Important Things about Home Insurance it is Imperative You Know
Contributed by Lance Richardson
04 March, 2014
Home insurance is complex. Its often confused with homeowners insurance, for a start. You cant get the best deal with gaps in your knowledge.
In this article, we will explore the crucial aspects of home insurance. We will look at the four pillars of home insurance. We will also look at how to buy it and get the best price on your policy.
Do You Need Home Insurance?
In a word, yes.
Home insurance is an integral policy for anyone who owns their own home. The equivalent for people renting is renters insurance.
This policy enables you to get a new start if you need it. Without insurance, it would be financially impossible for people to get back on their feet again.
The Four Coverage Levels
Home insurance covers four different levels. Make sure that your policy doesnt come up short in any of them.
Underinsurance is a common problem in the U.S. 48 million homes are underinsured, a survey from Marshall & Swift said. And the same survey said they were underinsured by about 38%.
Well use this 38% figure for our next example. You have a $1,000,000 home. Your insurer could leave you $380,000 out of pocket if you needed to rebuild it.
The most important part of the policy is the structural coverage. It covers most disasters, including fires and storms. Some exceptions, such as earthquakes and terrorist attacks, need covering with other add-ons.
Always insure your home 100 per cent. This is the costliest part of rebuilding your home. If the worst happens, youll know that youll never be homeless.
Estimate the amount by asking a local builder to come around and estimate the build cost. Check to see if your policy will cover outbuildings, such as garages.
Standard policies at some companies have been known to be as low as 10%. These policies are practically useless to the responsible home owner.
Contents coverage will cover the cost of replacing anything in your home. Arguably, this will come in most handy. Youre far more likely to be burgled than to have a fire burn your home to the ground.
The statistics back this up. The ISO reported that 98% of the claims made in 2011 involved some sort of property damage, such as theft or vandalism.
Standard policies usually operate at 50% of the structural value of your house. This will be enough, in most cases.
You could need separate policies for family heirlooms. To see if this is the case, make a list of everything you own and have it evaluated. Take pictures of valuables in case you have to prove your claim later on.
Most companies cover you no matter where you are in the world. Off-premises clauses allow you to protect your belongings on vacation. If someone steals your camera, you could file a claim.
Liability protection covers any damage to another persons property, as well as your own. There are a lot of situations where you could need this sort of coverage.
It covers minor scenarios. If your child kicked a ball through a neighbors window, your policy would cover the repairs.
On the other hand, it can also cover more costly cases. A friend or family member who injured themselves on your property could sue your insurance company for the medical bills.
Home insurance policies tend to come with a minimal level of protection. Experts recommend having around $300,000 in protection. They recommend basing it on your assets.
Additional Living Expenses
In the event of a major fire or natural disaster, your insurer will cover the expenses of relocation. Staying in hotels all the time is expensive.
You can claim restaurant meals, rental car fees, and accommodation fees from your insurer. Most policies have the equivalent of 20% of the coverage of your entire policy.
For example, a $1,000,000 policy would have $200,000 in additional living expenses cover.
You can add a number of features to this policy. These are known as riders. Some people decide to have riders on jewelry and priceless pieces of art. All it means is they have these items separately insured.
Deductibles appear as part of every policy. They represent the amount you have to pay before the insurer takes over.
Lets take a situation where someones house has been broken into. They evaluate theyve lost $5,000 in personal items. The insurance policy has a $500 deductible attached. Should the claim pay out, it would only pay $4,500.
The deductible is an anti-fraud mechanism. Without the policy holder taking some financial responsibility, it would increase the risk of fraud for the insurer.
Deductibles have the effect of reducing the amount you pay on your policy every year. They differ between insurers.
Replacement Cost and Actual Cash Value
There are two options available to everyone on their insurance.
They can insure their home for the actual cash value or the replacement cost. This is a decision you should think about because there isnt a best option.
Replacement cost is the cost it would take to rebuild your home without any depreciation. Youll pay for a house of a similar quality as it stands when you take out the policy.
Actual cash value takes into account depreciation. Depending on your option, you can save money or end up paying more.
If theres significant depreciation in cost, actual cash value is better. Your insurer will have to pay less. They would reward you with lesser price hikes. This can backfire, though, because it still relies on the markets.
Green Living is Now a Major Factor
Even insurers realize the benefits of living a green lifestyle. This is why theyre offering lower premiums to those that do go green. Theyre considered to be a lesser risk for the insurer.
One of the main reasons for this is how greenery outside can reduce the damage caused by natural disasters.
There were 12,000 hail storms in the U.S. in 2012, according to home insurance statistics from Live Hail Reports. The damage caused by them to homes was major, and it led to a lot of payouts.
If these households had trees in their yards, they would have acted as natural shields. Natural protection like this can prevent natural disasters from causing as much damage.
Natural disasters have become more common. They realize that green living will help to lower their own bills. We know that green living can lower your home insurance bills, and these are some of the main ways how:
1. Modern wiring systems. This reduces the risk of fire.
2. Efficiency in AC systems. Faulty AC systems cause 2,500 fires per year, as reported by the National Fire Protection Association.
3. Updated plumbing systems. They prevent water damage.
Shopping Around Remains Crucial
No matter how much the insurance industry has changed, shopping around will still get you the best deal.
It doesnt take more than a few hours to shop around. Find comparison websites online and type in your details. Many companies offer free insurance premium calculators. Call those who make your short list.
Make sure you check the reputation of your company, the claims process, and the level of customer service. Its not all about how much you pay. Other factors do matter and can make home insurance a relatively stress-free process.
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