Things You Really Should Know about Homeowners Insurance

Home insurance is a valuable investment, yet many people don't take the time to read their policy or learn how to use it. Yet, homeowners insurance is there to protect you from a wide range of problems that can occur anywhere and to anyone. Some estimates indicate that 52 percent of people with a policy do not have a full understanding of what is in their policy. That's concerning because individuals may be missing opportunities to use their policies to the fullest.

Choose a Policy Based on Your Needs

The most important step to take when investing in home insurance is having a policy that represents your needs. Instead of purchasing a policy based on what the insurance company recommends, sit with your agent to gather insight and information into each of your needs and options. Each policy should cover your personal property and liability risks. This includes risks based on the type of home you have, its size, where you live, and the belongings you own. Most homes face risks such as:

  • Fires
  • Storm damage
  • Theft
  • Vandalism
  • Sewer or pipe problems
  • Flooding (though not all policies cover this)
 

Your home coverage must address each one of these and other factors impacting your home. If there is any lack of coverage, it could mean a lack of protection for your biggest asset. It is also important to ensure your home has enough coverage to meet your mortgage lender's requirements. Nearly all mortgage lenders require individuals to maintain comprehensive homeowners insurance. It aids in protecting the lender should the home become a total loss after a covered incident, such as a fire. Take the time to check with your lender to learn what specific requirements it has for home insurance. Your insurance company can also help you with this need.

How do you know what type of coverage is right for you? A good way to learn this is to simply work with your insurer to compare a variety of policies and features.

How to Compare Homeowners Insurance Policies

It is up to you to do extensive research about the various types of homeowners insurance available and how well those policies fit your needs. There are a few key areas to focus on when choosing coverage. Again, every product is unique, but your home insurance company will work with you to determine the right type of coverage and the right coverage limits for you. There's no benefit to having too much coverage, either. Finding a balance between coverage and your budget is the key.

How Much Homeowners Insurance Is Available?

The biggest impact on protection and cost is the amount of coverage purchased. This is a dollar amount. The policy lists this based on total coverage – the total amount it will pay out in the event of a significant loss. Your mortgage lender requires this amount to be at least as much as the cost of your current loan. However, that rarely is enough to meet your needs. For example, if a fire occurred, and a majority of the home was lost, the insurer may elect to total the home. This happens when repairs are no longer possible or feasible.

When the lender totals the home like this, it pays out at the coverage amount listed on your policy. This covers the structure of the home. You want to be sure this is enough to satisfy your debts as well as to meet the goals you have of rebuilding.

Watch Out – Rebuilding Costs Are Not the Same

Most homeowners expect their home insurance policy to cover rebuilding the home if it is lost in a fire or another event. However, you may not have enough coverage for this. Homeowner's insurance pays up to the amount listed on the policy. Some people make the mistake of believing the value of their home on the market right now is the same as the value of their rebuilding their property. In most cases, it costs significantly more to rebuild a home.

Here's an example. A home catches fire due to an electrical problem. The home insurance policy covers the loss. However, it pays out at the amount listed on the policy – which is $200,000. This may be the current market value of the home purchased, but it does not represent the cost to rebuild the home. Imagine the endless list of tasks and costs associated to rebuild your home, which would include the cost to demolish the structure, prep the land, purchase materials, hire a contractor, and work with an architect to name a few. All of those costs are not under the policy limit. In this case, the property owner doesn't receive enough funds to rebuild his or her home.

A better option is to work closely with your local home builder or your insurance agent to determine the cost to rebuild your home in advance. Be sure this is the amount listed on your policy as your payout in the event of a full loss.

Consider Coverage on Property Too

It is also important to ensure your policy offers enough coverage for your personal property. In a situation where everything is lost, could you rebuild? Most policies provide between 10 and 20 percent of the total amount of coverage on the policy for contents coverage. This covers your personal belongings, furniture, and other belongings in the home if they are lost. Determine if this is enough to meet your needs.

If you have highly valuable items, a rider may be necessary. Most policies have a limit for valuable items. If you own items above this value, you may need to add more coverage to protect them. When comparing policies, be sure to look at these limits and needs.

What Is the Insurance Policy's Deductible?

The next thing to consider when comparing insurance policies is the deductible. This is the amount you must pay before the insurance policy pays out the rest. Many home insurance policies have a $1,000 deductible. This means if you file a claim worth $3,000, your insurance agent will write a check to you for $2,000. You are responsible for that initial $1,000.

What is important here, are the implications of the deductible on your premium. The average homeowner's insurance premium, which was $1,173 in 2015, can be significantly more or less depending on the deductible. For example, to have a lower monthly payment, some people may be able to raise their deductible from $1,000 to $2,000. This could drop your premium, but it means you need to have more money on hand to pay for claims. On the other hand, if you do not have a lot of cash-on-hand, reducing your deductible could help you, but it will raise your premium.

What Exclusions Exist?

Another key factor to keep in mind when comparing your policy options is to look at exclusions. Many policies carry these, but some homeowners may not know of them. Exclusions are specific incidents or types of loss the company does not cover no matter why they happened. A very common exclusion is flooding. If you live in an area where flood risks are high, you may need to purchase a specific policy for flood damage.

Be sure to read through all exclusions on your policy before making a buying decision. If a policy does not offer the coverage you need, consider an alternative or an add-on to the policy to meet those goals.

Compare Liability Insurance

Another type of loss covered by homeowners insurance is liability. Like every other component of your policy, it is important to determine if you have enough coverage. Most home insurance policies come with $100,000 worth of liability coverage. However, your property may require a bit more.

For example, if you own a swimming pool, there is a heightened level of risk at your home. Someone could wander into the backyard and fall into the pool. If you own a dog, there is a threat of dog bites. Many liability insurance policies should also represent any onsite risks to visitors, such as dangerous machinery or equipment on the property.

If you have filed a liability insurance claim in the past, you may already know how fast a policy's coverage can be depleted. For this reason, it is best to work with your agent to determine the best coverage amount for your home.

Replacement or Actual Cash Value

A final consideration when comparing policies has to do with actual cash value or replacement cost. Previously, we discussed that your insurance company will cover losses to your personal property (both the structure as well as the personal belongings you have) when a covered incident occurs, such as a fire, theft, or storm. However, how much they pay out depends on whether your policy provides for actual cash value or a replacement value. The difference is important.

Replacement value provides you with enough to replace the lost item with something that is similar to it. However, actual cash value pays you just what the items are worth at the time of the loss. Consider a few examples.

Someone breaks into your home and steals your 52-inch TV. You purchased the TV for $1,000 several years ago. If you have actual cash value, the policy will pay you what the TV is worth today – which may only be $500 due to depreciation. If you have replacement value, on the other hand, it will pay you enough to buy a new 52 inch TV with the same basic specs. In this case, it may pay you $1,200 to replace the TV.

This is just an example. Nevertheless, it is important to consider the value of items in your home and whether your policy will provide enough to cover your losses fully. Actual cash value coverage tends to be more affordable but provides limited benefits in some cases.

How to File a Claim with Your Insurance Company

Now that you understand what goes into choosing a home insurance policy, the next step is using it. This is a key concern for many property owners. They don't recognize when they have the ability and right to file a claim. When something happens at your home that causes financial loss, it is critical that you determine whether or not your homeowner's insurance policy will cover it.

Most policies cover unintentional and unavoidable losses. Accidents, storms, and any situation in which you could do nothing to plan for or prevent the loss may have coverage. If something occurs, check your policy. Read through the details to learn if you have coverage. Then, contact your agent. Within a matter of minutes, your agent can give you some insight into whether or not you can file a claim.

As long as you continue to pay your premiums to your insurer, your policy remains in place. This gives you the ability to file a claim for the losses you incur.

Filing a Claim

Filing a claim is not as difficult as you may believe. And, just filing a single claim does not mean your insurance costs will rise. Rather, your agent will come to your home to determine what happened. He or she needs to see pictures or the damage in person to make some key decisions. Then, they will get estimates for the cost of the repairs. You have the right to obtain the help you need from a contractor you trust to do the work.

You must pay the deductible portion of the claim. Then, the insurer pays the rest. In some cases, the insurance company will require that you supply information or proof that the work is done. If you do not agree with your insurance company, you may be able to work through a negotiation process. In some situations, you may be able to settle a claim as well. The key is to use your insurance policy and your agent to help you.

In nearly all situations, homeowners insurance is a tool that protects your financial health. Without it, a single incident at your home could mean you suffer serious financial loss. Yet, when you have a policy that matches your home's needs, it tends to also meet your budget goals. This means it does not have to be too expensive to maintain proper coverage on your home. It can provide you with the peace of mind you need, though.

At Plymouth Rock Assurance, we work closely with you to ensure your homeowner's insurance coverage always matches your needs. And, when you need to file a claim, we work with you to ensure it happens as quickly as possible. We encourage you to get into a policy that fits your needs and risks right now. Let our agents answer your questions and guide you through the process.