Buying a house is a big endeavor. While it’s an exciting time in your life, it’s also one that requires you to make several well-informed decisions.
Making a mistake could prove costly, especially when it comes to something like choosing the best homeowners insurance. After all, not only does this provide the lender with protection, but you as well.
Interestingly, some people don’t consider insurance that big of a deal. Instead, they focus more on choosing a qualified real estate agent, finding their dream house, and scheduling the move-in date.
Yes, those are all important aspects of becoming a homeowner, but without the best homeowners insurance, none of that’s possible.
To start with, you can’t secure a mortgage loan to buy a house unless you can prove you have a homeowners insurance policy. If you pay cash, that’s a completely different scenario, but more than likely, you’ll work with a lender.
Until you’ve paid off the loan, the lending institution legally owns your house. As such, it’s their asset, which is what the insurance protects in case something bad happens.
At the same time, this type of coverage gives you and your family much-needed peace of mind. Whether you experience a flooded basement, a burst sewer line, or perhaps a fire, your policy works on your behalf to have the problem fixed or the house rebuilt. The key is selecting the right insurer and the right coverage.
Important Factors When Choosing the Best Homeowners Insurance Policy
The following are some of the factors you need to consider when purchasing insurance for your home.
For homeowner’s insurance, you have two primary options: replacement cost and market value. Of the two, replacement cost is always the best option. With this, the insurance provider pays what it would cost to repair or replace your home to its original state. That includes the style, size, materials, amenities, and labor.
Market value covers what it would take to repair or replace your home based on the current market. For instance, if a tornado destroyed your house that you paid $300,000 for, but the current market lists it at just $275,000, you’d end up $25,000 short. Ultimately, you’d end up paying the difference out of pocket.
Based on your policy, it either depreciates the value of items or not. If it depreciates, you could come up on the short end of the deal. For example, you had a flood in your downstairs family room. Along with areas of the wall and the entire floor, you discover all the furniture ruined.
All of the furniture was at least five years old. With depreciation, you wouldn’t get reimbursed for what it would cost to replace the pieces today. You’ll end up with a reduced price due to age. Depending on what you want to have covered and what you’re willing to pay in premiums, you’ll decide if depreciation is a big deal.
Unfortunately, some people discover they didn’t have coverage for a situation when they thought they did. For example, if you live in a zone with a high risk of flooding, hurricanes, tornadoes, or earthquakes, it’s essential that you have coverage for the specific peril.
In most cases, homeowners insurance includes fire, water damage, and natural disasters, but not always. Your policy may or may not cover mold and asbestos, as well.
Don’t ever assume you have protection. When going over the details of homeowners insurance with your agent, make 100 percent sure that the policy covers these things.
If not included in your policy, you’ll have a higher premium for this extra protection. However, comparing the cost of losing everything makes paying more an easy decision. When included, you could pay a little more in premiums, but it’s worth the extra expense.
The deduction you choose for your policy is also an important factor to consider. A lot of times, homeowners set their deductible high, which makes their premiums more affordable.
However, that’s not always the best way to go. Most insurance providers recommend that people choose a deductible that’s not too high or too low but somewhere in the middle.
Here’s why setting the right deductible matters. Say you had a small kitchen fire that caused $2,000 in damage. However, you have a $2,000 deductible on your homeowners insurance policy. In that case, your insurance won’t help. You’d have to spend the money out of pocket to make the necessary repairs.
Now, using the same scenario but with a $500 deductible, filing a claim makes sense. For that, the insurance company would cover the difference of $1,500, meaning you’re only out of pocket $500.
When you speak with an agent, have them do a cost comparison of your premium using different deductible amounts. At that point, only you can determine what you feel comfortable with.
The best homeowners insurance policy doesn’t just cover the structure and infrastructure of our house but also your possessions. To identify how much coverage you need, you’ll have to determine the value of what you own. As you can imagine, this is unique to every homeowner.
One way to calculate content coverage is to come up with a rough estimate of each room’s value. Then, multiply that number by $5,000 to $10,000. Some people have $50,000 coverage while others have $150,000. It all depends on your belongings.
Keep in mind that most insurance policies have exclusions. For instance, your policy probably won’t cover things like firearms, collectibles, expensive artwork, antiques, jewelry, and so on.
In that case, you’d need an addendum added to the homeowners insurance policy or purchase a second policy specifically for any exclusion. This is an issue you want to address with your insurance agent.
Your homeowners insurance policy will also include liability. Just make sure you have a level of protection that you’re okay with. The liability protects you, a family member, or a third party. If someone sustains an injury while on your property, the insurance pays the medical bills.
Included with liability is accidental damage, which covers accidental damage to your property. If someone crashes their vehicle into your house, you’re protected. This is especially helpful if the driver doesn’t have auto insurance.
Without this in your policy, and if the person behind the wheel didn’t have insurance, you’d have to pay for repairs yourself and then sue that individual to recoup what you spent.
It’s Worth Getting the Best Homeowners Insurance
As a homeowner, it’s imperative to have quality insurance. Remember, an outstanding policy doesn’t have to cost a lot of money. This is why making comparisons is so important. You can do that yourself or while meeting with a reputable insurance agent.