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