Buying a home is one of the most significant decisions of your life—it is also one of the most complex. You need to consider how the home will contribute to the quality of your life, how it will grow as an investment, and how you can maintain it throughout the years. One of the most important considerations to think about is how your home will be insured. Here is a guide to understanding home insurance when you are shopping around for a policy.
What Is Home Insurance?
Home insurance, also known as homeowners insurance, is coverage that protects you against damage to your home, loss of your property, and personal liability in the event that someone else gets injured on your premises. When you apply for a mortgage, your lender will probably require that you have a certain level of coverage. After all, your policy serves to protect their investment as well as yours. If you do not have a mortgage, buying homeowner’s insurance is still a wise choice. It can help you cope with accidents that could prove unaffordable, otherwise.
There are four important elements of home insurance. They are:
- Dwelling coverage: protects your home and the attached structures
- Property insurance: protects the possessions within your home from damage and theft
- Personal liability coverage: protects you from a lawsuit in the event that someone is injured on your property
- ALE (Additional Living Expenses): provides compensation for your expenses when your home is damaged, and you cannot live in it
It is important to make sure the policy you buy provides adequate coverage in all of these areas. Here are some tips for buying home insurance:
A Shopper’s Guide to Evaluating a Policy
Compare the Policy Against Your Mortgage Lender’s Requirements
When buying homeowner’s insurance, step one is to ask your lender what coverage is required to obtain a mortgage. Make sure the policy you buy meets the lender’s needs. Consider, also, that you may benefit from more coverage than the required amount entails. Once you know that your lender will be satisfied with the policy, assess the value of your home and property for yourself. Make sure that your policy will provide adequate benefits to help you recover from damage or losses.
Learn Which “Perils” Are Covered by the Policy
In the context of homeowner’s insurance, a “peril” is something that can damage your home or property. Most policies cover certain types of perils, but not others. When you review a policy, make sure you understand what types of accidents will make you eligible for a payout. Some common perils include:
- Damage caused by wind, hail, ice, or snow
- Water damage (excluding floods)
- Damage caused by a car or a plane
- Volcanic eruptions
- Falling objects
Consider Purchasing Extra Coverage
Along with knowing which perils are covered, it is important to understand which are not. The kinds of accidents that are typically excluded from a homeowner’s insurance policy include:
- Damaged caused by war
- Sewage issues
- Preventable damage such as mold, termites and other infestations
If, for some reason, you are especially susceptible to any of the issues mentioned above, talk with your insurance agent. You may be able to purchase additional coverage. Consider, for example, that the vast majority of natural disasters involve flooding, regardless of where they occur.
Understand the Liability Limits and the Deductibles
The amount of benefits you can receive in the event of an accident is determined by the deductible and the liability limit. The deductible is the amount you will pay out of pocket before your insurance kicks in. The liability limit is the maximum amount your insurance company will pay in the event of a total loss.
For example, imagine that your art collection is insured with a $500 deductible and a liability limit of $10,000. What happens if there is a burglary and you lose $1,500 worth of art? In that situation, you will pay $500, and your insurance company will pay $1,000.
Consider Raising Your Deductible
If you want to save money on your premiums, you might be able to do so by asking your insurance agent to raise your deductible. In this way, you can save money on your policy while maintaining the amount of coverage you would need to recover from a costly accident. Just make sure that you are comfortable paying the deductible in the event of damage.
Check That the Dwelling Coverage is Equal to the Value of Your Home
Dwelling insurance refers to the compensation you would receive if your home were damaged by an accident that is listed under your policy. Attached structures, such as a porch or a patio, are usually included.
When you calculate how much dwelling coverage you need, do so according to how much it would cost to rebuild your home in the event of a total loss. An alternative method is by calculating how your home is worth. The problem with the second approach is that the cost of rebuilding your home could be more than its market value. Your insurance agent can help you with these calculations. You can also find out the local building cost per square foot in your area and multiply it by the number of square feet you own.
Consider Purchasing Coverage for External Structures
Garages, sheds, and other external structures are usually not insured under dwelling coverage. Your insurance agent can help you buy an additional policy if you would like to have them covered. You could also amend your homeowner’s insurance policy with an endorsement to include them.
Note: An endorsement is a legal change that can be made to an insurance policy. It modifies the original terms, but does not cancel the entire document.
Make Sure the Policy Includes Enough Property Insurance
Beyond the structures you own, you want to make sure your possessions are properly insured. A homeowner’s insurance policy addresses that issue in the property insurance section. The guidelines concerning how much property insurance to get are similar to those regarding dwelling coverage: you should insure your belongings according to the amount it would cost to replace everything.
Before you go shopping for a home insurance policy, make a list of everything you own. Try to do so as comprehensively as possible. Review this list with your insurance agent and make sure the policy can accommodate all of your possessions.
Check the Property Insurance Section for Special Limits
The term “special limits” refers to types of belongings that are excluded from the policy. These might include items that are especially rare or valuable. Jewelry, electronics, collectibles, fine art, sports equipment, and bicycles are all examples of things that might have special limits. If you have valuables that fall under these or other excluded categories, talk with your insurance agent about adding coverage to include them.
Review the Section on Liability Coverage
Having liability coverage is the best way to protect yourself, legally, if there is an accident on your property, and someone else gets hurt. Liability coverage can be helpful if someone harms themselves. For example, a guest might slip on the tiles in your bathroom, or a contractor might become injured while renovating your kitchen. Liability coverage can also protect you in the event that someone, including a member of your family, harms someone else on your property. Sometimes, there is even a provision that protects against bodily harm done by intoxicated guests.
Other situations that might be covered under the liability section of your homeowner’s insurance include dog bites and falling trees. Some breeds of dog, such as a German shepherd or a Rottweiler, are considered more threatening than others. In the latter case, liability insurance can protect you if your tree falls and crushes a neighbor’s car or if a similar situation occurs. It is difficult to determine exactly how much liability coverage you need. However, experts generally recommend that you get as much as you can comfortably afford.
Understand That Cars and Car-Related Damage Are Not Included in Homeowner’s Insurance
While you might think that your car could be protected by your property insurance, it is not. Similarly, accidents involving your car that cause harm to others are not covered under the personal liability section. This is because insuring cars involves many considerations and needs to be handled separately. For example, insurance companies account for the make of the car, where it is driven, why it is used, etc.
Ask your agent about purchasing the insurance you need for your car. In some cases, insurance companies offer discounts when you buy car and home insurance together.
Check How Much ALE Coverage Is Provided
ALE, or additional living expense coverage, becomes very important in the case of fires, storms, and other situations that make a home unlivable. During the time it takes to rebuild or repair your home, you might need to live in a hotel and possibly purchase a lot of take-out food. While not everyone thinks about these expenses when they try to predict how much it would cost to rebuild, additional living costs can add considerably to the expense of recovering from an accident.
Insurance agencies usually sell ALE as a percentage of your dwelling coverage. Usually, it is 10% to 30%. For example, if your home is insured to $200,000 and your policy provides 20% ALE, the amount of ALE you get would be $40,000.
Ask About Discounts
Your insurance agent can work with you to make sure you get the best price for your insurance. Many companies offer discounts when you do things that lower the likelihood of an accident. For example, if you take steps to disaster-proof your home, you might qualify for some savings. Installing a good home security system is another way to lower your insurance premiums, in some cases. When you review a policy, ask your agent which discounts might apply and what you need to do to receive them.
Find Out if You Need a Separate Home Warranty Policy
While the terms sound similar, home insurance and home warranty are not the same thing. A home insurance policy protects your possessions against theft and damage. A home warranty policy can cover the cost of repairing or replacing them if they break or wear out. It can apply towards kitchen appliances, swimming pools, water heaters, etc. While most mortgages don’t require home warranty insurance, it is a good idea to have it.
Check if Your Homeowner’s Insurance Is Tax-Deductible
In most situations, homeowners insurance is not tax-deductible. However, it pays to check. If you use part of your home for business, you might be able to claim a percentage of your insurance as a business expense. For example, you might have a dance studio in an attached structure. Similarly, if you rent out part of your home to others, the insurance on that part of the house might be tax-deductible.
Plan to Reevaluate the Value of Your Home and Possessions Every Year
As your assets grow, you want your homeowners insurance to keep up. Once you have chosen a policy, try to do an inventory of everything you own once a year. Make sure that all of your valuables are included in the property coverage section, and contact your insurance agent if you feel you need additional coverage. Another good time to reach out to your agent is when you do renovations or build additions to your home. In general, it pays to stay in touch.
Get the Most Out of Your Home Insurance Policy
Your home is one of your most important assets. While life is unpredictable, a good homeowners insurance policy can give you some peace of mind. By shopping for the right policy in an educated way, you can make sure you get the most out of the one you choose. Beyond satisfying mortgage requirements, a good policy will accurately insure all of your valuables according to their replacement cost. Furthermore, it will protect you from liability and help you out if you incur additional living expenses.
Contact Absolute Choice Insurance in Miami, FL for more information on the best home insurance policies. We look forward to being an important part of your journey as a homeowner. You can reach us online or by phone:
South Florida Phone: 305-275-1777
Central Florida Phone: 407-344-4444