When we set out to buy our home, we knew we needed homeowners insurance (because our lender told us so). But we had no idea what level of coverage we needed or what coverage was vital and what we could do without. I could navigate the hurdles of changing interest rates when we refinanced our mortgage, but when it came to coverage, I was lost. So today I’m stoked to share this post – homeowners insurance coverage explained.
With the ease of a sharp knife cutting through warm butter, I’ve made financial mistakes surrounding our mortgage… Like paying the mortgage twice in December (by accident) and waking up to a “Bank Overdraft” alert after paying our mortgage (among other things).
And because I’m still learning in the homeowners insurance department, I’ve enlisted the help of some of my friends at Consumers Advocate to help us all better understand what’s important and what’s not.
So without further adieu:
Homeowners Insurance Coverage Explained – What you Absolutely Need and What You Can Do without
If you are looking to buy a new home or condominium, homeowners insurance is not only important but necessary. By having a comprehensive home insurance policy, you will have the assurance that you can pay for anything that might happen to or in your home.
Homeowners insurance really is only required if you finance your home through a bank or a lender… This just so happens to be the majority of us!
Having a comprehensive homeowners insurance policy isn’t only for your personal items and your home, but it can also add protection if someone at your home gets injured.
Navigating home insurance policies can be difficult and pretty confusing.
Our friends at ConsumersAdvocate.org are here to help us. They’ve done some extensive research on homeowners insurance, why you need it, and the different coverage offered.
They put some thoughts together on what to look out for in order to find the best homeowners insurance for your particular property
1. Coverage
When looking for homeowners insurance, coverage is one of the most important items to consider. There are many different policies and coverage, but they are usually broken down by the amount of protection they offer, such as replacing your valuables after a loss, natural disasters, personal property coverage, and the type of property that is being covered.
Cash Value Replacement Coverage
Cash value replacement coverage will replace the actual cash value of any loss, but will also take into account the depreciation of your personal items or belongings. For example, if you own an expensive dishwasher that was damaged because of an electrical surge, then cash value replacement coverage will reimburse you the cost of the dishwasher less the depreciation from normal use.
Full Replacement Coverage
Full replacement coverage will reimburse you the total cost of the dishwasher at today’s cost. Even better (and of course, more expensive).
Guaranteed Replacement Cost Coverage
Guaranteed replacement cost coverage will reimburse you for the cost to rebuild your home if it is a total loss. This coverage will even reimburse you the actual cost even if it is more than the coverage limits. It will cover the cost in today’s dollar amount.
For homeowners in high-risk areas, we recommend purchasing full-replacement cost coverage because it will provide sufficient funds to rebuild the home in the event of a total loss.
2. Additional Coverage Options
There are many different supplemental policies that you can add to your existing insurance for even more protection and coverage.
Of course, the extra coverage will cost more, but it can also be very important if you live in an area where natural disasters might occur.
Flood insurance
If you live in an area that is prone to flooding, you should certainly consider purchasing an add-on flood coverage or “rider” for your homeowners insurance policy. Most home insurance policies will not cover flood protection under their basic policy.
In states like Florida or Ohio that are prone to flooding, flood insurance will cover the physical damage from floods and losses resulting from floods, storms, and even tidal surges.
Flood insurance doesn’t typically cover personal belongings, appliances or any system that might be affected which will usually be covered under a good homeowners insurance policy.
Earthquake insurance
Earthquakes can occur in any state and earthquake insurance can be very valuable if you happen to have an earthquake.
Earthquake insurance will protect you against anything that happens to your home in an earthquake including repairs that are needed as well as cover structures like a shed or garage that aren’t attached to your house.
3. Your Home Valuation Should Be Updated
It is really important to keep your home valuation updated before purchasing a new policy or to update your existing policy.
If your home is undervalued, then your homeowners insurance won’t cover the total amount of the costs if something dire were to happen.
If you updated your home recently or renovated it, make sure that your coverage today will reflect the increased value.
Similarly, since your personal belongings are also protected under a homeowners insurance policy, you should continually update the value of the more expensive items such as cameras, computers, paintings or anything else of value so you know you will be covered.
4. Claims process
If you have a homeowners insurance policy, you want to know that the claims process is easy to use and that your company pays within a reasonable time frame.
The timeframe of any new claim to be paid back will depend on the type of claim as well as having all the documentation necessary to approve it.
However, you can look for a few things that will certainly make the claims process a lot smoother including:
- 24/7 claims processing
- Multiple ways to file claims – on the phone, a mobile app, or online.
- A specific time frame to approve or deny your claim
- A detailed list of what is required when filing a claim
- An easy streamlined process that uses updated technology
5. Customer Service and Reviews
What you Absolutely Need in Homeowners Insurance
Your homeowners insurance company should always have great customer service and reviews.
If you are filing a claim which can be a very stressful situation, having a trained and informed customer representative will make the process that much easier. A good customer service rep will be trained enough to guide you through the sometimes arduous process with patience and empathy.
Customer reviews can also be helpful in deciding on a new policy. Of course, there will be both positive and negative reviews, but you can balance out both to help you make a more informed decision.
6. Get At Least 3 Quotes Before Making a Decision
Just like any other insurance you purchase, make sure to get a least three quotes before making a decision.
It’s hard to really know what the pricing will be on any given policy because so much of it can depend on where you live and the coverage you purchase. However, the general guideline is approximately $35 a month for $100,000 of home value.
Final Thoughts
Take some time and think about what you might need in a homeowners policy in terms of coverage for your particular home and the area where you live.
The more you shop around and become more informed about the different coverage and pricing will get you the best deal and coverage for your particular home. Make sure to find out exactly what your new policy covers before enrolling.
If you want to learn even more about homeowners insurance and the best companies that offer policies, this guide can give you more detailed information to help you start your search.
