One of the most important investments that you would ever make is a new home. The next most important would be the home insurance. This is one area that you absolutely need to familiarize yourself with as a homeowner; or at least, know the basics.
Home insurance is an absolute necessity because it covers you in very terrible situations. Home insurance would cover you if, by any chance, your house gets damaged or catches fire. It can also act as a liability coverage if and when a person gets injured inside your home. It might be a very boring subject, but if you own a house or want to own one, then the topic of home insurance is one topic that you need to familiarise yourself with. Before you buy a home, ensure that you have close to three to six months of expenses saved in your emergency fund. If you have that settled, then you are ready to buy.
There are certain questions that you should come to ask if you are considering home insurance for your home; very basic questions that should be asked and answered.
1. Does a home insurance policy cover flooding?
One thing that is not covered by home insurance that many people are unaware of is flooding. If you are looking for a home for sale in Rosemary Beach Florida where a hurricane could hit you are going to want to purchase flood insurance as well. if you are planning on buying a home in the mountains of Tennessee then you will not need to purchase flood insurance. ask your realtor or insurance agent if they feel you need any additional special policies.
2. How much coverage do you need?
This is very important. One thing you should search for, when you’re considering home insurance and speaking with an insurance company/agent, is Guaranteed Replacement Cost. What is the big deal about this? You ask. The big deal about Guaranteed Replacement Cost is that your priced property would be covered even if its value increases.
Most insurance companies nowadays, put a dollar amount on their policy. Let’s say you have a $200,000 home, the insurance company would cover that and maybe an additional 40%, meaning that your home is covered up to a value of $280,000. Assuming your home is in a hot market and, after seven years, its value increases to $350,000, the insurance policy would only cover you for $280,000, and you would have to find $70,000 elsewhere if you want to get your home back after an incident or something.
Yes, guaranteed replacement cost still exists, though scarce. You just have to keep shopping for an insurance company that offers it.
In general, Insurance plans might vary from insurer to insurer, but a typical homeowner’s policy usually has these four components;
- Coverage for the structure,
- Coverage for contents,
- Liability protection, and,
- Reimbursement for additional living expenses.
Ensure to do your research to know what each insurance company has to offer you before you make a decision to go for one.
3. What about Deductibles and Premiums?
Deductibles are an amount of money that you have to pay from your pocket before your insurance company would agree to pay anything on your claim. It can either be high or low, depending on how much money you have saved in your emergency fund to cover emergencies. This is a very good reason why you need to have saved up to three to six months of expenses in an emergency fund prior to buying your home. These funds would help save you the stress of having to pay a higher deductible and hence lowering your premium (which is the annual cost of the insurance policy).
Higher deductibles, however, have their own advantage. In fact, raising your deductible is one way to lower your premium. Raising your deductible comes with its own risks; these risks should be evaluated before such decisions are made.
If, for example, you intend to raise your deductible from a $300 deductible to a $1,500 deductible, there is a $1200 difference. This $1200 difference would be paid from your pocket if any mishap happens to your home.
Like I mentioned earlier, raising the deductible, lowers your premium. If you decide to save $40 per year, then it will take you the whole of 30 years without a claim to break even. But if you were to save $300 a year, it would only take you 4 years without a claim to break even. This is a much easier choice if you ask me.
On the issue of premiums and deductibles, make sure to always see the big picture, do a series of calculations to know what exactly would work for your own situation.
In summary, home insurance is a collective term for two separate types of coverage; buildings and contents. Buildings insurance provides coverage for the structure of a home together with its fixtures and fittings, while Content insurance provides coverage for everything in your home. Your home should be a dream and having the right kind of insurance is a good step to helping you keep your dream home a reality!