What to Know When Shopping for Homeowner Insurance

There are so many parts to buying a home; we often pay attention to certain parts more than others. One area you want to pay attention to is getting home insurance. If anything happens to your home, the right insurance can be the world of a difference. Before you sign up for a plan, here are a few tips to help make this easier.

Shop for insurance from at least three providers

Mortgages typically require you to have homeowner insurance, and you will also have to buy other insurance for disasters. The market is yours to shop in, and there’s no one specific place you are supposed to go. You will want to look around the market and compare coverages, prices, and customer reviews. When shopping, keep in mind you want to shop for quality, not the best price you can get. Be sure to read their customer reviews because you mostly deal with insurance companies during times of disaster, and you will want to be companies with the bets reviews.

Escrow insurance payments with mortgage payments

Most homeowners tack their monthly insurance payments onto their mortgage check. The lender pays your insurance premiums (sometimes property taxes too) out of your escrow account. Lenders like this option because they know your premiums are being paid, and they are protected. You will probably pay for one year of insurance at closing. Bring information about your insurance policy and the money to cover the first year’s premium.

Get adequate coverage

You should know the most important part of homeowner insurance is the level of coverage. Don’t pay for more than you need. Here are the most common types of coverage.

HO-2 – Broad policy that protects against 16 perils that are named in the policy.

HO -3 – Broader policy that protects against all perils except the ones specifically excluded.

HO -5 – Premium policy that typically protects newer, well maintained homes. It covers against all perils except the ones specifically excluded on the policy.

HO -6 – This is insurance for co-ops/condos, which include personal property coverage, liability coverage and coverage of improvements to the owner’s unit. Insurance for the actual structure usually comes through association.

HO -7 – Just like HO -3, but for mobile homes.

HO -8 – This one is just for older homes, with similar coverage to HO -2 policy. It only covers actual cash value.

Understand your policy through and through

Getting the right policy level doesn’t mean you’ve reached complete understanding; you need to know all the terms that are in the policy.

Deductible – the payment coming from your own pocket before your insurance kicks in; the higher the deductible, the lower the annual premium.

Liability coverage – This is coverage that will pay for medical or legal bills if someone is injured on your property, usually due to negligence.

Personal property – these are the contents inside your home, furniture, electronics, clothes, etc.

Premium – the annual or monthly cost of insurance.

Replacement cost – this is the type of insurance that pays for the full cost of replacing your personal property, up to a specific max amount. Most standard policies offer replacement cost, but you want to see the maximum is high enough.

Actual cash value – this policy gives you the current cash value (sometimes with depreciation) for your personal property. It’s possible to have actual cash coverage, but to get replacement cost coverage for your contents.

Sub-limits – homeowners’ insurance policies include limits, but they’ll also probably have sub-limits. Example: the sub-limit on a property for $500,000 policy would usually be $250,000, or half of dwelling coverage.  

Riders – These are little policies you can request to add on to your policy, for coverage on a specific item. People usually cover their expensive items like antiques, expensive art pieces, jewelry, etc. These items are often too valuable to be covered as regular personal property. Some HO -8 policyholders can get additional riders for other things like HVAC systems, which are quite expensive to replace.

 

Be sure you understand your insurance policy inside and out. Talk to the agent providing you with the policy to clear up any questions you may have. 

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