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Before you pass papers on that new home, you’ll want to think about protecting your big
investment with homeowners insurance in the unlikely event disaster someday comes
calling-- be it wind, fire or volcanic eruption.
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The financial safeguard against disaster, including property loss and injuries to third parties,
is homeowners insurance. While anyone can legally own a home without it, your friendly
neighborhood mortgage lender will no doubt require this coverage for self-protection.
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Here’s what a standard homeowners insurance policy covers:
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Structural damage to the home.
Pays to repair or
rebuild the home if damaged by any of the disasters
listed in the policy (which won’t include earthquake
and flood unless purchased separately). Don’t base
rebuilding costs on the price you paid for the home,
nor include the price of the land when estimating
coverage. You’ll need an insurance amount sufficient
to rebuild at the going rate of construction in your
area. This amount can be estimated by multiplying the
home’s total square footage by the square foot cost of
local construction-- numbers that can be gathered
from building associations, realtors and insurance
agents
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Loss of personal items.
This includes up to 70%
compensation for furniture, clothes and keepsakes
that have been stolen or lost due to disaster. Keep an
inventory of possessions (on video if you’d like) and
store it safely off-premises.
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Liability.
Financial protection against third party bodily injury or property damage
you might cause. Court costs and damage awards are usually covered up to the
policy limit. This coverage typically begins at about $100,000, but most experts
recommend carrying at least three times that amount. Check into umbrella policies.
These provide broader liability coverage and higher compensation limits.
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Additional living expenses.
This coverage picks up your hotel bills, restaurant
tabs and other miscellaneous expenses should you be forced to live elsewhere
while your home is rebuilt or repaired. But prior to purchasing a policy, take time to
ask about time frames and the specific limits of what is and isn’t covered.
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Homeowners insurance policy costs are determined by many factors, such as square
footage of the house, neighborhood crime rate and how prone your neighborhood is to
natural disasters. The level of coverage also makes an impact. Consider these options:
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Actual Cash Value.
Replaces home and/or possessions minus a deduction for
depreciation.
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Replacement Cost.
Replaces home and/or possessions without a deduction for
depreciation.
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Guaranteed replacement cost.
Pays whatever it costs to rebuild your home the
way it was before the disaster.
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Strategies for keeping your homeowners insurance premiums out of the stratosphere
include purchasing homeowners and auto insurance from the same carrier (they’ll
sometimes offer discounts) and raising the amount of money you’ll chip in toward loss. For
instance, a homeowner might save upwards of 25% simply by raising the policy deductible
from $500 to $1,000. Be sure to ask about other discounts as well.
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Choose your insurer carefully.
Shop around for homeowners insurance, solicit at least
three policy quotes and be sure the company you do business with is reputable and will be
around to pay future claims. Contact your state insurance department with any questions.
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