Most people are familiar with the concept of insurance. Car, renters, health insurance… most folks have had to secure a policy somewhere along the way. Nevertheless, the number of homeowner’s insurance policy types can leave anyone’s head spinning. Even the savviest homebuyers get overwhelmed by the different types and associated costs—never mind the decisions.
While it may not be the most exciting topic, buying a home means familiarizing yourself with all the policies that accompany such a significant purchase. At the very least, you’ll want to understand the purpose and estimated cost of each policy type. Not to mention whether or not they’re optional or required.
What it’s for. This policy protects you from damage to or loss of your home and personal property, or from lawsuits related to things that happen on your property. You might be surprised by what this policy does and does not cover so be sure to read carefully or talk with your insurance company representative about your policy in detail.
How much. The cost of your policy will depend on the type, condition, and location of the home you’re buying. If you’re looking to cut costs here, check out or post on seven ways to save.
Required or optional. Sorry, this one’s not optional. And in some cases you may be required to pay your policy for the first year in full before closing.
Once you have made your selection on the company and policy of your choice… please let us and your lender know your insurance agent’s information, so we can be sure nothing further will be needed in order to finalize your policy for closing. Once your lender is ready, they will reach out to the insurance provider to request a copy of the policy binder.
Like car insurance, homeowner’s insurance rates will vary based on the coverage you select. Here are some general questions to ask the providers, so you are certain of the coverage you select:
What kind of homeowner’s insurance policy do I need (HO-1 thru HOA-8), and what and who is covered under the policy? There are eight levels of homeowners insurance in the United States ranging from full home owners insurance that covers everything in your home as well as all the contents. There is also a home owners insurance specifically for condos, mobile homes, renters and your priceless items.
Does the policy cover replacement cost, and is it guaranteed replacement cost? There’s big difference in these two terms, you want a guaranteed replacement cost for your items not just replacement cost – the difference could be quite severe.
Are there any exclusions to the policy? Find out what is and isn’t covered in your home, specifically. Your policy should thoroughly outline everything that is covered – if you aren’t sure – ask.
Are there any limits on valuables such as computers, silverware or jewelry? If you own these items be sure to find out if they are covered.
Does my policy cover any water damage? What will it cover? Most homeowners insurance policies will cover overflow water damage but damage from flooding is often not covered.
Should I consider any optional or extra homeowners insurance coverage? Flooding and earthquakes are often not covered, nor are your priceless paintings. There is optional homeowners insurance for these perils and items that are not covered with your insurance policy.
How much is my deductible? Can I save money by choosing a higher deductible? Your premium (payments) will be less if you have a higher deductible in most cases. You have to weigh the options of having lower payments and a higher deductible versus having a lower and perhaps more affordable deductible.
Are there any safety features that I could install in my home that would save money on my policy and increase my protection (smoke detectors, alarm system, etc.)? What about anything other items provided for additional discounts (4-point inspection, wind mitigation report, etc.)?
Most often, the answer is yes. Your insurance agent will be able to help you with these types of upgrades that could save you a lot of money in premiums.
Does the insurance company offer 24 hour claims service? How do I file a claim and what are my responsibilities with claims? Finding out this information will be helpful for you if you ever have to make a claim.
How much liability coverage do I need if something happens on or away from my property? Liability coverage will protect you against lawsuits for property damage and injury. Liability pays for judgments and the cost to defend you in court. If you are not sure how much coverage you need, ask your agent. The standard home policy will provide $100,000 in coverage.
How much would it cost to rebuild my home in its current condition and location if it were a total loss? One of the primary purposes of buying home insurance is to insure your home against total loss. You have the option to choose your dwelling limit, which will be the total amount the insurance company will pay for materials and labor to rebuild your home. If you are not familiar with home building costs in your neighborhood, ask your agent to help you calculate the cost to rebuild per square foot.