Tips On Buying Homeowners Insurance
Many new home buyers rush into buying homeowners insurance simply to qualify for their mortgage without understanding the choices involved in insuring a house.
In the event your home is destroyed by a fire or other catastrophe, you will receive the replacement cost from the insurance company, which is enough to rebuild your home to its original state. You need to be insured for at least 80% of the replacement cost. You are not automatically insured for the market value of your house, so don't expect to be able go out and buy a similar one if your house is destroyed. The land value is built into the value of your home, yet it is not included in the replacement cost. You need to carry at least 80% of your home's replacement cost. If you don't, the insurance company will only pay you a percentage of your loss.
For example, if you have $100,000 house and you only insure it for $60,000, that's only three quarters of the $80,000 required. If you have $20,000 in losses from a fire, you will only get $15,000 from your insurance company or three quarters of your loss. However, if you were insured for $80,000 or 80% of the replacement cost, you would get full coverage. Most insurance companies will automatically increase your coverage yearly by the amount required to rebuild the home. Generally, this increase has been about 10%.
You should be insured for temporary replacement housing such as the cost of an apartment or hotel stay while your home is being repaired. This sum should be in the range of 50% of the replacement value of the house.
Your policy should also include liability coverage. This is protection in the event someone is injured on your property. This liability will also cover you if you accidentally injure someone off your property.
Most policies also provide for coverage in the event of theft away from your home. This covers your property if it is stolen from your car or from a hotel room, etc. However, the amount of this coverage is limited in value, so ask your agent how much is appropriate. Generally speaking, high-value items such as jewelry, furs, art , and coin collections are only insured for a minimal sum. You may need to add a rider and specifically list these items and pay an additional premium to be insured.
Select the most coverage that you can afford. Shop around with different carriers. Don't buy a policy from one company just because it's the cheapest around. Some homeowners policies are nothing more than stripped down fire insurance policies. The best policies, called all-risk policies, or broad form coverage, insure you against almost everything. Be advised, however, that no homeowners policy covers floods. Flood insurance must be purchased separately. If you live in a flood zone, your mortgage company will require you to carry flood insurance. Just because you don't live in a flood zone doesn't mean you should not have flood insurance. Every year, many neighborhoods flood, or there has never been flooding before.
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