Get to Know Insurance: Homeowner's Insurance
Welcome back to Get to Know Insurance, thanks for checking in! This week we will be covering Homeowner’s Insurance coverage. As we get closer to peak real estate buying season, Spring through Summer, we thought it would be helpful to go over what homeowner’s insurance is, how to get the most value for your money and some of our recommendations.
Buying a home is a big step for anyone but especially for first time home buyers. There is a lot to consider, location, price, financing, long term goals, your budget, insurance and much more. With so much to consider, first time home buyers can overlook something like insurance which could lead them to buy a policy at the last minute without considering all of the options.
Homeowner’s insurance may seem straightforward enough for any policy to be sufficient, but we’d like to explain some of the options available and how they could affect your coverage should you need it. Like auto policies, there are not only numerous coverages, that all come with various options, but there are numerous add on coverages as well. Knowing what your options are will make you a more informed shopper and buyer and that almost always leads to getting the most value out of your purchase!
We’ll start with a breakdown of basic coverages. Liability is a coverage that should be included on all homeowner’s policies. This protects the homeowner from any incident where they may be found liable for personal injuries or property damage. This doesn’t just cover incidents at the policy holders home, if damage is caused to a neighbor’s home or property or even at a home they’re visiting, that would be covered.
Medical payments to others is another type of liability coverage on homeowner’s policies. This would provide coverage to guests who are accidentally injured on your property regardless of whether or not you’re legally responsible.
Personal property coverage is another standard coverage. The coverage is usually based on the amount of coverage you have for the home itself. For example, if you’re home is insured for $250,000, you would typically get $25,000 in personal property coverage. This includes furniture, clothing, electronics and other items. Depending on your carrier your appliances may be covered under personal property but you need contents coverage for those items to be covered.
If a homeowner has more than $25,000 of personal property, a collection of some kind, money or securities, jewelry, guns or expensive silverware etc. it is recommended that those items be scheduled onto the policy separately to make sure they’re covered should something happen. Additional coverage for these items is typically relatively inexpensive compared to the value of the items. Some insurance companies will require items to be appraised while others don’t so it’s always important to check with your agent to see what is required before purchasing the policy.
The next coverage we’ll focus on is the dwelling itself. This is the part of the policy that determines how much coverage you have if your home suffers a loss, partial or total. There are many options when it comes to replacement options. Your homes replacement cost is often different from the price that you paid, or the home is valued at. For example, you might pay $250,000 for your home but there are factors in that price like location and property value that affect that price. To rebuild your home may only cost $200,000 so it’s not abnormal to see a different coverage amount than what your home’s value is.
Some of the common replacement options are ACV, actual cash value, replacement cost or guaranteed replacement cost. ACV is an agreed upon amount that the insurance company would pay out in the event of a total loss. This option is typically the least expensive coverage, depending on the agreed value, because the insurance company is only on the hook for that amount of money. If you have $200,000 ACV coverage, that would cost the insurance company less than a guaranteed replacement cost policy.
Replacement cost coverages are generally based on a percentage of the dwelling amount, either 100, 125 or 150 percent. Meaning you would get one of those percentages to rebuild / replace your home, some carriers even offer uncapped replacement cost options which is the top of the line coverage option. This would give the homeowner much more freedom when it comes to how they rebuild their home.
If the replacement cost of your home is generated, by software each insurance company uses, as being $200,000 but you want to insure the home for $250,000 because that’s what you paid, your premium will be higher. If you want 125 percent replacement cost coverage, that will cost more than ACV. Typically, the prices only vary anywhere from 10 to 75 dollars a year, but this is where having an agent can come in handy. They can easily and quickly generate numerous quotes for your consideration.
There are 8 different forms insurance companies use when insuring homes, HO-1 through HO-8. The most common form used is the HO-3 because it covers all losses that aren’t specifically excluded, the only exclusions are typically flood and earthquake coverage. Not only does the HO-3 cover most perils for your home, it also includes personal property coverage, which usually isn’t a feature of an HO-1 or HO-2.
The HO-4 is renter’s insurance, which only covers the renter’s personal property, the HO-6 is condo coverage, typically covering everything from the walls in, meaning appliances are covered, HO-7 is mobile home coverage and the HO-8 is designed for older homes. The HO-5 is like the HO-3 with more exclusions but may offer better personal property and liability coverage. With so many options, it is crucial to work with an agent, so you can let them know what your needs are which gives them the ability to find the best policy for you!
Some common coverages that, depending on your carrier, may or may not be included are fraud coverage, identity theft coverage, other structures and boat coverage. Some carriers include these options and others require additional premium but, depending on your needs, they can be very helpful and add plenty of value to your policy.
The deductible for your coverage often only applies when you experience a loss to your home and not when you are filing a liability claim. It is the amount you’re agreeing to pay towards the repairs or replacement. Typically, a higher deductible will get you a lower premium and a lower deductible will raise your premium. This decision takes some consideration, are you able to have $1000 set aside at all times in an emergency fund or is $500 more reasonable?
As you can see, there is a lot that can go into a homeowner’s policy. At HD Insurance we enjoy working through the insurance shopping and buying process, explaining in detail the benefits of one policy versus another so that our potential clients and clients alike can make the most informed decision possible. We’ve worked with numerous carriers and many people in the Treasure Valley, so we have confidence in the service we’re able to provide. If you would like to request a quote or compare your current policy click the button below!
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