January 15, 2020
Insurance is a product we all purchase hoping to never need it, but are grateful to have when an emergency hits. For homeowners, maintaining adequate property insurance is an important way to protect one of the biggest investments most of us will ever make, so it is critical to understand your coverage needs and options.
Homeowners insurance is classified as a multiple-line insurance policy, meaning that it protects a person’s home and belongings against damages, but also includes liability coverage, which covers your legal responsibility for injuries and property damage caused by you or members of your family (including pets) to others.
Remember, most mortgage lenders require proof of homeowners insurance, so you can’t buy a house without it! Before we dive in further, here are some general terms you need to know:
Deductible—The amount of money a policyholder pays before the insurance company will pay a claim.
Premium—The price you pay for your insurance, usually charged on an annual basis for this kind of insurance. For homeowners with a mortgage, this is generally paid through your escrow account.
Escrow account—An account your bank maintains to ensure payment of property tax and homeowners insurance while you are re-paying your mortgage. Your monthly mortgage payment includes a portion that goes into escrow to pay these annual bills.
Replacement cost—Refers to the full cost of replacing your personal property or your home, versus the actual value, which may not be sufficient to replace an older item or home.
Riders—Policy “add-ons” that can be included in your overall insurance policy to cover specific items in your home.
Named perils—Sources of damage that are specifically named as covered in an insurance plan.
Understanding these terms should help in searching for and selecting a good home insurance policy for you and your situation. These terms should also help when reading through your policy, which is vital, as with any legal contract. It will tell you exactly what is and isn’t covered.
So what do normal packages cover (and not cover)? Typical packages pay for damages in the event of storms, fire, theft or vandalism. These are your “named perils.” A policy also often covers your belongings even when outside of the home, such as if they are stolen from your car. If you are temporarily displaced from your home due to disaster, most policies will cover your hotel bill as a “shelter cost.”
As with most things, however, there are exceptions as to what is covered in a typical home insurance package. Standard policies exclude landslides, earthquakes, sinkholes, power failure, war, nuclear hazard, government action, faulty zoning, bad repair/defective maintenance, and flooding. Tornado and hurricane damage is usually covered, unless you are in a high-risk area.
According to Statesville State Farm Agent Andrew Whitaker, for specific items such as a collection, firearms or jewelry, additional protections may be added to increase the coverage on those items beyone the basic policy. Separate policies can also be purchased to cover mortgage payments in the event of death or disability of the homeowner, which is not typically covered, or to provide additional liability coverage
Whitaker recommends considering flood coverage, as very few areas have been proven to be completely immune to flooding. A flood quote is free and the price is the same wherever you go because the NFIP (National Flood Insurance Program), which determines pricing, is federally governed.
Customers should also remember, said Whitaker, that homeowner’s insurance is not a maintenance policy. It is meant to cover “sudden and unexpected losses,” not a worn out A/C unit or damage from long-term leakage.
Owning an older home may also cause specific exclusions to be included in a policy. The age of the house puts it at a higher risk for damage, and according to Whitaker, this may cause exclusions for damage you would expect to be covered, such as damage from pipes.
Pricing is very dependent on the kind of policy you need and where you look for it. Factors that influence the price of your policy include location and age of the home, coverage and the amount of insurance. Often you can find deals such as multiple policy discounts, which gives a discount for having several policies (home, auto, health) with the same company.
To lower the premium, customers could consider a higher deductible, says Whitaker. Be sure that if you opt for a higher deductible you have enough in savings to cover that deductible, should the need arise. The premium can also be reduced by doing things such as installing a burglar alarm to lower your risk.
While the lowest price policy may be appealing, you should compare more than just price when looking for homeowners insurance. Coverage and deductibles as well as the ratings, financial strength, claims handling capabilities and accessibility of the company should also be taken into consideration.
“When [customers] purchase homeowners insurance, they are buying a promise to be there when needed and to pay what is owed,” says Whitaker. He suggests AM best, JD Powers, the local Chamber of Commerce, and the Better Business Bureau for ratings and more information about companies. He also recommends that customers get at least three quotes from different companies and then compare. Doing this kind of research and evaluation will help in making an informed decision on which company to use.