Things to Know Before Buying a Home Insurance Policy
Looking to buy a home in the local area? Are you shopping for a home insurance policy that will give you the right coverages for the right price? Here are 10 things that you should keep in mind when comparing home coverages.
Replacement Cost Values
Policies vary widely on what kind of replacement cost coverage they offer for homes. Some offer coverage only up to the limit stated under the dwelling coverage. Others offer extended coverage at 25 or 50 percent of whatever the dwelling is insured for while still others offer guaranteed replacement cost coverage (the company will give you the full value of the home no matter what it takes to replace it). Know the terms when discussing the different options keeping in mind that home values fluctuate year to year.
Deductible
If you want to keep your rate down because you only turn in claims that are catastrophic in nature, be sure and compare prices on deductibles. The most common options are $1000, $2500 and $5000. Over the course of 5-10 years, most homeowners don’t even use their home insurance, and the premium saved over that period of time will more than make up for the deductible chosen. Be sure you are comfortable with the out of pocket amount though in case you do need to use the policy sooner rather than later.
Losses
Most agents won’t tell you but the rule of thumb when turning in claims is that most companies will allow two claims in a five-year period before they will non-renew your policy causing you to have to seek out a higher rated company. Be sure if you need to turn in a claim that you make sure it is worth it. Smaller items can be handled out of pocket and can go a long way toward keeping your rates down over the long term.
Pride of Ownership/Inspection
Most companies will do at least a drive by inspection of your home after you purchase your policy. Depending on the value, some inspectors may need to see the inside of the home as well. Just remember that insurance companies are looking for pride of ownership in a house to make sure that the potential for loss is low. Keep moss off the roof, debris cleared from the yard and make sure that any cosmetic fixes like peeling paint are taken care of. You work hard to finally get a home of your own. Make sure your pride shows in the way you maintain it.
Ordinance and Law
If you are in the market for an older home, make sure you ask what ordinance and law coverage is provided within a policy. Most policies offer a small percentage of the dwelling amount automatically, but this coverage gives you extra money to bring the house up to code in the case of a fire or other destructive event. Ask your agent to quote 50 and 100 percent of the dwelling amount for your ordinance and law coverage so you’re not caught short if added repairs need to be made to your older home.
Water and Sewer Back Up
Ask your agent what limit of water and sewer back up is provided in the policy. This coverage extends to septic systems too, and many policies give a $1000 or $5000 limitation. Companies will many times offer up to $50,000 to repair damages caused by the clogging of a sewer or septic system. Make sure you check that the limit is high enough for your particular living situation.
Inherent Vice
Most home policies have a certain number of exclusions that they include. One of the most overlooked and most frequently occurring is rodents or insects in the home. Destruction by carpenter ants, termites, rats and any other assorted vermin is usually excluded from the policy. Be aware of this limitation and make sure you have the home regularly checked for infestation to prevent an expensive loss that falls outside the coverage limits.
Flood and Earthquake
Most home customers assume that they have “full coverage” for their home. Most standard home policies do not include coverage for flood or earthquake within the regular dwelling policy. Ask your agent if you can get quotes for these coverages. Flood is usually a nominal rate unless your home sits directly in a flood zone. Earthquake comes with a high deductible but can be worth the rate if you are in danger of having the house slip off its foundation in a major shakeup. Lastly, be aware that if your home sits on a cliff or at the top of a big hill, landslide is also excluded from a normal policy. Ask your agent about a Difference in Conditions policy that will offer coverage for flood, earthquake and landslide all in one coverage form.
Loss of Rents/Additional Living Expense
If you are buying a home or a rental dwelling, make sure your additional living expense or loss of rents coverage is high enough. If you live in the home and have to relocate due to a fire, you want to make sure that your policy picks up any additional living expense you might incur from having to leave your home for a period of time. Another house might cost more to rent than you were paying for your mortgage, and the policy will pick up the difference. If the home is a rental dwelling, be sure your loss of rents coverage is high enough to cover monthly rent in the case of a loss. If your rental dwelling is being repaired and you are unable to rent the home, your loss of rents coverage will make up for your lost income until the house is inhabitable again.
Liability/Umbrella
Lastly, but most importantly, we live in a world where people are sued for all kinds of exposures. To avoid having your personal assets on the line, ask your agent about an umbrella policy that extends your liability policy into the millions. We always think that nothing catastrophic will happen, but it only takes one rear end accident with a pregnant woman in the car in front of you to run the medical bills through the roof. Umbrella policies are usually less than $20 a month depending on the limit chosen. Don’t put everything you’ve worked for on the line without this added protection.
