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| How to Choose Best Home Insurance Coverage |
Homeowners insurance protects your home and its contents from damage. It also covers you for losses from theft and injuries to visitors on your property. If your home becomes unlivable, your policy may cover your living expenses, such as a hotel bill. — Worldculturepost
How to Choose the Best Home Insurance Policy for You
Before you talk to an insurance agent, you should be ready with some information. You can start by making a list of your belongings and their details, such as serial number, purchase price, and replacement cost.
You may want to shop for insurance through an independent agent. They can help you compare policies from different companies.
Insurers use various factors to decide if they will insure you and how much they will charge you. They will look at:
- The size of your home
- The crime rate in your neighborhood
- The likelihood of certain natural disasters in your area
- Your credit history
- These factors also affect your policy renewal.
What Does Your Policy Cover?
When you buy insurance, you need to make sure you are covered for the risks you want to avoid. You also need to make sure you have coverage for the items you want to get paid for if they are ruined or stolen.
Forms of Insurance
There are several standard levels of home insurance available in most states. These levels are called "forms." The HO-3 is the most popular form homeowners pick. It covers all risks that could damage your home, except for those that are specifically excluded.
An HO-3 policy also pays you for the loss of certain items. And it provides personal liability coverage if a visitor sues you because they got hurt on your property.
The HO-5 is another common form. It is more expensive than the HO-3. It covers all items, except for those that are specifically excluded.
Endorsements, Special Limits, and More
You can modify your insurance contract by adding endorsements. These are also sometimes called "riders." For example, if you have a valuable piece of art, you may want to add an endorsement that you will get paid in full for it. That's because home insurance policies often have special limits on how much they will pay you for certain categories. These may include artwork, jewelry, appliances, tools, electronics, clothing, cash, firearms, and securities.
If you want coverage for a flood, you will probably need to buy a separate policy. If you want to get paid for losses from an earthquake or a sewer backup, you may be able to add a rider to your homeowner's policy. Or, you may need to buy a separate policy.
Perils That Are Not Covered
Homeowners' policies will generally not cover damage caused by:
- Government action
- Nuclear disaster
- Failure to do routine maintenance or make repairs
- Mold
- Animals, including termites
- Loss of power
- War
They will also not cover corrosion, rust, rot, deterioration, or anything that could be seen as normal wear and tear.
How Do Claims Get Paid?
In most cases, you will have to pay a deductible before your insurer will start paying on your claim. You will also have to provide proof that you suffered the losses you are claiming.
There are a few different ways a claim might get paid. The basis of the claim you have chosen will be stated in your policy.
Actual Cash Value (ACV)
This basis considers depreciation when finding the current cash value. Depreciation is the decrease in the value of an item over time. For instance, let's say your five-year-old TV was stolen. You wouldn't get paid for the cost of a brand-new one.
Replacement Cost
This is the most common type of claims process. You will first be given partial payment. In most cases, it's either the ACV or 50% of your declared replacement cost. Once you have replaced the items or rebuilt your home, your insurer will review your receipts. It may then pay you the rest of the replacement cost.
Extended or Guaranteed Replacement Cost
These options are to prevent you from being paid too little to cover your actual costs. For instance, if the price of building materials has gone up, you might be responsible for the amount of the increase.
If you chose to pay extra for the extended replacement cost option, you would be covered for an increase in the replacement cost of 20% to 25%. What if you opt to pay even more for guaranteed replacement cost? You would be covered for the actual replacement cost, no matter the increase.
Cash Out
This final option is only for those with high-value homes. It's also for those who are willing to pay very high premiums. When you make a claim, the insurance company will write you a check for your verified losses. Then, you are under no obligation to rebuild your home or replace your items.
Why Should You Update Your Coverage?
Before you renew your coverage, you should list any significant new purchases. Also, be sure to make note of any home improvements you've made. Let's say you decide you want a higher level of coverage, but you're worried about the higher premiums. Ask your agent how much you would have to increase your deductible to get the extra coverage.
If you are thinking about changing your insurance company and have a history of not making claims or making only minimal claims, ask your current insurer for a letter of claims experience. It might help you lower your premiums.
In Summary: Your insurance is only as good as what's in the final policy. Work with your agent to get the coverage you need and nothing more. Also, make sure what you've agreed to actually shows up in the policy. That way, if you have to make a claim because of a loss, you won't face any unexpected outcomes.
Frequently Asked Questions (FAQs)
How much does homeowners insurance cost?
The average premium for basic "named-perils" coverage on a $478,000 home (the median home sale price in the U.S.) costs about $2,273. The average premium cost across all home prices is $778.
What type of water damage is covered by most homeowners insurance policies?
In many cases, the source of the water damage will decide whether or not homeowners insurance covers the cost of repairs. Homeowners insurance does not usually cover water damage from floods, but it may cover water damage from burst pipes or other structural problems with the home.