How do I purchase Homeowners Insurance? These are the 4 most important questions to ask before you buy homeowner’s insurance.
Although purchasing insurance is not as enjoyable as selecting new furniture or paint colors, it’s an essential part of homebuying. You can count on your homeowners insurance policy to provide financial protection in the event of a natural disaster. To ensure you get the right coverage at an affordable price, you will need to ask some important questions.
How much is the area of your dwelling?
Imagine a house being set on fire and not enough money from your insurance to repair it. This could happen if the dwelling coverage, which is the portion of your policy that covers your home’s structure, is not sufficient.
This can be prevented by refusing to accept the amount of coverage that your insurance company recommends for your first dwelling. Ryan Andrew, president and chief executive officer of The Andrew Agency, an independent agency that provides insurance services in Washington, D.C., Maryland, Virginia, and Washington D.C., says, “Insurance companies use substitution cost calculators, however, they’re not 100% precise by any means.”
Amy Bach, executive director at United Policyholders (a non-profit that advocates for consumers of insurance), suggests that you ask your insurer for an accurate estimate. Ask a local builder that specializes in new construction for a cost estimate of your home’s reconstruction.
After you have chosen a suitable dwelling limit, you can add extended replacement cost coverage. Your insurer will pay you 10% to 50% more for this coverage to help you rebuild. This coverage could save you thousands of Dollars if prices rise due to unforeseeable reasons, such as a shortage of lumber or high demand following a disaster.
Guaranteed replacement cost coverage is a more expensive option that will pay for your home rebuild regardless of its expense.
Are there multiple deductibles?
Some policies may have higher deductibles for hail, wind, or other natural disasters.
Imagine a hurricane causing wind damage to your roof. Andrew says that your insurance policy may have a wind-deductible of 5% on your dwelling coverage instead of the $1,000 deductible that applies for most other claims. If your house was insured for $250,000, then you would have to pay $12,500 for any damage.
Comparing quotes from different insurers can help reduce or eliminate high deductibles.
What is not covered?
Your policy might have exclusions that surprise you. Andrew states that homeowners who have finished basements should be aware of the exclusions in their homeowners policy.
Andrew warns that even houses located far from a body of water can flood during heavy downpours. Standard homeowners policies are unlikely to cover such damage.
Flood insurance can be purchased through flood insurance companies that are members of the National Flood Insurance Program. In 2019, the average flood claim payout for this program was $52,000
Andrew recommends that you add water backup coverage to any policy. This covers damage to your home from water backing up from sump pumps, sewer lines or other water lines.
A common coverage gap is keeping current with building laws. Bach states that if you need to make changes when you are repairing or replacing your home because codes have changed, most policies will not cover you.
Andrew states that even though this can be expensive for older houses, it is not prohibitive.
Andrew and Bach both recommend that you add ordinance or law coverage in your policy in order to cover these expenses.
What can I do to save money?
Although having the right coverage is more important than just paying the minimum, there are ways to save money. Andrew recommends purchasing your homeowners, car, and other insurance through one company to get bundling discounts. This can help you save up to 20%.
Bach states that raising your deductible is the best way to lower your premiums without sacrificing coverage. Your premiums will be lower if you are willing to make smaller repairs than you would if you file a claim.
Talk to an agent if you have any questions about your coverage or discounts. Andrew advises that it’s worth taking the time to fully understand what you are purchasing. A house is the most valuable asset most people have.