requirement for a fair valuation of your home with practically all mortgage companies. Without home insurance, you cannot access loans or carry out any real estate transactions that uses the property as collateral.
Most property owners also require renter’s insurance coverage for their tenants. Whether or not mortgage firms or your landlord requires you to maintain an insurance coverage, it is always best to have the protection that comes with it.
While some people prefer sticking with their current carrier, it would be a good idea to look around for better insurance rates periodically. With premiums on the rise, it may be the best time to consider other suitable carriers that will charge you less for the same benefits.
There are dozens of home insurance carriers out there, which makes it difficult to select the right option for your personal needs. The ideal approach in the search for a good fit is to first understand the trends that affect the cost of home insurance covers.
Insurance companies base the cost of insurance on your home based on the estimated cost of repairing your house or replacing stolen valuables. While you may believe home insurance premiums are based on home prices, this cannot be further from the truth. Therefore, the inflation experienced in the real estate industry across the country will not be factored in when deciding the cost of your home insurance coverage. Some trends affecting home insurance costs include natural disasters (often called “catastrophes”), pandemic-related shortages, and an increase in compensation claims.
This guide will provide the help you need in getting the ideal home insurance coverage.
What Is Homeowners Insurance?
Homeowners insurance is a means of protection against future incidences of uncertain events on your home or property. Since, your home is among your significant assets, finding a policy that indemnifies it in the event of a natural disaster, an accident, or theft is in your best interests.
Who Is It For?
Homeowners insurance is recommended for people who recently purchased a home, currently have a loan using the property as collateral, or those who own a home outright and want to protect the property. Getting a suitable home insurance policy for your home is an important financial decision, mainly if you are likely to find yourself in a scenario you have no control over.
Who Is It Not For?
There are a few factors that could exclude an individual from needing to purchase homeowners insurance. Homeowners insurance is not for people with:
- People who are renting (Renter’s insurance is similar to a homeowner’s policy, but mainly focuses on coverage for personal property protection and damages you might cause to the structure as a tenant.)
- People who own the home outright and don’t mind being financially responsible for repairs caused by fire, wind, flooding, etc… (not recommended)
- People who rent their home to a tenant (There are similar policies called “landlord policies” that cover damage to the structure and some injury liability, but do not cover the damage to a tenant’s personal property.)
How Does It Work?
Insurance companies make money by taking in more money than they pay out, which means more policy payments and fewer claims. Customers have a variety of companies to purchase insurance from and will get different price quotes depending upon the factors stated above.
Insurance agencies can offer their products through independent agencies, exclusive agencies, or direct market sales. Independent agents represent several insurance companies and often offer varying quotes depending on the company. Exclusive agencies represent one company and can only provide the packages provided by their insurance agency. Direct market sales are provided through the mail, telephone, or over the internet.
A homeowners insurance policy must clearly state the rights and responsibilities of both you and your insurer. To get the most out of your policy, there are several requirements you need to be aware of. These are:
- Pay the policy’s premiums on time. Any payments past the scheduled dates may result in a lapse in coverage and cause the policy to be cancelled.
- Keep all insurance records in a safe place. This includes contracts you signed, premium payment receipts, and claims you submitted.
- Create a thorough and clear inventory of your home and property. Make an inventory of items in every room in your house, including valuables such as jewelry, electronics, antiques, and collectibles. Keep the list in a secure location other than your home. Saving pictures or videos of your assets on the cloud is one of your best and safest options.
What You Should Know
To find a comprehensive home insurance policy, you need to know why, when, and how to take specific actions. Here are some pointers:
Coverage Limits
Your insurance agent will always help you decide on the coverage to purchase when getting your home insured. It is important to note that your dwelling coverage needs to be at least 80% of the total cost of replacing and repairing your home. Your agent should also tell you if the policy is based on replacement cost or actual cash value (“ACV”) and explain the differences in-depth.
Insurance agencies calculate the limit of coverage for personal property, other structures, and for the loss of use of your home as a percentage of your dwelling limit. For instance, if your insurance company sets your property coverage limit at 50% and your dwelling coverage limit is $100,000, then the limit for your property coverage would be $50,000.
Filing a Claim
After an incident that damages your home and property occurs, call your insurance agent immediately. They will instruct you on whether you should contact a local contractor to get a repair estimate (to determine if the cost of repair is less than your deductible or not) or to begin filing a claim with your insurance company.
Before filing a claim, be certain that your policy covers the type of loss you have sustained. That’s because your claims will be reported to nationwide databases and may affect your premium rates in the future.
Get all the necessary documents you need to support your claim. A claims adjuster will be assigned to you to assess the damage and approximate the payment due. If any disagreements between you and your insurer arise, try to resolve them with the company first. Contact your state insurance department if you have any further questions or suspicions about the adjuster assigned to you.
Losing Your Insurance
Your insurance agency could choose to cancel your homeowners insurance policy or not renew it. There is a big difference between the two:
- Cancellation: You or your insurance company could choose to stop your coverage before the agreed expiration date (usually 12 months). You have the freedom to cancel your coverage at any time and for any reason. However, your insurance agency has a limited period in which they could cancel your coverage for any reason (usually 60 days). Your insurance firm must give you notice if it chooses to cancel your policy and partially refund your premium.
- Non-renewal: Typically, your insurance company has the right to refuse your policy renewal after its expiration. Your insurance company should provide you with notice (usually 30 days before the renewal date) if they choose not to renew your policy. The number of days may vary across states.
Factors That Impact Premiums or Policy Renewals
- Low credit scores: Insurance companies keep a credit-based insurance score that is shared on private databases and can lead to an insurer disqualifying you from getting your home insured.
- Criminal convictions: With a history of criminal offenses, your chances of accessing homeowners insurance are slim, particularly if the crime committed was arson, property destruction, or misuse of property for illegal purposes.
- A history of filing excess claims
- Lapsed coverage
- High-risk homes: Owning a home in high-risk areas could also hurt your chances of accessing homeowners insurance.
- Hazardous home features: Wooden roofs, collected junk, trampolines, and swimming pools could also reduce the chances of an insurer allowing you access to home insurance.
- Poor home maintenance practices: A damaged chimney, leaky roof, cracked foundation, or outdated electrical systems are also reasons for your insurer to disqualify you from access to homeowners insurance.
How to Get the Best Deal on a Homeowners Policy
Where to Look
The ideal beginning for your journey to the ideal home insurance cover is by checking if your state department publishes insurance carrier claim handling rates. For people in Florida, for instance, the Florida Office of Insurance Regulation platform provides a great place to begin comparing insurance carriers.
What to Look For
- Customer service rating: Your insurance provider should have excellent customer care services, particularly when filing a claim or making an important inquiry. Checking your insurance complaint index is a great way of getting a sense of the quality of customer service. State insurance departments update complaint index data on their websites.
- Financial position of your insurance company: Buy insurance from a financially established company. Independent rating firms such as A.M. Best and Moody’s can provide you with reliable scores of the financial soundness of an insurance company.
- Company reviews: There are tons of company review websites you could use to evaluate the quality of services an insurance company offers. You could also ask for opinions from colleagues and family members who are satisfied with their homeowners insurance cover.
- Available discounts: Some insurers offer discounts if you have installed security systems and fire suppression equipment. These should be among your top picks, as they allow you to keep your premiums low while getting a comprehensive coverage policy. Some insurance options could also offer discounts for bundling home, auto, and/or life insurance. They offer an ideal opportunity to include your vehicles in your home insurance policy while paying a considerably low premium.
What You Should Not Do
There are several things that could reduce your chances of receiving the best deal:
- Owning a trampoline and/or pool. (Not properly securing these risks will also have a higher negative impact on coverage or premium)
- Operating a business from your home. (Most polices will allow for small, virtual businesses; however, the policy will not cover any damages to people or property incurred during commercial activities)
- Having a certain dog breeds as a pet. (Breed restrictions vary by carrier and some base it on the aggressiveness of the individual animal itself)
- Missing or delaying premium payments.
What Not to Say to an Agent
The things you say to an insurance agent or adjuster could mean delayed or rejected claims. Here are some things you should avoid saying when speaking to your insurance company:
- “Flooded”: Avoid describing your bathroom or kitchen as “flooded” when referring to burst pipes.
- “Send a check”: If a customer sounds too fixated on receiving a check from the insurance company, they are often flagged for further investigations, which may delay payments.
- “It is probably because…”: It is best to provide accurate information to an insurance agent.
- “Everything is good”: You do not want the insurance agent thinking that an incident is not as serious as it actually is.
The Cheapest or Expensive Option for Homeowners Coverage?
The cheapest insurance option will likely leave your home uninsured for more risks. This may mean missing out on payments after disastrous incidents. A cheap homeowners insurance policy could be ideally priced between $800 to $1,100 for a $250,000 dwelling coverage.
The most popular options are often fairly priced but may limit or become tediously expensive depending on your insurance budget. For instance, a popular home insurance coverage for a $250,000 dwelling could be priced around $1,200 per year.
The broadest protection is guaranteed through comprehensive policies. These sometimes even bundle up auto insurance and home insurance with discounts. With the average cost of homeowners insurance in the country approximately at $1,585 per year, a comprehensive homeowner’s insurance policy could cost between $1,400 and $2,600 for a dwelling coverage at $250,000.
It is important to remember that homeowner insurance premiums vary based on location of the property and are adjusted periodically by carriers. The ideal choice should conform to your budget limits while providing sufficiently comprehensive coverage for the most imminent risks to your home and property.
What you should do?
- Understand the home insurance covers provided by your insurer and settle on the appropriate one for your home.
- Find out what your insurance cover requires of you.
- Decide the best way to purchase your insurance policy (online or through an agent).
- Get and compare quotes to ensure you do not miss a good deal or any discounts.
- Compare the prices and policies available from different insurance companies at least once every 2 years.
- Choose the insurer with a comprehensive package that fits your budget.
- Revise your premiums, deductibles, coverage limits, and the effective and expiration date of your preferred policy package.
- Take the insurance inspector through a detailed audit of the properties you want to be insured and provide proof of security measures that could offer you a discount on your premiums.
Frequently Asked Questions
What do you do if you can’t find insurance that suits your property?
Check with your state insurance department for residual market mechanisms like wind pool or FAIR Plan. If your state insurance department does not have any residual market mechanisms, enquire for any market assistance program available.
What is the difference between homeowners insurance and renters insurance?
Homeowners insurance covers any perils that may affect your dwelling as well as your property, while renters insurance covers your property from damage or theft and damages you cause to the landlord’s property while being a tenant.
What is the 80% rule in home insurance work?
The 80% rule states that the insurance company can reduce the claim payment if your dwelling coverage drops below 80% of the total cost of repairing or replacing your home.
Summary
While every homeowner should carry a comprehensive homeowners insurance policy on their house, this can be easier said than done. You should consider the quality of customer service, financial stability, and customer reviews of your insurer before proceeding to buy a package.
While it might be a little tedious, researching often pays off—ensuring you have the best policy in case of an incident. The average annual cost of home insurance varies depending on various factors. Having gone through the guidelines discussed above, you can be sure to find a policy that satisfies your needs.
How to Access More Information
If you need more information on homeowners insurance, visit any of these websites.
- Visit NAIC websites for consumers, InsureUonline.organd www.naic.org
- Log onto the National Flood Insurance Program website at floodsmart.gov
- Get your free annual credit report on annualcreditreport.com or contact them: 877-322-8228.
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About the author
Brian is licensed to sell life, health, annuities, and property and casualty insurance in all 50 U.S. states. He is the author of The Salesman Who Doesn't Sell and is a member of the Million Dollar Round Table, an organization that consists of the top 1% of financial advisors worldwide.
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