choosing homeowner's insurance

Is your homeowner’s policy the right fit?

Bethany RamosFirst-Time Homebuyer, Home Buying, Homeowners

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Just like you have to insure your car to get it on the road, you’re also required to take out homeowner’s insurance before a mortgage company will bring your loan to completion.

You may already have been given a stack of pamphlets or a list of websites to look at by now, but take a deep breath before the panic sets in. Choosing homeowner’s insurance, just like choosing any major insurance policy, can look intimidating at face value.

But armed with the right questions, it doesn’t have to be.

10 questions to ask before you pick your homeowner’s insurance

Asking questions early is key. During the house-hunting phase, and before making an offer, is a great time to collect your thoughts.

Create a list of important questions to ask when viewing homes, like:

  • Are the smoke detectors in the correct locations?
  • Has this home recently had a radon test?
  • When was the last time this home had a mold inspection?
  • Have there been any recent termite infestations?

Many of these questions highlight issues a seller will need to address before closing. Crossing possible problems off the list could also slash the price on your homeowner’s insurance.

Once you’ve found a house and are ready to choose your policy, make sure to ask potential insurance agents this:

  1. How much coverage do you provide for my personal items?
  2. Do you offer a discount for protective devices?
  3. Can you offer a discount for non-smokers?
  4. Do you offer a discount for new homes or renovations?
  5. How much will I save each year with a higher deductible?
  6. Is your claims department local?
  7. Will my coverage grow with the value of my home?
  8. If I choose you to insure my home, will you provide a discount on my auto insurance?
  9. In the event of a total loss, will there be enough coverage to replace my belongings and rebuild?
  10. Do I need to add on flood insurance?

Question number 10 is a biggie, according to the National Association of Insurance Commissioners. Most standard homeowner’s insurance typically covers your home from theft, damage, or destruction. It can also protect your liability if you damage someone’s property or if someone is hurt on your property.

A standard policy won’t cover floods or earthquakes, though optional insurance policies are available for both disasters. If you’re in a high-risk area for floods or earthquakes, these policy add-ons are worth the extra money. Disaster assessment before buying could help you select a better insurance policy.

There are eight different levels of coverage. Here’s a quick look at what they protect:

  • HO1: Usually the cheapest policy, covering damage from what’s known as the 11 basic perils (fire/lightning, windstorms/hail, vandalism, malicious mischief, vehicles, aircraft, explosions/riots, glass breakage, smoke, volcanic eruption, personal liability). Most lenders don’t approve of this policy because of its limited coverage.
  • HO2: Expands HO1 coverage, protecting against additional perils like falling objects, freezing, and weight of ice, snow, and sleet.
  • HO3: A popular pick considered “standard” because of its broad coverage and affordable cost. You’ll have protection against all kinds of peril, unless the policy specifically excludes them.
  • HO4: A standard renter’s insurance policy, covering personal liability and belongings. Generally, belongings are protected from the perils listed in an HO2 policy.
  • HO5: Also called a comprehensive form policy, this option covers the most perils. Like an HO3, it’s an open-peril policy: Unless it’s listed in the exclusions, you’re covered. And, it expands the protection of your personal belongings and liability.
  • HO6: Created for condo owners and operating like an HO4 renter’s policy, an HO6 protects personal liability and belongings. This policy also covers the interior structure of the condo, including walls, floors, and ceilings.
  • HO7: Virtually identical to an HO3, an HO7 extends coverage to mobile/manufactured homes, including RVs. This offers protection for structure, liability, and personal belongings.
  • HO8: For older homes, as well as registered historic landmarks, with protection similar to an HO1. It includes a few additions to better protect an older home, plus it reimburses its cash value.

The latest numbers show that the average annual policy may run you around $1,249.

Choosing homeowner’s insurance: How much is your new home worth to you?

Here’s where it comes full-circle — the whole purpose of choosing homeowner’s insurance and picking the right policy for the price is to protect the total cost of your investment. Most lenders require at least one years’ worth of homeowner’s insurance before closing, but it’s smart to take it beyond the bare minimum: Don’t just insure your home for the purchase price.

Insure it for the amount it will take to rebuild and replace it, as mentioned in question number nine.

When thinking of your home’s true value, look deeper than its curb appeal. “Curb appeal” is just that: the initial impression that gets you interested in a property. Smart sellers and their realtors often go to great lengths to make a house as appealing as possible. But whether a home has been lived in for five, 10, or 90 years, normal wear and tear will have occurred.

Building codes and the specific types of materials and methods used in construction may also have changed dramatically since a house was built. Getting a good home inspection prior to closing can uncover what might be hidden from view. (Think faulty pipes, wiring, roofing, and insulation, as well as foundation cracks and termite damage.)

A standard home inspection may cost about $338, providing you with a detailed report filled with useful info. This information might steer you away from a property that could later need costly repairs. Your inspection can also serve as a negotiating tool, resulting in a price reduction.

For a home that gets a reasonably clean bill of health, an inspection report can give a clearer picture of the actual value of a house — and how much it’ll cost to rebuild. A number of insurance companies also require an inspection report to process a homeowner’s insurance application.

Researching insurance companies and home inspectors takes time, with the ultimate goal being to find an insurer and an inspector that you feel comfortable with. So, do your homework. Ask your friends, coworkers, realtor, lender, and the internet for referrals in the area. Hire the professionals who will help you determine the most accurate price.

When choosing homeowner’s insurance, remember to:

  • Shop early. Don’t wait until the last minute as this could delay your loan closing or cause you to rush into the wrong policy. It’s important to have your homeowner’s insurance finalized at least 10 days before closing.
  • Count the cost. The cost to rebuild may be more than your mortgage loan amount, and this is the number you want your homeowner’s insurance to reflect.

To cut costs on your policy, consider increasing your deductible, installing a security system, requesting a discount for bundling policies (auto plus homeowner’s, for example), and creating a plan to pay down your mortgage. Homeowners living mortgage-free may pay a lower premium. Ask your loan officer for details.

If the numbers get confusing, we’re always here to help

Just reach out to your loan officer anytime. Clear up confusion, talk through your options, and walk away with peace of mind.

For educational purposes only. Please contact your qualified professional for specific guidance.

Sources are deemed reliable but not guaranteed.

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