The purpose of Homeowner’s Insurance is to replace any items which are covered under the policy after a loss occurs. The type of coverage depends on the type of homeowner’s insurance policy. There are some basic insurance elements, and our budget generally dictates any extras. Mortgage lenders will generally require an insurance policy in order to get a loan because they must protect their investment. If there is no loan on the home, insurance is not mandatory; however, it would be very unwise to be unprotected. While not having a premium to pay every month will lessen the outlay for monthly bills, we should consider what will happen if the home is destroyed. Various factors affect the cost of the policy, making it imperative that we pay close attention to our actual needs.
Locale
The area of the country in which we live plays an important part in the cost of insurance. Areas that are prone to fires, floods, and other natural disasters are going to have higher premiums because payouts are often larger and more frequent. This may be especially true in states like Florida, where hurricanes and tropical storms are distinct possibilities. The threat of flooding poses a risk that insurance companies pass on to a separate flood insurance policy covered by the National Flood Insurance Program. It may be prudent to purchase flood insurance even if we do not live in a high-risk area because standard policies will not cover it. The replacement cost of a home that is located near a body of water is often higher than homes that are further inland because the risk of flooding is higher. In addition, homes that are located in high crime neighborhoods are more likely to have higher premiums because of the risk of frequent burglaries.
Location may affect the amount of the deductible. Different parts of the country that are prone to various natural disasters may have a different deductible for each type of disaster. In high-wind prone states, there may be a separate deductible for wind damage. In earthquake- prone areas, there is a separate policy for earthquake damage with a separate deductible, which depends on the value of the home.
Replacement Cost
We should determine the value of our home before seeking Homeowner’s Insurance. An appraiser can establish a dollar amount so that we can be assured of buying enough insurance to replace the current home in the same location. The more the home is worth, the more it will cost to insure it. Under-insuring the property can cause many heart-aches down the road. As the home appreciates in value, it is wise to contact the insurance company and have it re-appraised. While this will likely raise the premium, it will be well worth it if the unthinkable happens.
Anytime we make additions or other changes to our homes, we need to consider that it changes the value of the home; therefore, the replacement cost will be increased. Failing to notify the insurance company because we do not want to increase the premium is a big mistake. Our home is usually the largest investment we will ever make, so it is crucial that we protect it in any way that we can.
Newer roofs will likely mean a lower premium. When a roof is replaced, we should let the insurance company know because there may be a reduction in premium. Older roofs are more likely to give way during hail or windstorms. Tile roofs, especially, are preferable and garner a lower rate. Building materials also help determine the cost of a policy. Unlike a home made of wood, a brick or stone home is less likely to burn completely.
Coverage
What is included in a homeowner’s insurance policy also affects the cost. In addition to the dwelling, we can choose to cover personal items, like jewelry, furs, or expensive electronic equipment. Medical expenses for anyone who is injured on the property, or any liability coverages that are requested, will add to the policy cost. Possible lawsuits and medical expenses could easily eat up an under-insured personal liability policy. To err on the side of caution, we should consider carefully how much liability insurance coverage is really needed. Any hazard that deems the home uninhabitable and causes us to seek shelter someplace else, like a hotel, will also add to the cost.
We should ask the insurance agent for all of the options that are available and how the various coverages will affect us. The type of dwelling may be a deciding factor. If, for example, we live in a single family dwelling, where the chances of people coming onto the property and injuring themselves from falls or drowning (if we have a pool), it may be more important to include those protections than if we live in a condo where a homeowners association covers those types of situations. Every homeowner’s situation is different, so sitting with a knowledgeable agent can help alleviate some of the anxieties we may have.
Frequency of Claims
We should consider carefully whether it is worth it to file a claim for something that we can easily pay for ourselves. Each time a claim is filed, we risk an increase in premium. Thinking that we are entitled to file, because we are paying the premium for just such a time, is not rational thinking. If we file a claim, and the amount to repair or replace is less than the deductible, it still dings our policy. Whether insurance pays the claim or not, it will still be counted as a claim. As unfair as that sounds, it is the reality.
The best preventative measures are keeping up with the maintenance, being aware of potential problems, and handling small problems before they become big ones. Claims follow us from one property to the next. It is to our advantage to check around for the best rates instead of simply accepting the quotes from the first company we contact. Also, we may compare rates periodically just to be sure we are receiving the best ones.
Protection Devices
Insurance companies usually offer discounts for policy owners who have taken steps to protect their homes from fire, burglary, water damage, and other types of dangers. Other factors that may raise or lower the premium are pets, which may cause harm to visitors, or a home office that has a considerable amount of business equipment. This may be especially true if clients come to the home on a regular basis.
Proximity to the fire department or at least to a water hydrant that is readily accessible helps to reduce premiums. That is why many rural properties are costlier to insure than those in the city. It is more difficult to squelch a major fire without water nearby.
Record
Like many other services, insurance companies look at our credit scores to help determine premium costs. The higher the score, the better rate they offer. They often discount rates when we insure both vehicles and homes. If we historically file frequent claims, the insurance company sees that as a red flag, and we pay dearly.
The myriad homeowner’s insurance plans to cover the different losses are sometimes overwhelming. That is why it is important to seek the expertise of a knowledgeable insurance agent, who can provide updated information on the types of coverages that would be prudent. The different riders and endorsements should be taken into account when we are choosing a policy for the best coverage.
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