Homeowner's Insurance: everyone needs it but no one wants to use it. Just like health insurance and car insurance, everyone hopes that they never need it. But sooner or later, most of us will be very glad to have homeowner’s insurance when a claim arises. Understanding what homeowner's insurance is and what it is not will help you to make wise choices when it comes to your insurer, your agent, and the specifics of your policy.
Without any training or background, navigating the maze of insurers, agents, and policies may seem daunting. But with a little preparation, you can enter into the process with the foundation you will need to make informed decisions. You’ll find some useful information on this site to help you understand the basic terms, options, and requirements that you will encounter on your way. Read also: Be a Wise Homeowner and Buy Mortgage Life Insurance.
The 3 Basic Components of Homeowner’s Insurance
There are three basic components of a standard homeowner's policy. Your policy will help to cover your incurred expenses in the case of:
- Damage to the insured structure or its contents, including damage caused by fire and smoke, water, windstorms, vandalism, and any other outside force (subject to any exclusions specified in the policy – see {Link to: Know Your Exclusions}).
- Theft of the contents of the home.
- Injury or damages incurred by someone else while on your property.
Terminology: Like any other industry, insurance has its own language and terms. A few important terms that you will need to know are: claim, deductible, and liability.
Claim: Filing a claim is simply the insurance term for informing your agent that you suffered a loss, such as a fire or theft. In order to receive recompense from your insurer, you will need to file a claim. Let them know as soon as a potential issue arises, even if you are not yet sure of the extent of the damages. Your agent will probably need to come to your property for an inspection before they will authorize payment. It is important that you communicate your claim to your insurance agent as soon as is possible after a loss. Read also: ABC’s of Life Insurance Dividends.
Deductible: Most insurance policies will not cover every dollar of loss. The deductible is the portion of the loss for which you (and not the insurer) would be responsible. Although there are policies with no deductible, most policies have a standard deductible of $250, $500, or $1000. The higher your deductible, the lower you premiums will be, but the higher your risk is in case you do suffer a loss. You need to consider what deductible amount you are comfortable with before you can decide on your policy.
If you have a deductible, you would not be eligible for any recompense from your insurer for very minor damage or loss (if the total amount is less than your deductible). For example, if you have a $500 deductible and a tree falls on your house causing $400 worth of damage, you would not be able to make a claim. If your deductible were $250 in that same situation, your insurer would cover $150 worth of the damage ($400 damage less the $250 deductible). Of course, if you had a policy with no deductible, the insurance would pay out the entire $400.
Liability: If someone is injured on your property or someone else’s belongings are damaged while on your property, and it is due to your negligence, their damages become your liability. The liability portion of your insurance policy is there to help pay the cost for those damages or injuries. Courts have adopted a very wide interpretation of ‘your negligence’. If your dog bites someone or someone trips and falls on your property, even though you feel you’ve done nothing negligent, you may well be liable in the eyes of the law. Read also: Why You Need Mortgage Life Insurance.
5 Tips For Selecting a Homeowners Insurance Policy
- Bundle your Policies - Many agents can offer both car and homeowners insurance. By bundling both policies together, you may be able to get a significant savings over purchasing them separately as well as the convenience of a single bill for both policies.
- Know your Zone - Flood insurance is required if your property sits in a flood zone. Otherwise, you may end up paying an extra premium for flood insurance in an area that is very unlikely to ever suffer from flooding. Knowing your flood zone status will help you to determine your needs in this area.
- Research your Agent - There are probably multiple agencies in your area that represent the same underwriting insurance agency and can offer you the same policy and rates. Take the time to research the agent, their level of service, and their reputation in the community. You want someone who will be supportive and helpful to you when you need to file a claim.
- Check out your Billing Options - Some agencies will require an upfront payment for the annual premium, others will bill in quarterly or monthly installments. There may or may not be an additional fee associated with the installment option. Understand your true costs before you sign up so you can find the best option for your situation.
- Compare "Apples to Apples" - As you shop the various agencies available to you, make sure that you are consistently getting quotes for the same deductible, insured value, exclusions, and any other options. What appears to be a relative bargain may be an inferior policy when you get the details.