Compared to all the time and effort most people put into buying a home, purchasing homeowners insurance is for many of us not much more than a formality. The fact of the matter, however, is that choosing the wrong homeowners policy can sooner or later have severe financial consequences. Let us take a closer look at how you should go about choosing the right one.
Make Sure The Policy You Choose Meets Your Financial Needs
Homeowners insurance policies broadly fall into 3 categories
HO-3 Cover. This provides broad coverage for your home as well as attached structures like the deck and garage. It also covers you if someone accidentally gets injured on your property or if he or she suffers property damage while visiting.
HO-4 Cover. Often referred to as the tenants’ policy, this provides cover for liability and personal belongings. It will also cover the cost if you temporarily have to move somewhere else while your home gets fixed after suffering damage.
H0-6 Cover. This type of policy is aimed at condo owners and protects them against damage to belongings and personal liability. The walls, floors, and ceilings of the condo are also covered.
Compare The Products And Prices Offered By Different Insurance Firms
While it is important for a policy to fit your budget, never buy homeowners insurance solely because it’s the cheapest. Once you’ve determined your insurance needs, it’s fair to shop around though and to compare the policies offered by the various insurance firms.
In this regard, don’t neglect to compare deductibles, i.e. the amount you have to pay yourself when submitting a claim. That might not seem very important right now, but when the day arrives that you actually suffer damages, you are not going to be very happy to find out that you have to pay nearly half the cost yourself. Cheaper premiums are often directly related to higher deductibles.
Understand The Difference Between Replacement Value and Cash Value
One way in which companies try to keep the cost of homeowners insurance low is by providing cover for cash value instead of replacement value. That might sound insignificant right now - but the cost of building materials can increase a lot over the next ten years, which means that the cost of replacing your home will also increase sharply. If it is insured for replacement value, the insurer will pay out whatever it will cost to replace it.
The cash value of the property, however, is determined by taking the replacement cost and subtracting depreciation from that. In other words, you will be paid whatever the property is worth at the time of the loss, not how much it will cost to replace it. If you can afford the higher premiums, replacement value is always the better alternative.
Find Out As Much As Possible About The Insurer Before Signing Up
Before making a final decision about where to buy homeowners insurance, it’s a good idea to get as much as possible information about the company’s financial status and service history. Start with the various state insurance agency websites. Here you will find reviews, recommendations, and complaints related to many insurance firms. Another useful source of information is the National Association of Insurance Commissioners website.
Also, talk to an insurance agent. Just remember that a dedicated agent only works with a single company, while an independent one works with several companies.
Final Thoughts On Choosing The Right Homeowners Insurance
After reading the above, readers will hopefully realize that, while the benefits of homeowners insurance typically far outweigh the costs, all policies are not the same. Doing your homework before the time and getting answers to your questions from a trustworthy insurance agent can go a long way to ensure that you don’t regret your choice ten years down the line.