Homeowners Insurance Basics
Your mortgage lender will not allow you to live dangerously, even if that's what you like. To protect their interest in your house, they will require that you purchase homeowners insurance. They do, and it's a good thing they do. Even if you don't have a mortgage, you should have homeowner's insurance. Your home is an investment. It contains all of your possessions. They provide protections that are worth the small premiums.
You Can Say "Small Price ..."
The cost of homeowner's insurance depends on where you live, what coverage you choose, and whether any discounts may be available. As a rough estimate, you will pay $35 per month for every $100,000 of coverage.
What are the best times to pay?
If you have a mortgage, proof of your insurance premiums for at least 12 months will be required. Along with your policy declarations page, which will show the effective date and cost for one year of coverage, you will need to provide proof that you have paid the bill.
Your lender will then set up an account in escrow, and you'll be able to pay your monthly premiums from that. Your homeowner's insurance policy will be added to your monthly house payment along with taxes. Some home buyers assume that their first year's monthly payments will be lower because they have already paid for the insurance one year in advance. Your lender will start collecting insurance premiums from the first payment.
Selecting An Insurance Company
It's not difficult to name at least three large insurance companies without prompting. It is crucial to find the right one. Ask family members and friends for recommendations based on their experiences. Next, get quotes and compare prices. Check with them to find out if your state insurance office does not accredit the insurers you are interested in. You may be eligible for a discount if you have auto insurance. You may decide to transfer your auto insurance to another company. Ask about discounts on alarm systems and sprinkler systems.
How Much?
You must pay the current market value of your home to satisfy your mortgage lender. They only care about getting their loan repayment, even if the house or its contents are destroyed. That's all they care about, except in very rare cases.
Experts recommend that you buy replacement cost coverage over market value. Let's look at the differences. Let's say you purchase a $200,000 home that has market value coverage. It could cost $225,000 to rebuild your home if it is destroyed by fire. The additional $25,000. will be yours to pay.
Rebuilding is more expensive even without the demolition costs. A professional home builder will have the same economy of scale as you. Consider adding "extended-value" coverage. This coverage will allow you to receive up to 20-30% more than your policy coverage limit. This is why you would need it. Let's suppose that a storm causes damage to homes in your area. Many people will need to be repaired quickly. Prices for repairs will rise because of the laws of supply-demand. You can protect yourself against this by purchasing extended value coverage.
How Can You Calculate The Replacement Value?
An insurance agent should be able to help you to come up with a rough estimate. You can also use online calculators to help you compare. A contractor can be hired to provide an estimate and check if there was a replacement cost estimated in the appraisal.
You may have an automatic inflation adjustment in your policy. However, you should still review your coverage limits at least once a year to ensure that nothing has changed that could cause you to need to adjust.
What Is Protected Other Than The House?
You: If someone is hurt on your property, homeowners need to be protected against lawsuits. Let's suppose you invite your neighbors to a barbecue, and one of them falls on a tree root, causing a broken wrist. Maybe a door-to-door salesperson slips on an uneven concrete walkway and falls. Their medical treatment and possibly even their loss of employment could all be your responsibility. Your insurance company might ask you strange questions. Are you a pet owner? Do you have a trampoline? You could see an increase in your premium to reflect past claims experience with this type of thing.
Your personal worth will determine how much liability coverage you require. Your net worth will determine how much coverage you need.
Your Items: Find out how much personal property protection is included. Does it have a replacement or depreciated cash-value value? What is not covered? You will need to purchase a "rider" if you have an antique doll collection or high-end computers. Ask your agent about the exclusions in your policy.
To help you in the event of a claim, you should make an inventory. How do you start? You can find a lot of help on the website of the Insurance Information Institute.
What Isn't Covered?
Standard homeowner's insurance policies don't cover floods, earthquakes, hurricanes, or wildfires. However, your lender may require that you purchase flood insurance if you live in a flood area. Even though you don't have to buy specific hazard coverage, you might want to ask how much it would cost to cover the most common events in your area. Only you will know what peace of mind means to you.
