Homeowners Insurance 101

  Homeowners Insurance 101: A Guide to Smart Buying Your home is probably the single biggest investment you’ll make. Homeowners insurance protects this precious investment, as well as the contents and your liability in the event of an accident on your property. If you’ve never had to buy homeowners insurance, the choices can be confusing. What coverage do you need? How much? Here’s a quick course, Homeowners Insurance 101: A Guide to Smart Buying.

1. Determine how much coverage you need. Calculate the cost of rebuilding your life if the worst happens and you lose your home and everything in it. At the very least, you’ll need enough coverage to pay off the remainder of your mortgage, but, ideally, you want protection for much more.
2. Look at the deductible. The deductible is your out-of-pocket expense before your insurance coverage kicks in. The lower the deductible, the higher your premium, so think about how much of a deductible you can comfortably handle in the event of a claim.
3. Choose between replacement cost and actual cash value. You have two options for the reimbursement for lost property. Replacement cost covers the current price for purchasing a replacement, such as computer, electronics, furniture, and appliances, regardless of the age of the item. Actual cash value compensates you for what the property is currently worth. For example, a computer or television that is five years old will get a much smaller payout on actual cash value than replacement cost. If you want to reduce your premium, you can insure the property for a percentage of the replacement cost
4. Learn the claims process. As you shop for the best coverage for you, be sure you understand the claims process for each carrier. Is it a painstaking process or relatively easy to have your claim processed? Does the carrier pay you right away or wait until you’ve actually replaced the contents? Do you have the financial capacity to front the costs until your insurance company comes through with the payment?
5. Decide whether or not you need earthquake or flood insurance. Insurance carriers are understandably wary of insuring properties that are at risk of natural disasters like flood or earthquake. Your mortgage company might require this coverage, but if it’s an option, determine what you’re willing to gamble—or not.
6. Consider endorsements for specific valuables. If you have particularly valuable property—like jewelry, original artwork, collectibles, and antiques—look at the cost of purchasing an endorsement or rider that covers the full cost of the property. These endorsements will cover you if the item is lost, stolen, or destroyed.
7. Look at your liability coverage. Liability insurance protects you when someone is injured on your property—slipping on your icy front walk, bitten by your dog, or tripping over that frayed carpet you’ve been meaning to fix. Be clear about how much your liability policy will cover. If it’s less than $300,000 and you have certain risks—like a dog, swimming pool, trampoline, or other possible hazards—bear in mind that a victim is probably going to sue for more than $300,000.
8. Shop for discounts. Ask your insurance agent about policy discounts. You might be able to reduce your premium by purchasing multiple policies (e.g., car, boat) or making enhancements that better protect the home, like installing a security system or new roof.
9. Revisit your policy annually or after significant life events. Stay on top of your coverage by reviewing your policy every year with your agent. Talk about life changes, like marriage divorce, or new family members living there. If you’ve remodeled or made an addition to your home, be sure that you’re adequately covered.

Once you have your homeowners insurance, take inventory of the belongings in your home. It will be easier and more accurate to file a claim after a loss when you know what’s missing.