Understanding Home Insurance

By Jeremias Manerio

DEAR JMAN, I am in contract for the purchase of my first home. My attorney called and said I need to purchase insurance for the home prior to closing. What do I need to know about buying the insurance and how can I keep my costs down without sacrificing coverage? It is very important that when comparing insurance that it is not always apples to apples. Don’t just shop by what the cost is. You must also look at the coverage. You would never want to be in a situation where you need to use your insurance and then you find out that you don’t have enough coverage. Will you be able to rebuild your house exactly as it is right now? Is it owner occupied or is it an investment property? Are there high priced items that may NOT be covered if you don’t have a separate rider for them? Is there a finished basement in the home? And would it be covered in case of water damage due to a sump pump or pipe breaking? Is it waterfront property? Contrary to popular demand not all waterfront homes require flood insurance. There are many questions that your insurance provider should be asking in order to be sure that you are protected. You may think you are savig hundreds by going with one provider but if the coverage isn’t right or sufficient then it could cost you thousands!!!I always suggest that you talk to at least 3 different insurance providers and be sure that the coverage that your asking for is right for YOU. I have enclosed two reports. One is 5 things to understand about insurance and the other is 10 ways to lower your insurance costs. Good luck to you in your new home.

5 Things to Understand About Homeowners Insurance

Look for exclusions to coverage. For example, most insurance policies do not cover flood or earthquake damage as a standard item. These coverages must be bought separately.

Look for dollar limitations on claims. Even if you are covered for a risk, there may a limit on how much the insurer will pay. For example, many policies limit the amount paid for stolen jewelry unless items are insured separately.

Understand replacement cost. If your home is destroyed you’ll receive money to replace it only to the maximum of your coverage, so be sure your insurance is sufficient. This means that if your home is insured for $150,000 and it costs $180,000 to replace it, you’ll only receive $150,000.

Understand actual cash value. If you choose not to replace your home when it’s destroyed, you’ll receive replacement cost, less depreciation. This is called actual cash value.

Understand liability. Generally your homeowners insurance covers you for accidents that happen to other people on your property, including medical care, court costs, and awards by the court. However, there is usually an upper limit to the amount of coverage provided. Be sure that it’s sufficient if you have significant assets.

10 Ways to Lower Your Homeowners Insurance Costs

Raise your deductible. If you can afford to pay more toward a loss that occurs, your premiums will be lower.

Buy your homeowners and auto policies from the same company. You’ll usually qualify for a discount. But make sure that the savings really yields the lowest price.

Make your home less susceptible to damage. Keep roofs and drains in good repair. Retrofit your house to protect against natural disasters common to your area.

Keep your home safer. Install smoke detectors, burglar alarms, and dead-bolt locks. All of these will usually qualify for a discount.

Be sure you insure your house for the correct amount. Remember, you’re covering replacement cost, not market value.

Ask about other discounts. For example, retirees who are home more than working people may qualify for a discount on theft insurance.

Stay with the same insurer. Especially in today’s tight insurance market, your current vendor is more likely to give you a good price.

See if you belong to any groups—associations, alumni groups—that offer lower insurance rates.

Review your policy limits and the value of your home and possessions annually. Some items depreciate and may not need as much coverage.

See if there’s a government-backed insurance plan. In some high-risk areas, such as the coasts, federal or state governments may back plans to lower rates. Ask your agent.

Please email all of your Real Estate questions to JMan@JManSells.com

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