When buying homeowners insurance, you need to find the policy that’s right for you. Click here to reveal what to know before buying homeowners insurance.
If you’re buying a new home, the last thing you want to think of is your house facing a major disaster.
But life happens, and when it does, you’re going to need a good homeowners insurance policy.
Unless you’re buying your house cash, your mortgage lender may require homeowners insurance before approving your mortgage.
But just because buying homeowners insurance is mandatory doesn’t mean it’s easy. There are hundreds of insurance providers with different rates and coverage.
Sorting through these providers can be a daunting task. If you don’t know what you’re looking for, you can end up buying homeowners insurance that costs too much and covers too little.
In this article, we’ll help you navigate the crowded field of insurance companies to find the coverage that’s right for you.
The Different Types of Homeowners Insurance
You might think that insurance is insurance is insurance.
But depending on the type of property you own and what you want to be covered, some plans will be more helpful than others.
The most common policy is HO3. HO3 is what’s called an “open perils” policy.
Unlike flood or fire insurance, which only cover one type of damage (those are called “named perils), open perils policies offer much more comprehensive coverage.
HO3 can also cover personal property, but typically only under a named perils policy.
An HO5 policy will cover your home and your personal property under an open perils policy. This type of policy can be more costly but will definitely lend some additional coverage with your personal property.
Whatever type of policy you get, there are three types of coverage offered.
Cash Value Coverage
In cash value coverage, your insurance company agrees to pay the fair market cost of your property, minus depreciation, up to the limits set by your policy.
This is the least expensive coverage, but it may not cover all of the costs if your home suffers a major disaster.
Replacement Cost Coverage
Replacement cost coverage operates much the same way as cash value coverage. Your property is covered up to the limits of your policy, but it does not subtract depreciation.
It is more expensive, but you won’t have to worry about your policy not meeting your needs if you need to make a large claim. It is very common for most HO3 and HO5 policies to include a replacement cost provision for dwelling and personal property.
Guaranteed or Extended Replacement Coverage
Extended replacement exceeds the terms of the policy, sometimes by as much as 25% to 50% if the home is insured to 100% replacement at the time of loss. Why is this important? Recent storms, like Hurricane Irma, can cause massive damage to a large area causing a shortage of materials and labor which could inflate prices during the time of reconstruction. By having an additional 25 – 50% additional to rebuild could cover the rise in pricing after such an event.
Some insurance carriers like Chubb, MetLife, and Encompass offer a “guaranteed replacement” provision for the dwelling that means that there is no cap amount for what they will pay to rebuild the home. Obviously, this is the most expensive coverage available, but you will never need to worry about having the right amount of coverage to rebuild your home after a claim.
Bundle Up and Save
When you’re buying homeowners insurance for the first time, you might sit down with a long list of insurance providers and sort through their available policies.
But if you do this, you might overlook one important provider. Namely, your current insurance company.
If you own your own car, you already have car insurance. Chances are, that company offers home insurance as well. Sometimes the pricing for stand-alone policies can be much more expensive compared to when they are bundled.
Not Every Damage Will Be Covered
Earlier, we briefly touched on open peril and named peril policies.
If you only purchase an open peril policy, you might be surprised after a disaster to find that sort of damage isn’t covered.
Most policies have specific exclusions including flood, earthquake, sinkhole, and earth movement that won’t be covered under the standard homeowners policy.
It might seem like a cruel omission or foolish oversight, but remember that different parts of the country are more susceptible to different types of disasters and rated accordingly.
Just because these coverages aren’t included on the standard home policy doesn’t mean that you can’t get coverage. If you feel a need to have this damage covered, make sure you consult a local independent insurane broker so they can either get this coverage added to your policy or write a separate policy to protect against these perils.
While you’re buying homeowners insurance, consider what types of damage your home may realistically face and add these named policies to your coverage.
Think your untrimmed tree is only bothering you? Think again.
Deferred maintenance can lead to big repair costs down the line. And your insurance company is going to be the one footing the bill.
If you have any repairs you’ve been putting off that could cause serious damage, such as a damaged roof, leaky pipes, or an old tree sitting precariously above your master bedroom, your insurance company might raise your rates preemptively.
When you make a claim, if the inspection determines that the damage occurred because of deferred repairs, your insurance company may deny the claim altogether. Policies typically cover losses that are “sudden and accidental”, so if the loss was caused by an ongoing issue there could be an issue.
Your Dog May Cost You
Everybody thinks their dog is the best dog in the world. And everybody is right.
But your home insurance might disagree.
If you’ve ever seen the ’90s classic Beethoven, you know how much damage a large dog can cause.
Certain breeds have a reputation for being aggressive or have a propensity for chewing and scratching, which can cause damage to your home or possessions.
But the good news is that this isn’t true of every insurance company. Ask how owning a large dog can affect your premiums when buying homeowners insurance, and go for the policy that loves your dog as much as you do.
Buying Homeowners Insurance That Matters
Whether you’re buying a new home or shopping for a new policy, it’s important to get a policy that will offer you the coverage you need without charging more than you can afford.
If you’re shopping for insurance providers, but every company just treats you like a string of numbers, give us a call.
At Mooney Insurance Brokers, we strive to help you find the policy that’s best for our clients, not what’s best for the insurance companies.
Contact us today, and we’ll help you find the best coverage to protect what matters to you!