Insurance can be one of the most intimidating things facing a new homeowner. After facing the long and arduous journey of buying a home, it almost seems unfair to suddenly be faced by a decision this large and this overwhelming. Fortunately, it’s not as complicated as it looks at first glance. Read on for a few tips on how to get the most out of your new insurance policy.
Overview of Homeowner’s Insurance
There are essentially three different types of coverage available. The cheapest is actual cash value. This sort of coverage will pay out the actual cash value of your home including any depreciation from the time it was built. As a result of depreciation, it generally won’t pay out enough to actually replace your home, which usually makes it worth ruling out immediately. On the other end of the spectrum is extended replacement cost coverage, which will pay out not only the calculated replacement cost of the home but also some extra percentage to cover possible increases in the price of building materials. If you’re in an area where natural disasters (and thus material shortages) are common, this is worth considering. Otherwise, the best option is also the most common one: Replacement cost coverage. This reimburses you for exactly the estimated cost of replacing your home. It does not account for depreciation, so you won’t have to worry about making up any difference between your home’s value and the cost of building a new one.
Despite the differences, there are some things common to all of the different types of homeowner’s insurance. They operate on a term contract, which specifies a specific and fixed length of time for coverage, and the premium typically must be paid separately for each term. Common exclusions are things such as flood, termites, and damage from wars. If any of these are a concern or if you would like coverage for additional items in your home, riders must be added on to the base contract.
Tips for Getting the Most Out of Your Insurance
First, specify that you want your belongings to have full replacement cost coverage as well as the house itself. Otherwise, the insurance company will default to actual cash value for these items and include a hefty amount of depreciation from their initial purchase time. This could leave you with a check for far less than it will actually take to replace your possessions.
Second, make sure you keep your insurance company updated about new structures and big-ticket purchases. Most insurance policies cover additional structures such as garages, sheds, and so forth, but if the latest update was before you spend tens of thousands of dollars building a new garage, you might find yourself holding the bill if it burns down.
Third, consider getting a Section E rider. That covers liability, and it can be a lifesaver if a passer-by trips over a garden rake in your driveway. Without this insurance, a lawsuit can dip into your personal assets and take everything. It’s worth spending a little extra each year so that the insurance company will take the hit if any such accidents happen on your property.
Fourth, don’t low-ball the replacement cost. It can be tempting to downplay your home’s worth in order to reduce your premiums, but you’ll regret it if you need the money and it turns out that you aren’t going to get enough to build a comparable house. Particularly if you have an older or custom home, be sure to include items such as antique moldings or a stone fireplace. If you don’t insist on counting them at their true value, the insurance company’s appraiser might just mark in the cost of shoddy modern replacements.
Fifth, take your time and ask about the discounts available. Nearly every insurance provider offers discounts for anything that improves the safety of your home. Some of these are unchangeable, such as proximity to a fire station, but others are very easy. You can get money off your bill for things as simple as upgrading your locks or getting an obedience certificate for your dog. This is one of the few ways to save that don’t involve lowering your potential payout, so be sure to take advantage.
The world of homeowner’s insurance can be a bit of a jungle, but don’t be afraid. Armed with a little information, anyone can choose an insurance policy with confidence and be assured of getting the most out of their coverage.