Homeowners Insurance Buyer's Guide
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Table of Contents
- Introduction
- What Is Homeowners Insurance?
- Who Is It For?
- Who Is It Not For?
- How Does It Work?
- What You Should Know
- How to Get the Best Deal on a Homeowners Policy
- What You Should Do
- What You Should Not Do
- Should You Go With the Cheapest or a More Expensive Option for Homeowners Coverage?
- Frequently Asked Questions
- Summary
Introduction
Homeowners insurance is a necessity, especially if you have a mortgage. It safeguards your home and property against destruction, and practically all mortgage companies require it for a fair valuation of your home. Without home insurance, you can’t access loans or carry out real estate transactions that use the property as collateral.
Most property owners also require renter’s insurance coverage for their tenants. Even if your mortgage lender or landlord doesn’t require you to maintain insurance coverage, it’s always best to have the protection that comes with it.
While some people prefer to stick with their current insurer, it’s a good idea to look for better insurance rates periodically. With premiums on the rise, it may be the best time to consider other suitable companies that will charge you less for the same benefits.
With dozens of home insurance carriers to choose from, it can be hard to select the right option for your needs. The ideal approach when searching for a good fit is to understand the trends that affect the cost of home insurance coverage.
You might think that home insurance premiums are based on home prices, but that’s not the case. Insurance companies determine the cost of insuring your home based on the estimated cost of repairing it or replacing stolen valuables. That means the recent inflation in real estate prices across the country won’t factor into the cost of your home insurance coverage. Trends that do affect home insurance costs include natural disasters (sometimes called catastrophes), pandemic-related housing shortages, and increases 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 protecting against events that could damage your home or property, or lower its value. Since your home is among your most significant assets, finding a policy that will indemnify you 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 anyone who has recently purchased a home, has a loan that uses the property as collateral, or owns a home outright and wants to protect the property. Getting a suitable home insurance policy for your home is an important financial decision, particularly if you are likely to find yourself in a scenario you can’t control.
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 who:
- Rent (Renter’s insurance is similar to a homeowner’s policy, but it mainly focuses on coverage for personal property protection and damages the renter might cause to the structure.)
- Own their home outright and don’t mind being financially responsible for repairing damage caused by fire, high winds, flooding, etc. (Not recommended.)
- Rent their house to a tenant (“Landlord policies” cover any damage to the structure and some injury liability, but they don’t cover damage to a tenant’s personal property.)
How Does It Work?
Insurance companies make a profit 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 on the factors noted in the introduction section above.
Insurance agencies offer their products through independent agencies, exclusive agencies, or direct market sales. Independent agents represent several insurance companies and frequently offer varying quotes for different companies. Exclusive agencies represent one company and can only offer the packages provided by that one insurer. Direct market sales are offered through the mail, by telephone, or online.
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, you should:
- Pay the policy’s premiums on time. Payments made after the scheduled due date could result in a lapse in coverage, which could cause the policy to be canceled.
- Keep all insurance records in a safe place. This includes contracts you signed, premium payment receipts, and claims you submitted.
- Create a thorough 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 in 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 can help you decide on the coverage to purchase when getting your home insured. It’s 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 detail.
Insurance agencies calculate the limit of coverage for personal property, for 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
If incident occurs that damages your home and property, call your insurance agent as soon as possible. Your agent will tell you whether to contact a local contractor for a repair estimate (to determine if the cost of repair is less than your deductible) or 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 of the necessary documents you will need to support your claim. A claims adjuster will be assigned to you to assess the damage and approximate the payment you are due. If any disagreements arise between you and your insurer, try to resolve them with the company first. Contact your state insurance department if you have any questions or concerns 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’s 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. Your insurance company, on the other hand, has a limited period in which it could cancel your coverage for any reason (usually 60 days after you buy your policy). Your insurance firm must give you notice if it decides to cancel your policy, and it must refund part of your premium.
- Non-renewal: Typically, your insurance company has the right to refuse to renew your policy after it expires. Your insurance company should give you notice (usually 30 days before the renewal date) if it chooses not to renew your policy. The amount of notice may vary from state to state.
Factors That Impact Premiums or Policy Renewals
- Low credit scores. Insurance companies keep a credit-based insurance score that is shared on private databases. If your score is low, an insurer could use it to disqualify you from getting your home insured.
- Criminal convictions. If you have a history of criminal offenses, your chances of getting homeowners insurance are slim — particularly if the crime involved 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 a high-risk area could hurt your chances of getting homeowners insurance.
- Hazardous home features. A wooden roof, collected junk, a trampoline, or a swimming pool could reduce the likelihood of an insurer giving you access to home insurance.
- Poor home maintenance practices. A damaged chimney, a leaky roof, a cracked foundation, or outdated electrical systems are reasons for your insurer to disqualify you for homeowners insurance.
How to Get the Best Deal on a Homeowners Policy
Where to Look
The best way to start your journey to ideal home insurance coverage is to see if your state insurance department publishes insurance carrier claim handling rates. For residents of Florida, for instance, the Florida Office of Insurance Regulation platform is a great place to begin comparing insurance carriers.
What to Look For
- Customer service rating. Your insurance provider should have excellent customer care service, particularly when policy holders need to file a claim or make an important inquiry. Checking the insurance complaint index is a great way to get a sense of the quality of customer service an insurance company provides. State insurance departments update complaint index data on their websites.
- Financial status of your insurance company. Buy insurance from a financially established company. Independent rating firms such as A.M. Best and Moody’s provide reliable scores that rate the financial soundness of insurance companies.
- Company reviews. There are tons of review websites you can use to evaluate the quality of services an insurance company offers. You can also ask for opinions from colleagues, friends, and family members who are satisfied with their homeowners insurance coverage.
- Available discounts. Some insurers offer discounts if you have installed security systems and fire suppression equipment. These companies should be among your top picks, as they allow you to keep your premiums low while getting a comprehensive coverage policy. Some insurers may 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 lower premium.
What You Should Do
- Run a homeowners insurance quote here at Insurist.
- Make a list of the established companies and, most importantly, the new entrants that provide an online approach to obtaining insurance. These new entrants offer extremely competitive rates.
- When obtaining quotes, don’t just get quotes for homeowners insurance. Be sure to quote auto insurance and any other type of liability insurance you have, including business insurance.
- Companies offer bundle discounts, so get quotes for homeowners and car insurance, at a minimum. Do not get drawn into quoting life insurance because you can find much better life insurance rates from a company that specializes in that type of coverage.
- Obtain quotes with deductibles of $500, $1,000, and $2,000 for your auto and home insurance. Pricing can change dramatically from company to company with different deductibles.
- Then, contact your current auto or homeowners insurance provider. You can use the other quotes you’ve received to see if your current provider will meet or beat them. Insurance companies do not like to lose customers.
- Out of the least expensive quotes, look at reviews from customers on the claims payment process.
- Check the reviews and complaints for the main insurance company and any local agencies. Start with these sources:
- Note that most reviews on insurance companies are from unhappy customers, so don’t be surprised to find negative reviews. Reviews are a good way to gauge how the companies compare with one another. We think the BBB is the most reliable review site.
- Use the combination of price and reviews to choose which company you want to do business with.
- If you leave your current provider or company, make sure your prorated premiums are refunded. Let your current company know that you would be happy to review quotes again in 2 years.
- Repeat the quote process every 2 years to ensure that you have the best premium.
What You Should Not Do
Several things could reduce your chances of receiving the best deal:
- Owning a trampoline or pool. (Not properly securing these risks will also have a higher negative impact on your coverage or premium.)
- Operating a business from your home. (Most polices will allow for small, virtual businesses; however, the policy will not cover damages to people or property incurred during commercial activities.)
- Having a dog of certain breeds as a pet. (Breed restrictions vary by insurance company, and some base their decision on the aggressiveness of the individual animal.)
- Missing or delaying premium payments.
What Not to Say to an Agent
What you say to an insurance agent or adjuster could lead to 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.” Customers who sound too fixated on receiving a check are often flagged for further investigation, which can delay payment.
- “It is probably because ….” It’s best to provide accurate information to an insurance agent.
- “Everything is good.” You don’t want the insurance agent to think that an incident is not as serious as it actually is.
Should You Go With the Cheapest or a More Expensive Option for Homeowners Coverage?
The cheapest insurance option will likely leave your home uninsured for certain risks. This could mean you’ll miss out on payments after disastrous incidents. A cheap but adequate homeowners insurance policy could be priced between $800 and $1,100 a year for a $250,000 dwelling.
The most popular options are often fairly priced, but they may not offer the coverage you need or be too expensive for your insurance budget. For instance, a popular home insurance policy for a $250,000 dwelling could be priced at around $1,200 per year.
The broadest protection is guaranteed through comprehensive policies. These sometimes bundle auto insurance and home insurance, with discounts. While the average cost of homeowners insurance in the U.S. is approximately $1,585 per year, a comprehensive homeowners insurance policy could cost between $1,400 and $2,600 for a $250,000 dwelling.
It’s important to remember that homeowners insurance premiums vary based on the location of the property and are adjusted periodically by insurers. The ideal choice should fall within your budget limits while providing sufficiently comprehensive coverage for the most imminent risks to your home and property.
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 pools or FAIR Plans. If your state insurance department doesn’t have any residual market mechanisms, ask if any market assistance programs are available.
What is the difference between homeowners insurance and renters insurance?
Homeowners insurance covers any peril to your dwelling and property, whereas renters insurance covers your personal belongings from damage or theft, as well as any damage you might do to the landlord’s property while you’re a tenant.
How does the 80% rule in home insurance work?
The 80% rule allows the insurance company to reduce a claim payment if your dwelling coverage drops below 80% of the total cost of repairing or replacing your home.
Summary
While all homeowners should carry a comprehensive homeowners insurance policy on their house, getting the right coverage can be easier said than done. Before buying a policy you should consider the quality of a potential insurer’s customer service, the company’s financial stability, and its customer reviews.
While it might be tedious, doing some research can pay off by ensuring you have the best policy in case of an incident. The average annual cost of home insurance varies depending on several factors. If you follow the guidelines we’ve provided, you can be sure of finding a policy that satisfies your needs.
How to Get More Information
If you need more information on homeowners insurance, visit:
- The NAIC websites for consumers at InsureUonline.org and www.naic.org
- The National Flood Insurance Program website at floodsmart.gov
You can also get a free annual credit report at annualcreditreport.com or by calling 877-322-8228.
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Brian Greenberg is the founder and president of Insurist. He has been a member of the Million Dollar Round Table since 2013, a designation for the top 1% of financial advisors worldwide. Brian is a licensed agent in all 50 states for life, health, medicare, disability, auto, home, renters, and business insurance.
Grant's past experience includes work as a licensed sales agent for Hagerty Insurance. He has reviewed thousands of existing auto policies across the nation and issued hundreds of new ones on everything ranging from classic cars undergoing restoration to modern exotics and motorcycles.
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