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Understanding Homeowners Insurance

Why do I need homeowners insurance? The first answer to that question is – if you get a mortgage on your home your lender will require you to have homeowners insurance. But why? Homeowners insurance covers the unforeseen accidents that might damage your home. Since your home is the collateral for the mortgage on your home, the lender wants to make sure their collateral is covered should something damage or destroy it. It’s the same reason you should want homeowners insurance - to know that if something damages or destroys your home, you won’t have to pay the entire bill for repairing or replacing your home.


What does homeowners insurance cover?

In most cases, homeowners insurance covers damage to your home caused by fire, theft or weather. Depending on where your home is located, you may be required to have additional coverage for wind, flood, earthquakes, mold, etc. It’s best to consult your insurance agent for more specific advice for additional covers in your area. Most homeowner’s policies also insure your personal property. The amount of personal property coverage is usually based on a percentage of the policy for your home, but you can add coverage if you have more valuable items you need covered. Homeowners insurance also protects you from liability in the event that someone is injured on your property. Homeowners insurance can save you thousands of dollars should your home be damaged or someone is hurt on your property and decides to sue you. It is well worth the cost.


How much should I expect to pay for coverage?

Homeowners insurance is paid on an annual basis. If you escrow your taxes and insurance with the lender as a part of your monthly payment, the lender will pay it when it is due. It is your responsibility to pick the insurance you want and the amount of the deductible (the amount you have to pay should something happen to your home and you need to file a claim for those damages to be repaired). Most lenders will give you a maximum deductible amount that you cannot exceed, usually 1%.Homeowner's insurance costs can vary greatly depending on where your property is located, how much coverage you need, the deductible amount you choose, your home's value and the insurance company you choose. It’s best to shop around for quotes before deciding who to use for your insurance.


How does homeowner's insurance work?

If your home sustains damage that's covered by your homeowner's insurance policy, contact your insurance company right away to file a claim. After your claim is filed, the company will send out an adjuster to assess the damage. You should contact two or three contractors that specialize in the work you need done on your home for estimates to make sure the adjusters estimate is adequate to cover the repairs needed. Based on the adjuster's estimate, the insurance company will offer you a sum of money to repair the damage and settle the claim. If it is insufficient to meet the contractor’s estimates you will need to negotiate with the insurance company for a settlement large enough to cover the repairs. The contractor you choose to do the work may be able to help you with negotiating with your insurance company by providing them with additional information their adjuster missed or was unaware of when they inspected the damage.It should also be noted here that filing too many claims, especially for minor homeowner losses, can cost you in the long run by increasing the cost of your policy.


What's the difference between homeowner's insurance and a home warranty?

A home warranty is not a substitute for homeowner's insurance. A home warranty covers the repair of the physical parts of your home, such as the heating and air conditioning units, water heaters, built-in appliances, etc. in the event one of them breaks down. Home warranties do not cover losses or damage due to theft, accidental damage or weather events, but homeowner's insurance does. Ideally, it’s best to have both a home warranty and homeowner's insurance. In many cases, when purchasing a home, you can negotiate with the seller to provide you with a home warranty as a part of your sales contract.



10 Things You Should Know

About Purchasing Home Insurance


1.You Need Home Insurance

Homeowners need to purchase home insurance to protect their homes and personal property. Those who rent need insurance to protect their furniture and other personal property. Everyone needs protection against liability for accidents that injure other people or damage their property.


2.Decide How Much Coverage You Need

The better your coverage, the less you will have to pay out of your own pocket if disaster strikes. In some cases, your lender decides how much coverage you need and may require you to buy a policy that covers at least the amount of the mortgage. It is important to note that the amount of coverage you buy for your house, contents and personal property will affect the price you pay.


3.Compare Deductibles

The deductible is the amount you have to pay out of pocket on each claim and applies only to coverage on your house and personal property. Make sure when choosing a policy that you are comfortable paying the deductible if you make a claim. Remember, a policy with a $100 deductible will cost more than one with a $250 deductible. Higher deductibles may be available at a reduced price.


4. Replacement Cost or Actual Cash Value?

You have the option to choose to insure your home and belongings for either replacement cost or actual cash value. Replacement cost is the amount it would take to replace or rebuild your home or repair damages with materials of similar kind and quality, without deducting for depreciation. It is important to insure your home for at least 80 percent of its replacement value. Actual cash value is the amount it would take to repair or replace damage to your home after depreciation.


5. Shop Around Before You Buy

You are not required to purchase insurance from the company your lender recommends. There are a number of unbiased sources available to find out what different insurers charge for identical products and services, including your state insurance department, consumer publications and your public library.


6. Ask Your Agent About Discounts

In some states, insurers offer lower prices for such things as insuring your home and car with the same company, installing deadbolt locks or alarm systems or replacing the roof.


7. Basic Coverages Available

Whether you own or rent, there are different packages of home insurance offered to protect your home and belongings. Each package protects against a specified number of events that cause damage to property. Three examples are fire, windstorm and theft. In addition, each package policy usually contains four additional types of coverage: property damage, additional living expenses, personal liability and medical payments.


8. Where to Shop

Check the newspaper and yellow pages of the telephone directory for companies and agents in your area. In addition, ask your neighbors, relatives and friends for recommendations on insurance companies and agents. Remember to shop around to get the best price and service.


9. Read Your Policy Carefully

You should be aware that a home insurance policy is a legal contract. It is written so that your rights and responsibilities as well as those of the insurance company are clearly stated. When you purchase home insurance, you will receive a policy. You should read that policy and make certain you understand its contents. Keep your policy in a safe place and know the name of your insurer.


10.Review Your Home Insurance Needs Every Year

Check with your insurance agent at least once a year to make sure your policy provides adequate coverage. The addition of a room, new insulation or remodeling add value to your home and therefore may increase replacement cost.


© 1991 - 2014 National Association of Insurance Commissioners. All rights reserved..

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