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HOME OWNERS' INSURANCE . . .
A FEW OF THE DETAILS

Updated:         June 4, 2018

Too little attention is often given to a homeowner's insurance coverage. Merely having insurance simply isn't enough. Having the right coverage with the right amounts could be critical should a disaster ever occur.

Consumers will sometimes compromise their coverage to save money. Such a decision could result in the loss of many dollars if one had to make a claim.

There are two recommendations that are too often ignored. First, policy limits and the value of possessions should be compared at least every year. Make certain that the policy reflects any major purchases or additions to your home. Secondly, create an inventory of both the construction elements of your home and its contents. Photographs, video tapes as well as written records can be important in the event of a disaster. Include a brief description of each item including the brand, model, serial number, purchase price and date of purchase. Be sure to give thought to where you will keep the records that you create. Obviously, you do not want to retain this information at home where it could be stolen, damaged or destroyed in some disaster.

Many people consider themselves insurance poor. It is important to consider ways to reduce the cost of insurance without putting your home or property at risk. One of the easiest ways to reduce insurance costs is by adjusting the deductible. The deductible is the amount the homeowner is required to pay out of pocket before the insurance company begins to pay. The lower the deductible, the higher the premium. You may be surprised at the considerable savings via increasing the deductible amount from $250 to $500 or even a $1000. Be sure that you will be able to pay the deductible amount should you increase it to save on the premium payment.

Not too many years ago, lenders required a borrower to insure the property up to the amount of the mortgage. This often resulted in insurance coverage in excess of the "improved portion" of the property. Insurance companies today automatically provide a "guaranteed replacement cost" policy, the broadest coverage available, which covers the entire cost of rebuilding (less any applicable deductibles) even if the cost exceeds the policy limits. It is probably worth the extra premium to make sure your policy will cover any extra costs of bringing a building into compliance with contemporary building codes should that be required following a disaster.

Ask your insurance agent about other ways to reduce insurance costs. Does your home have an alarm system, dead bolt locks, fire extinguishers? Check to see if these will result in a discount.

Many insurance companies will provide a fairly significant discount if they insure both your home and auto(s). Others will reward you for upgrading the plumbing or electrical systems. Other possible savings can result if you are buying a new home, have been insured with the same company for 3-5 years, are a senior citizen or a non smoker.

Earthquake and flood insurance are generally extra coverage. If you are in a designated flood area, a lender will typically require flood insurance coverage. Such insurance can be fairly expensive and usually is not acquired unless required by the lender. If you live in an area where earthquakes are frequent, you may want to investigate earthquake coverage. It, too, is expensive and carries a very high deductible.

You need to consult with your insurance agent to determine what is best for you.

Finally, should disaster strike, take care of yourself, your family and your pets. Be ready with a disaster plan and practice it regularly with your children. Never risk your life to save personal property. Do your homework and then rely upon having adequate insurance coverage to recoup your loss.

NOW FOR SOME SPECIFIC SUGGESTIONS REGARDING SHOPPING FOR HOME INSURANCE

Commonly known as fire and liability insurance, in the past, one could wait until the last minute to obtain an insurance policy. You are now encouraged to “shop” for your insurance coverage immediately upon finalizing your purchase contract.

Home insurance has become more difficult to acquire.  The insurance industry now uses what they call the “clue system” to determine both the owner’s and the property’s ability to qualify for insurance coverage.  This Clue system apparently tracks whether you, the borrower, has ever filed an insurance claim as well as whether the property itself has ever had a claim filed on its behalf. Insurers use this information to sometimes increase the premium amount or, in some cases, to deny coverage. So, it is important to arrange your insurance coverage early in your transaction process.

Here are a few things to consider as you shop for and/or compare insurance plans:

You might start your shopping with the insurance company with whom you have your auto(s) insured, renters insurance, etc.  There might be a savings when including homeowners insurance coverage as a part of an umbrella like policy. Make sure you know what the cost is for just the home coverage so that you might, if you wish, compare the cost with other companies.

There is often the question of whether you should include earthquake coverage.  This can be pricey.  This is clearly a personal “comfort zone” decision for every home owner.  Check the deductible amount (typically fairly high) and discuss this with your insurance representative.

Flood insurance will be required only if the property is located in a flood zone.  Flood insurance can be expensive.  If you purchase property in a flood zone, avoid surprises and determine the cost of flood insurance early in the transaction process.

You are seeking “replacement value” coverage.  This means that you are required to only have sufficient insurance to replace the improved/structural portion of your property.

Discuss the “deductible” portion of your policy. Insurance carriers are warning that if owners make an insurance claim it is likely that the annual premium cost will increase.  In some situations, after filing a claim, the insurance coverage may be terminated when it is next up for renewal. The lower the deductible the higher the insurance premium. Thus, it might make sense to acquire a higher deductible amount as you may be unlikely to make claims for smaller losses. For your information, many lenders allow a maximum of $1000 deductible. If you own other property, this may be a good time to review the deductible coverage on all your policies.

In some cases, the insurance company may need to physically inspect the property. You may want to attend this inspection visit so that you will know the decisions upon which your premium cost is based.

 

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