What You Need to Know About Homeowners Insurance – Today, we’re gonna talk about homeowners insurance. But first, I’m not a mortgage broker or a real estate agent. So always be sure to contact a professional before making any financial decisions.
Homeowners insurance is a policy that’s made up of several policies. That’s meant to provide a certain level of financial compensation, should something cause damage or destruction to your home and personal items. In some cases, your homeowners insurance policy will cover you if you accidentally injure someone else or damage their property. It’s important to note that while homeowners insurance isn’t required by law in most states, it is usually required for taking out a mortgage on your home.
3 things You Need to Know About Homeowners Insurance
Regardless of whether you need a mortgage to buy a home, it’s still in your best interest to get coverage. What exactly does homeowners insurance cover? Well, the main function of homeowners insurance is to ensure the following are covered for damages. Let’s take a look. Your house, yard, or other structures, your personal belongings.
And if you cause injury or damage to someone else or their property Here’s a breakdown of the coverage that you’ll get with standard homeowners insurance.
1. Your Dwelling.
So this extends to damage to your home and any attached structures such as a porch or deck, and the amount that you’d be compensated should be enough to rebuild your home if needed.
2. Other Structures.
So this extends to standalone structures on your property. For example, a fence, a shed, a gazebo, 10% of your dwelling coverage would go into the compensation for this category. Then we have personal property. This extends to replacing your belongings or repairing them if they’re stolen or damaged during a covered event. So the compensation for personal property is generally 20 cents of your dwelling coverage. Then we have additional living expenses.
This helps to pay for any temporary living expenses for the duration that your home is under construction due to the damage in a covered event. So living expenses are compensated up to 20% of your dwelling coverage. Then there’s liability. So your liability coverage can pay anywhere from a hundred thousand to $500,000 if you accidentally injure someone or cause damage to their property.
3. Medical Payments
medical payments coverage for homeowners goes to medical expenses of someone injured on your property, regardless of who may be at fault. So it also has you covered should you or a family member or a pet is injured anywhere else. Medical payments usually range from a thousand to $5,000. The amount of coverage that you have under each separate policy will entirely depend on the type of homeowners insurance policy that you purchase. The different types of homeowners insurance policies are referred to as policy forms and each provides a certain range of coverage. It’s important to understand that the difference between these policy forms to ensure that you choose the right one.
So keep in mind the costs and coverage will vary by state and company. So, here are your options.
So we have HO-1 and HO-2 limited coverage. HO-1 and HO-2 policy forms are limited as they typically only compensate for damages caused by the issues listed in the policy, which is why they’re referred to as named perils only insurance. You’ll find that HO-2 insurance typically covers up to a certain amount of events, such as theft, damage from foams, explosions, lightning, smoke vehicles and so on. Of course, HO-1 insurance only covers the bare minimum in terms of perils and both HO-1 and HO-2 policy exclusions include coverage from floods and earthquakes.
Then we have HO-3, which is a special form coverage. HO-3 insurance policies are the most popular and typically required by most mortgage lenders, HO-3 policies coverage virtually every type of damage, including the following, fire, lightning, smoke, hail and wind storms, explosions, rioting and vandalism, damage by aircraft, damage by vehicles, theft, volcanic eruptions, falling objects, weight of ice, snow and sleet.
Water overflow, or discharged from plumbing, air conditioning or other appliances, freezing caused by the same household systems mentioned, sudden damage from power surges, sudden tearing, cracking, or bulging caused by a hot water system, steam system, air conditioning or fire protection system. However, these policies also exclude earthquakes and floods. And in terms of your personal belongings, you’re only covered up to a certain amount of damages. Usually what the item would sell for at its current market value.
Then we have HO-5 broad coverage, HO-5 insurance policies are the most extensive form of homeowners coverage that you can get. This policy will compensate for damages to your home and belongings from virtually all causes minus those the policy specifically excludes. Other types of policy forms include HO-4 renters insurance, HO-6 insurance for condo owners and HO-7 insurance for mobile homes.
You can also find HO-8 insurance, which offers limited coverage for older homes. Many homeowners also choose to purchase NFIP, private flood insurance and other policies that would cover them for the typical exclusions, such as earthquakes, power failure, infestations. Damage from floods is not covered under standard homeowners insurance, but can cause costly damage to your home and belongings. If you live in an area that could be prone to flooding, your lender may require you to purchase flood insurance. What is loss of use coverage on homeowners insurance? Well, loss of use coverage also known as class D insurance or additional living expenses insurance is typically built into your existing policy.
However, it can also be purchased separately. So this portion of your policy is limited, but it provides coverage for the following, temporary residents, such as a hotel stay or short-term apartment rental, moving costs, groceries, or restaurant bills, laundry expenses, parking and transportation fees, pet care and boarding. Of course, loss of coverage only kicks in if and when you and your family become temporarily or suddenly displaced from your home during a covered event.
Let’s take a look at how you can lower your insurance payments. It’s important to know how to save on home insurance, but finding the balance between having enough coverage in case of a disaster while keeping your premiums affordable. Here are some ways to lower home insurance costs.
- Number one, bundle your insurance policies, ask your agent or insurance provider about what discounts are offered when you add on other policies like auto or life insurance. Bundling at least two policies could result insignificant savings.
- Number two, shop around. Each insurance provider has its own guidelines and can set different prices based on the coverage of your home. With your home insurance comparison, you can see the premiums from multiple companies and if you qualify for any discounts. Prices can fluctuate from provider to provider. So comparing multiple quotes is a great way to see what company can offer you the lowest premium.
- Number three, ask for discounts. Find out from your insurance provider, what discounts they can offer you and how you can qualify for them. Discounts can run the gamut from loyalty and multiple policy discounts to discounts for home updates. If you’re wondering how to lower your homeowners insurance costs, discounts are a great place to start. So, here’s a couple examples. Discounts for safety measures, something as simple as installing smart smoke detectors could save you money. Homeowners insurance providers also frequently offer discounts for a home security system. So, consider investing in one to get a lower home insurance premium. Then there’s roofing discounts. Your roof does a lot to protect your home. A newer roof can result in lower premiums. Then there’s also loyalty discounts. If you have been with your insurer for a while, and you’re wondering how to lower homeowners insurance costs without switching, call and ask if they offer a loyalty discount.
- Number four, evaluate your policy and increase your deductible. You may wanna consider raising your deductible. This is the amount that you pay out of pocket for a covered claim. If your deductible is 500, for example, and you have a covered claim worth 4,000, you will pay the first 500 of the claim and the insurance company will pay for the next 3,500. A higher deductible means you will pay more in the event of a claim, but the larger your deductible, the lower your premium. Keep in mind that raising your deductible means you’re responsible for more money out of pocket. Be sure that you can afford a higher deductible before you make the change on your policy.
- Number five, improve your credit score. So unless your home is in the State of California or Maryland, where insurance companies are prohibited from using a homeowners FICO to determine premium price, a low credit score could mean you’re paying a higher monthly premium.
- Number six, get an agent. Experienced agents know the ins and outs of the insurance companies that they represent and can provide you with a valuable advice and recommendations on the type of insurance that you may need or if you need additional coverage.
- Number seven, make updates to your home. If you make certain changes to your home, your insurance provider could reward you with lower home insurance premiums. Before you talk to an insurance agent, you’ll wanna prepare yourself by assessing your home and belongings first. Create a home inventory list for all of your possessions and how much they currently are worth, any serial numbers that they have and how much they cost initially. You’ll also wanna take into account the size of your home, the crime rate in your area, the prevalence of natural disasters and your credit history.
These are the things that an insurance agent will use to determine whether they can offer you a policy and for how much. When it comes to purchasing a homeowners insurance policy, it’s also important to shop around and compare rates to get the best deal. I hope you enjoyed this session on everything you need to know about homeowners insurance.
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