What if you came home to find burglars swept your house clean or a disaster flattened your house? Would you survive? That’s the question about 70 million homeowners holding home insurance policies seek to answer.
Disaster can hit your home in a second yet take a long time to recover from. If you’re not well prepared for it, the set back can be debilitating. Thus, you need to protect your home from unforeseen damage and injury.
Here’s a brief guide on what home insurance is and the factors you should consider before purchasing a policy.
What’s Home Insurance?
Home insurance, also known as homeowners’ insurance, is a type of property insurance policy that covers an individual’s residence from damage. Home insurance also offers protection from liability arising from accidents in the home or on the property.
Principally, a home insurance policy is designed to protect against four types of damage:
- External damage
- Internal damage
- Injury occurring on the property
- The damage or loss of personal belongings and assets
Once you file a claim on any of these damages, you’ll need to pay a deductible. Each home insurance policy has a liability limit. That limit dictates the amount that can go to cover replacement or repair of any damage. The average liability limit is $100,000, but you can apply for more.
What Should You Consider When Shopping for Home Insurance Policies?
All home insurance covers aren’t created equal. Before you put pen to paper and wed yourself to a contract, you need to weigh several crucial factors.
1. Your Home’s Replacement Costs
Underinsuring a home is a common issue, and it’s a grievous mistake you need to avoid. If the worst does happen and you’re underinsured, it’ll be a double tragedy.
Many people buy a home insurance policy that only covers their mortgage. However, the mortgage is only 80% to 90% of the home’s value, without factoring in any appreciation. You need to appraise your property before buying any policy and get an accurate home replacement figure.
You’ll be better equipped to understand how much it would really cost to build the same house where it stands now (known as the replacement cost). In turn, that can enable you to zero in on the home insurance policy that best covers your property.
2. Other Costs in the Fine Print
Home insurance holders also tend to underwrite their property due to not paying attention to the fine print. Specifically, those figures that directly impact the degree of coverage your policy can deliver.
The liability limit for a home insurance policy essentially dictates how far your insurance can cover you. Without digging into this amount, you’ll likely underinsure your home.
The deductible you pay per claim is another reason why you should learn more about property insurance claims and policies matters. When you file a claim, you’re required first to pay a deductible before your home insurance can kick in. Thus, the higher your deductible, the more you save on the premium and vice versa.
Most insurers recommend a deductible of $500, but you can tailor it to what suits you best. However, there are other deductibles you may need to consider before you pick a policy.
For example, if you live in a disaster-prone zone, you’ll likely spot certain deductibles for other types of damage. It’s critically important to assess all the applicable deductibles to determine if a home insurance policy will make sense.
3. Your Credit History
In most states, insurance companies use an applicant’s credit history to create the rates they will pay. Only California, Massachusetts, and Maryland limit this practice.
The credit history insurers use differs from your credit score, yet you need to keep it in mind as you shop for a home insurance policy. Several factors go into deeming whether your credit history makes you a high or low liability policyholder, and they include:
- How well you’ve settled payments on your debts in the past
- How much debt you currently owe?
- For how long you have had a line of credit
- The amount you applied for recently on credit
- The various types of credit you currently hold
As you consider taking out a home insurance policy, you need first to review your credit history. Are there changes you can make to improve your credit history? That can help deliver lower insurance rates. If you have the time, you can take measures to lift your credit history before taking out that policy.
4. The Insurance Firm’s Credibility
No amount of underwriting can help you if the underwriter can’t make good on their commitment. Therefore, just as the insurance firm will evaluate you, so should you evaluate them.
As part of your due diligence, you should ask the insurer for their financial statements and assess their position. Moreover, you also need to check out the insurer’s ratings from reputable firms such as Standard and Poor or Moody.
Another influential rating to check is Weiss Ratings, which is independent and has one of the most rigorous guidelines to help you uncover the insurer’s weaknesses.
Don’t forget to assess the insurer’s service history as your coverage won’t be of much use if it’ll be a struggle to get the insurer to serve you. Ask the representative on their turnaround time and compare that to the feedback you find on review platforms online.
5. Provision for Your Home-Based Business
If you operate a home-based business, you should look at the provisions the policy lays out for it before signing up.
Several insurers sell an additional in-home business policy, while others direct you to buy an ‘endorsement’ alongside your home insurance policy. Weighing these options on top of the core home insurance cost is crucial to determining whether a specific insurer’s policy is cost-efficient.
Don’t Be Caught Flat-Footed: Protect Your Home
Disaster can strike your home instantly, and if you have no remedy, it may be hard to recover. Make an effort to understand what factors impact home insurance policies to get the right cover and protect your home.
Home insurance is one of the foundational things a homeowner must know. Our website features a wide variety of home and garden information to help homeowners make the most of their property. Check out more of our content to better watch over your biggest investment.
