Homeowners Insurance Policy Quote Guide: Homeowners insurance, also known as home insurance, is not a luxury. It’s a necessity. It protects your house and possessions from theft or damage. Nearly all mortgage companies require that borrowers have insurance coverage to cover the fair or full value of the property (usually the purchase price). Without proof, they won’t lend or finance residential real estate transactions.
Insurance doesn’t have to be required for your home. Many landlords require tenants to have renter’s coverage. It doesn’t matter if it’s mandatory or not, having this type of protection is smart. We will walk you through the basics and benefits of homeowners insurance.
The Key Takeaways
- Insurance policies for homeowners generally cover damage to the interior and exterior of a home, as well as personal liability for injuries to others.
- There are three basic levels of coverage: replacement cost, actual cash value, and extended replacement price/value.
- The insurer’s risk of you filing a claim will determine your policy rate. They do this by looking at past claims history, neighborhood information, and the condition of the home.
- When shopping for insurance, compare quotes from at least five companies. Also, make sure to check with any current clients of your insurers as they often offer better deals.
What a Homeowners Policy Offers
While they can be customized in many ways, homeowners insurance policies have certain elements that indicate what costs the insurer will pay.
Interior and Exterior Damage to Your House
Your insurer will pay you for damage to your home from fire, hurricanes or lightning. You may need separate riders to protect yourself against damage or destruction caused by floods, earthquakes, or poor home maintenance. You may need separate coverage for garages, sheds, or other structures that are not part of the main house.
If your home is damaged by an insured disaster, you can get coverage for clothing, furniture, appliances and almost all other items in your home. Even “off-premises” coverage is available. This means that you can file a claim for jewelry lost no matter where it was lost. However, your insurer may limit the amount you can get reimbursed. The Insurance Information Institute states that most insurance companies will cover 50% to 70% of the insurance coverage you have for your home. If your home is insured for $200,000 then you would have coverage up to $140,000 for your possessions.
You might consider buying a separate policy if you have a lot of expensive possessions (e.g., fine art, antiques, jewelry)
Personal Liability for Injuries or Damage
Liability protection protects against lawsuits brought by others. This clause also covers your pets. Your insurer will cover Doris’ medical costs if her dog bites her neighbor Doris. You can also file a claim for reimbursement if your child breaks the Ming vase. You’ll also be covered if Doris falls on broken vase pieces, and you successfully sue for pain and suffering and lost wages.
Renter’s insurance often excludes coverage for off-premises liability.
According to the Insurance Information Institute, policies may offer $100,000 coverage. Experts recommend that you have at least $300,000. An umbrella policy, which costs $1 million more than a standard policy, can provide additional protection.
You can rent a hotel or a house while your home is being rebuilt or repaired
Although it is unlikely that you will ever have to leave your home, this insurance coverage will provide you with the best coverage. This section of insurance, additional Living expenses, will reimburse you for any rent, hotel, meal, or other incidental costs while you wait for your home to be habitable again. Be aware that there are strict daily and total limits to the Ritz-Carlton suites and room service caviar. You can increase your coverage if you are willing to pay more.
Different types of homeowner’s coverage
Insurance is not all created equal. You will get the most coverage for your money if you have the lowest cost homeowners insurance.
There are many types of homeowners insurance in the United States. They are all standardized and designated from HO-1 to HO-8. Each level of coverage is determined by the homeowner’s needs and the type of residence.
There are basically three levels of coverage.
Actual cash value
Actual cash value is the sum of the actual cost of the house and the value of your possessions after taking out depreciation. This means that the item’s current value is greater than the price you paid for it.
Cost of replacement
You can repair or rebuild your house up to its original value by purchasing replacement value policies.
Replacement cost/value guaranteed (or extended)
This policy, which is the most comprehensive, covers all costs associated with repairing or rebuilding your home. It also covers any excess that exceeds your policy limit. Some insurers offer extended replacement. This means that it provides more coverage than you bought, but it has a limit. Typically, the ceiling is between 20% and 25% higher than your policy limit.
Advisors believe that homeowners should purchase guaranteed replacement value policies. This is because you don’t need just enough coverage to cover your home’s value. You need enough to rebuild your home at current prices, which will likely have risen in recent years. “Often, shoppers make the mistake to insure a house only enough to pay the mortgage.
However, this usually amounts to 90% of the home’s actual value,” states Adam Johnson. He is a manager of home insurance products for QuoteWizard.com. It’s a good idea not to buy coverage that covers more than the home is worth because of fluctuating markets.
Homeowners can get guaranteed replacement value insurance to absorb higher replacement costs. This will provide them with some protection in the event of an increase in construction prices.
What isn’t covered by homeowner’s insurance?
Although homeowner’s insurance covers most losses, there are some situations that are not covered by policies. These include natural disasters, acts of God, and war.
What happens if you are in an area that is susceptible to flooding or hurricanes? You might also live in an area that has had a history with earthquakes. These riders are required, as well as additional coverage for flood insurance and earthquake insurance. You can also add sewer and drain backup coverage, as well as identity recovery coverage which reimburses you for expenses incurred due to identity theft.
How are Homeowners Insurance Rates Calculated?
What is the driving force behind these rates? Noah J. Bank is a vice president at HUB International and an insurance advisor. It’s the insurer’s perception of risk that a homeowner will file for a claim. Home insurance companies take into account past claims and credit history to help determine risk. Bank states that rates are determined by the severity and frequency of claims, particularly if multiple claims relate to the same issue, such as water damage or wind storms.
Insurers are not only there to cover claims but they also want to make money. Insurance premiums for homes that have had multiple claims over the past three to 7 years can be higher if the previous owner has filed the claim. Bank notes that you may not be eligible for home insurance depending on how many claims have been filed in the past.
Rates will also be determined by the neighborhood, crime rate, availability of building materials, and other factors. The annual premium will also be affected by coverage options like deductibles and added riders for jewelry, wine, art, etc.
Bank explains that home insurance pricing and eligibility can vary depending on the insurer’s appetite for certain building types, roof types, condition or age, heating type (if an underground oil tank is present), proximity to the coast and swimming pool, trampoline and security systems.
How can other factors affect your rates? Bill Van Jura says that the condition of your home could affect a home insurance company’s willingness to provide coverage. Dependent on the breed, some dogs can cause serious damage.
Savings on Insurance
It is not a good idea to skimp on coverage. However, there are ways you can reduce your insurance premiums.
Keep a security system in place
The homeowner will see a reduction in their annual premiums if the burglar alarm is monitored by a central station, or linked directly to a local station. The homeowner will need to provide proof of central monitoring, such as a bill or contract to the insurance company, in order to receive the discount.
Another big deal is smoke alarms. Installing smoke alarms in older homes, even though they are standard in modern homes, can help homeowners save up to 10% on their annual premiums. You can save money with CO detectors, deadbolt locks, sprinkler system, and sometimes even weatherproofing.
Raise your deductible
The homeowner can choose to have a higher deductible than they do for their car insurance or health insurance. This will result in lower annual premiums. The problem with a high deductible is that homeowners will most likely pay for any claims or problems that are only a few hundred dollars to repair, such as broken windows and sheetrock damage from a pipe burst. These can quickly add up.
You can find multiple discounts on your policy
Customers who have multiple insurance contracts (e.g. auto, health insurance) often receive a 10% discount. You might also consider getting a quote from another type of insurance through the same company that offers homeowners insurance. Two premiums could be saved.
Renovations can be planned in advance
Consider the materials you will use if you are planning to add an extension or another structure to your home. Wood-framed structures are more expensive to insure as they are extremely flammable. Cement- and steel-framed structures, on the other hand, will be less expensive to insure because they are less likely to catch fire or suffer from adverse weather conditions.
A homeowner should also consider the insurance costs involved in building a swimming pool. Insurance costs can rise by as much as 10% for items like pools or other potentially dangerous devices (like trampolines).
Repay your mortgage
This is not an easy task, but homeowners who own their homes will likely see their premiums drop. Why? According to the insurance company, if you have 100% ownership of a property, you will take better care.
Regular policy reviews and comparisons
You should do some comparison shopping regardless of the initial price. This includes checking for group coverage options through credit unions, employers, trade unions, and association memberships. Investors should compare the cost of insurance policies with their own every year even after they have purchased a policy. Investors should also review their current policy to note any changes that may have occurred which could reduce their premiums.
Perhaps you’ve disassembled the trampoline or paid off the mortgage. Or perhaps you’ve installed a sprinkler system. Notifying your insurance company about the changes and providing proof (in the form of receipts and pictures) could help to lower your insurance premiums. Van Jura says that ccompletions of plumbing, electric, heat and roof upgrades may be available to some companies.
Loyalty is often a good thing. Your premium and deductible can be lower the longer you are with certain insurers.
You can determine if your coverage is sufficient to replace your possessions by periodically assessing your most valuable items. John Bodrozic is co-founder of HomeZada. According to HomeZada, a home maintenance app: “Many consumers are underinsured with their contents portion of their policies because they haven’t done a house inventory and added the total worth to compare it with what the policy covers.”
You should also look for potential rate reductions in your neighborhood. Premiums may be lower by installing a fire hydrant or erection of an emergency substation within close proximity of the property.
How to Compare Home Insurance Companies
Here are some search and shopping tips to help you find the right insurance carrier.
1. Compare state-wide costs and insurances
You want to ensure that you only choose a legitimate provider when it comes to insurance. Visit your state’s Department of Insurance website and find out the rating of each licensed home insurance company in your state. Also, look for consumer complaints against the company. You will also find the average cost of home insurable in different cities and counties.
2. Do a company health check
You can check the scores of top credit agencies such as A.M. Best and Moody’s on the websites you’re interested in home insurance companies. Power, Standard & Poor’s, and the National Association of Insurance Commissioners, and Weiss Research. These websites track complaints about the companies, as well as general customer feedback and the processing of claims. These websites can also assess the financial health of a home insurance company to determine if it is able pay claims.
3. Take a look at the claims response
After a major loss, your family could find themselves in difficult financial situations if they have to pay out of pocket for repairs and wait for reimbursement from their insurer. Many insurers out core functions such as the handling of claims.
Find out if licensed adjusters and third-party call centres will be handling your claims calls before you purchase a policy. Mark Galante is president of the PURE Group of Insurance Companies’ field operations. He says that agents should be able give feedback about their experience with a carrier as well as market reputation. Look for a carrier that has a track record of timely and fair settlements. Also, make sure you understand the policy of your insurer on holdback provisions. This is when the insurance company holds back a portion until a homeowner proves they have started repairs.
4. Current policyholder satisfaction
Each company will claim it offers excellent claims service. Ask your agent or company representative about the insurer’s retention rates. This is the percentage of policyholders who renew each year. Retention rates vary widely between 80% to 90%. Online reviews, annual reports and old-fashioned testimonials can provide information about satisfaction.
5. Get multiple quotes
“Obtaining multiple quotes is important when looking for any type of insurance; however, it is especially important for homeowner’s insurance since coverage needs can vary so much,” says Eric Stauffer, former president of ExpertInsuranceReviews.com. Comparing multiple companies will give you the best overall results.
How many quotes should I get? A minimum of five quotes will give you an idea of the offers and help you negotiate. Before you get quotes from other companies, ask for a price from the insurers that you already have a relationship. You may be able to get a quote from a company you already do business with (for your car, boat, etc.). You may be eligible for lower rates because you are an existing customer.
Many companies offer discounts for senior citizens or people who work remotely. These two groups are more likely to be on-site, which makes the house less vulnerable to burglary.
6. Don’t limit yourself to the price
The annual premium is often the main reason for choosing a home insurance policy. However, you should not only consider price. Bank says that no two insurers will use the exact same endorsements and policy forms, and policy wordings can vary greatly. Even if you think you are comparing apples with apples, there is often more to it. You need to compare coverages, limits, and other details.
7. Talk to a real person
Stauffer believes that the best way to get quotes for insurance is to speak directly to the companies or to an independent agent, who deals with multiple companies. This is in contrast to a traditional “captive”, insurance agent or financial advisor who only works for one company. Remember that brokers are often licensed to sell policies for multiple companies. He notes that this could add hundreds of dollars per year.
Bank encourages customers to ask detailed questions to get a better understanding of their options. “You want different deductible scenarios to best decide if it makes sense for you to opt to have a higher deductible or self-insure,” says he.