Buying a new home is an exciting time, but it’s also a huge investment.
Many homeowners go through the process of buying a home, including choosing insurance, rather haphazardly. Unfortunately, if you don’t understand your homeowner’s insurance, it could end up costing you. You’ll either pay more than you should every month or when a catastrophe occurs and you don’t have enough coverage to recoup your losses.
Don’t neglect this important part of homeownership – check out our homeowner’s insurance FAQ!
What is Homeowner’s Insurance?
Homeowner’s insurance, which also goes by property or home insurance, provides financial coverage for your home and compensates you in case of a loss to an unforeseen event.
Typical uses of home insurance include burglary and theft, weather damages like hail, catastrophic events like fires, and liability events, where someone gets hurt while on your property.
What Does a Homeowner’s Policy Cover?
Policies will vary from company to company, but most include some standard coverages.
If your home or the structures on it, like a shed or garage, are damaged or destroyed, this coverage will pay to repair or rebuild them. Property coverages have exclusions, however, so pay close attention to your policy to make sure you’re covered for any event. Common exclusions include earthquakes and floods.
This coverage includes damages to or loss of your personal property if your home is burglarized or vandalized. There are standard limits to this kind of coverage, so if you have valuables that exceed those limits, such as jewelry or antiques, you’ll want to purchase a “rider”, or extended coverage, for those items.
If you, someone in your family, a pet, or something on the property itself causes an injury to someone else, liability coverage will legally cover you against medical costs you might be legally obligated to pay. It can also cover you should you damage someone else’s property. Liability also has exclusions, such as aggressive acts against a neighbor in which you knowingly and willfully hurt or destroy property.
Alternative Living Costs
If, for some reason, your home becomes unlivable for a period of time, this coverage will pay for alternative housing. If your house burns down, for instance, this coverage would pay for somewhere to live while your house was rebuilt.
How Does Insurance Work?
Home damages can cost thousands or even hundreds of thousands of dollars. Whether a hail storm broke all the windows on one side of your house, a fire in the kitchen caused extensive damage to the kitchen or a neighbor was bitten by your dog, you could very quickly be facing bills that could send you toward bankruptcy.
Homeowner’s insurance is a safety net for unforeseen events. When disaster strikes, you’ll know you’re financially covered and ready to repair whatever damage has occurred.
The process of an insurance claim is fairly simple.
- Damage occurs on or to your property.
- You call your insurance agent and file a claim.
- An insurance adjuster comes out and assesses the value of damages.
- You receive a check with the correct amount to repair or rebuild your home.
There are several factors that influence how much you’ll receive.
1. Limits. When you choose insurance, you choose the limits of your policy, or how much to cover.
2. Deductible. This is the amount you have to pay before insurance kicks in.
3. Actual Cash Value. You can elect to receive the actual cash value, which factors in depreciation, or the estimated replacement value.
Am I Required to Have Homeowner’s Insurance?
Different states have different laws about insurance, but even if your state doesn’t require it, your mortgage lender will. Since they technically own the building until you pay off your mortgage, they need to know their investment is protected.
Even if it isn’t required by your state and you own your home outright, it’s still a good idea to purchase insurance. You never know when disaster might strike.
How Much Does Insurance Cost?
That depends entirely on the coverages you choose, the value of the items you’re insuring and what deductibles you decide on.
You’ll pay more monthly for comprehensive coverage with everything included and lower deductibles. You’ll get discounts for lower coverage limits and higher deductibles.
However, you’ll want to weigh those monthly savings against a heavier bill down the line in the event of a disaster. For instance, let’s say you elect for $20,000 in personal property coverage over $50,000. Your monthly bill will be a few dollars cheaper each month, but if a fire occurs and your personal property is actually closer to $50,000 to replace, you’ll be out the difference, which could end up being a far larger cost than a few bucks a month.
The same goes for your deductible. Let’s say you can choose between a $1,000 and $5,000 deductible. You’ll save money choosing the higher deductible, but if all your windows get busted out and require $5,000 to be replaced, you’ll be paying the entire amount out of pocket to meet your deductible.
A typical policy will cost between $400 and $1500 annually and is generally added to your mortgage bill automatically.
How Much Insurance do I Need?
Your best bet is to talk to a licensed agent experienced in homeowner’s policies who can help you decide on the correct coverages, limits, and deductibles for your needs.
Can my Insurance be Cancelled?
Your homeowner’s policy can be canceled or dropped.
If a policy is dropped, it simply means that you will not be given the option to renew it at the end of the term.
If a policy is canceled, it means the company chooses to stop insuring you in the middle of a term. This can happen for a variety of reasons including non-payment, an increase of risk for the company or misrepresentation on your part regarding the property.
Use This Insurance FAQ to go Get Your Own Homeowner’s Policy!
Now that you’ve read this handy insurance FAQ, contact the professionals at Amistad Insurance Services to make sure your home is covered! We’ll help you sort through your specific needs and make sure you have the correct coverages, limits and deductibles to keep you and your home safe!