Homeowner’s insurance, which is commonly known as home insurance is a necessity but for some people, it may appear as luxury. The underlining aspect of homeowner’s insurance is that it protects your home and valuable possessions against both damage and theft.
Implicitly, all the mortgage companies demand borrowers to have insurance coverage for the full/fair value of the property which is usually the purchase price. Also, without it, the insurance companies won’t be able to create a loan/finance a residential real estate transaction without any validation to it.
Moreover, insurance can be needed be the tenants as well. Many landowners insist their tenants to have renter’s insurance coverage for their own protection purposes. To know more about the renter’s insurance, click on the link above.
WHAT A HOMEOWNER’S INSURANCE POLICY PROVIDES ?
Contents
Homeowner’s insurance policy is a written contract between the insurer and the customer. It specifies coverage for loss/damage to the property. The elements of a standard homeowner’s insurance policy provide that the insurer will cover costs related to:
Damage to the interior/exterior of your house:
Your insurer will only compensate you when your house faces damages due to:
- lightning,
- hurricanes,
- vandalism,
- fire or other covered disasters.
The compensation would be provided in a way that it helps you in rebuilding your house or at least repair it. You might have to acquire separate riders to protect yourself from damages such as:
- earthquakes,
- floods and
- poor home maintenance.
You also have to cover other structures on your property utilizing the same guidelines as the main house such as freestanding garages, sheds, etc.
Loss/damage to your personal belongings:
Most of the contents of the home are also covered if they’re ruined in an insured disaster such as:
- furniture,
- clothing and
- appliances.
Off-premises coverage:
Furthermore, you can also get off-premises coverage, wherein you can file a claim for lost jewelry. It doesn’t matter where did you loose it. A claim is a homeowner’s request for repayment under the terms of the policy.
However, there’s a constraint to the amount of reimbursement. According to the Insurance Information Institute (3Is), most insurance companies will provide coverage for 50-70% of the amount of insurance you’ve on the structure of your home. Howbeit, it’s better to purchase a separate floater policy if you own a lot of high-priced assets.
Personal liability for damage/injuries caused by you/your family:
Liability coverage protects you from lawsuits filed by others. In addition to it, this clause also includes your pets. It doesn’t matter if the incident takes place at your home or at any other place, the other person would be successfully reimbursed for her loss.
However, off-premises coverage doesn’t apply for those with renter’s insurance. According to the 3Is, one should have at least $300,000 worth of coverage. For extra protection, a few hundred dollars more in premiums can buy you an extra $1 million or more through an umbrella policy. A premium is the price charged by an insurance company. Though, it depends on the level of coverage purchased.
Hotel/house rental while your home is being rebuilt/repaired:
Additional living expenses is undoubtedly the best coverage. It reimburses you for those expenses which are done by you while you’re waiting for your home to become habitable again. These expenses could be in the form of:
- hotel room,
- rent,
- restaurant meals and other incidental costs.
Although, the policies enforce strict daily and total limits but, you can expand those daily limits if you pay more in coverage.
WHY YOU SHOULDN’T DO WITHOUT IT?
It’s better to have homeowner’s insurance unless you’re filthy rich whose home represents a small enough percentage of your net worth that could be easily replaced. Most middle-class people acquire homeowner’s insurance because they don’t have the money to replace the entire house.
Moreover, if you drop your homeowner’s coverage now, then the insurance companies might not be willing to cover you in the future. And if they would, then, you’ve to pay more for your coverage. It could be because:
- They would righteously assume that you couldn’t meet your premiums in the past and will have trouble paying them now.
- Or that you’re looking for coverage because you’re anticipating a claim in the very near future.
DIFFERENT TYPES OF COVERAGE
Insurances are created differently. If you buy a homeowner’s insurance that costs less then, the amount of coverage will also be less. Same goes in the case of homeowner’s insurances that are costly. In NYC, there’re several forms of homeowner’s insurance that have become standardized in the industry. They’re designated HO-1 through HO-8 and offer various forms of protection depending on the needs of the homeowner and the type of residence being covered. There’re essentially three levels of coverage:
Actual cash value:
It covers the value of your house and your belongings minus depreciation.
Guaranteed (or extended) replacement cost/ value:
Inflation-buffer policy:
It pays for all the repair costs or the costs related to the rebuilding of your home. It doesn’t matter if the costs is more than your policy limit. Many insurers offer extended replacement which gives more coverage than you’ve purchased. But there’s a maximum limit which is 20-25% higher than the limit.
Guaranteed replacement value policy:
If the homeowners plan to stay in a home for any length of time then, they should definitely buy guaranteed replacement value policy. As your homeowner’s insurance covers the costs of rebuilding of your home preferably at current prices, guaranteed replacement value policies will absorb the increased replacement costs.
According to Adam Johnson at QuoteWizard.com, “Often shoppers make the mistake of insuring [a house just] enough to cover the mortgage, but that usually equates to 90% of your home’s value. Due to a fluctuating market, it’s always a good idea to get coverage for more than your home is worth.”
Replacement cost:
This is the actual cash value without the deduction for depreciation. Depreciation is the estimated decrease in value of property over time due to aging, wear, tear and other factors. Through this, you would be able to repair/rebuild your home up to the original value.
WHAT ISN’T COVERED?
Homeowner’s insurance exclusively excludes providing protection to it’s customers in cases of natural disasters i.e. acts of God and war. Therefore, in order to emancipate your home, it’s advisable to acquire an extra policy of earthquake insurance/flood insurance. There’s also sewer and drain backup coverage along with it. There’s also identity recovery coverage that reimburses you for expenses related to being a victim of identity theft.
HOW ARE RATES DETERMINED?
Reason 1:
- Rates are determined by the possibility of filing a claim by a homeowner. It’s the insurer’s perceived “risk”. To determine risk, homeowner’s insurance companies go through the past record of the claims submitted by the homeowner as well as claims related to property and the homeowner’s credit.
- Though insurers pay the claims but they also make money in the process. A homeowner’s insurance premium can reach a very high altitude if you insure a home that already has had multiple claims in the past 3-7 years. Even though if the previous owner had filed the claim. In that case, the insurance companies won’t accept your request for homeowner’s insurance. Their denial would be based on the number of recent past claims.
Reason 2:
- The rates are also determined by building material availability, neighborhood and crime rate. Moreover, the size of an annual premium depends upon: coverage options like deductibles, jewelry, added riders for art, wine, etc and coverage amount desired.
- Pricing and eligibility for homeowner’s insurance can also vary depending on an insurer’s demand for certain things that are related to building construction. These could be security systems, roof type, swimming pool, condition of the home, heating type i.e. if an oil tank is on premise/underground, the proximity to the coast, trampoline and more.
COST-CUTTING INSURANCE TIPS
Maintain a security system and alarms:
You can lower the homeowner’s annual premium by 5% or more through the installation of a thief alarm. It’s monitored by central station or local police. Howbeit, the owner has to submit evidence of central monitoring in the form of a bill/a contract to the insurance company to receive the discount.
You can save your family 10% or more in annual premiums by installing these devices which are standardized in many older houses:
- CO2 detectors,
- smoke alarms,
- sprinkler systems,
- dead-bolt locks and
- weatherproofing devices.
Raise your deductible:
The higher the deductible, the lower will be the annual premiums. Deductible is the amount that a customer pays out of his own pocket before coverage is given, even when the claim is accepted. However, there’re smaller problems with selecting a high deductible such as broken windows or damaged sheet-rock from a leaky pipe. Such obstructions cost only a few hundred dollars to fix and will most likely be absorbed by the homeowner.
Look for multiple policy discounts:
Many insurance companies give a discount of 10% or more to customers who maintain other insurance contracts under the same roof such as auto-insurance or business insurance. With this method, you might end up saving on two premiums.
Plan ahead for construction:
While constructing another building adjacent to the home, you should look out for the materials that are going to be used. Such as:
- you can apply cement/steel-framed structures in the building. They are less costly because they wouldn’t succumb to fire/adverse weather conditions. On the contrary, wood-framed structures are highly inflammable and costly to insure.
- Swimming pools and other potentially destructive devices like trampolines can increase the annual homeowner’s insurance costs up by 10% or more.
Pay off your mortgage:
People who have their own residences will most likely have lower premiums. It’s because the insurance company thinks that a homeowner will take better care of their home than a tenant. Therefore, it’s advisable to pay off your mortgage soon.
Make regular policy reviews and comparisons:
Before buying any type of insurance you should always compare. This includes:
- checking for employers/association membership group and
- coverage options through credit/trade unions.
Also, even after purchasing a policy, you should always or at least once a year:
- compare the costs of other insurance policies to your own,
- review your existing policy and make notes of the changes that might lower your premiums.
Furthermore, you could notify and provide proofs to the insurance company to lower your insurance premiums. The proofs could be in the form of pictures and receipts of the changes that you have made in your house. These changes include:
- disassembling the trampoline,
- installing a burglar alarm,
- paying off the mortgage,
- a sophisticated sprinkler system.
According to Van Jura, “some companies have credits for complete upgrades i.e. to plumbing, electric, heat and roof “. Another way to lower your premium is by loyalty. The longer you stay with a company, the lower the premium will become.
According to John Bodrozic, co-founder of HomeZada.com, “Many consumers are under-insured with the contents portion of their policy, because they have not done a home inventory and added the total value to compare with what the policy is covering.” Therefore, make annual estimation of your priced items to know if you’ve enough coverage to replace your possessions.
Changes in the neighborhood also lower premiums such as:
- installation of a fire hydrant within 100 ft of the home
- the erection of a fire substation within close proximity to the property.
HOW TO COMPARE HOME INSURANCE COMPANIES
Compare statewide costs and insurers:
It includes visitation to state’s Department of Insurance website to learn about the rating for each homeowner’s insurance company that are licensed to conduct business in your state as well as any consumer complaints lodged against the insurance company. The site should also provide a typical average cost of home insurance in different countries and cities. These will help you determine which carriers you want to compare.
Do a company health check:
Closely scrutinize each homeowner’s insurance companies you want to consider via their scores on the websites of the top credit agencies such as:
- A.M. Best,
- J.D. Power,
- Moody’s,
- Standard & Poor’s.
Also, there’re National Association of Insurance Commissioners and Weiss Research for score comparison. The work of these sites is to track:
- consumer complaints against the companies,
- the processing of claims,
- general customer feedback and other data,
- rate a homeowner’s insurance company’s financial health to determine whether the company is efficient enough to pay for the claims you demanded.
Look at claims response:
Before purchasing a policy, find out whether licensed adjusters or third-party call centers are going to receive and handle your claims calls or not. This should be done because the core function of insurers is to handle it’s clients.
An adjuster is a person who is trained to investigate losses and seeks to determine the extent of an insurer’s liability for that loss when a claim is submitted.
According to Mark Galante, senior vice president and chief marketing officer at the PURE Group of Insurance Companies, “Your agent should be able to provide feedback on his or her experience with a carrier, as well as its market reputation,” as well as “Look for a carrier with a proven track record of fair, timely settlements and make sure to understand your insurer’s stance on hold back provisions, which is when an insurance company holds back a portion of their payment until a homeowner can prove that they started repairs.”
Current policyholder satisfaction:
Even though the company claims of good service but you should always do your own investigation. Ask your agent/a company representative about the percentage of policyholders that renews each year. In accordance with the insurer’s retention rate, many companies report retention rates between 80% and 90%. Moreover, you can also find satisfactory information in:
- annual reports,
- good old-fashioned testimonials from your trusted people and
- online reviews.
Get multiple quotes:
According to Eric Stauffer, the former president of ExpertInsuranceReviews.com, “Obtaining multiple quotes is important when looking for any type of insurance; however, it’s especially important for homeowner’s insurance since coverage needs can vary so much,” as well as “Comparing several companies will yield the best overall results”.
You can have leverage in negotiations only when you know that you’ve an upper hand. For this, you must contact five or more companies to gain information on what people are offering. But before collecting quotes from other companies, you should request a price from your already maintained insurer. It may happen that he could offer better rates because you’re an existing customer.
Some companies provide a special discount for seniors or for people who work from home. The reason is that both these groups stay at home which makes the house less prone to robbery.
Look beyond price:
The annual premium is the reason of acquiring a homeowner’s insurance policy, but you shouldn’t look solely at price. You should always compare coverage and limits.
Talk to a real person:
According to Stauffer, the best manner to get quotes is to go directly to the insurance companies or speak to an independent agent who deals with multiple companies. One should never deal with a traditional insurance agent or financial planner because he only works for just one homeowner’s insurance company.
However, the downfall to this is that the broker who is licensed to sell for multiple companies often attaches his own fees to policies and policy renewals. This means the policy would ultimately cost hundreds extra a year. Also, you should consider different deductible scenarios to best weigh if it makes sense to opt for a higher deductible and self-insure.
WHY MORTGAGE COMPANIES REQUIRE INSURANCE ?
If you’ve mortgage, it’s possible that your lender might ask you to purchase homeowner’s insurance. However, its cost will get included into your monthly payment along with proper taxes.
If in case, you fail to do as asked, then your lender might impose force place insurance on his property to protect his investments which could be costly for you. They’ll do such because there could be cases of damage/destruction due to natural/man-made disasters. And due to such circumstances, they won’t be able to collect that money back through premium payments.
Force place insurance is usually considered a high risk by private insurers. Therefore, because of it, the premiums come at a higher price. However, the policy is now critically challenged and questioned.
KEEPING UP ON YOUR HOMEOWNERS POLICY
We can now safely assume that you’ve decided on the right insurance company, the type of coverage you require, the type of policy that best fits your needs and the actions you’ve to take to keep your premium costs down.
However, you shouldn’t just file the policy away and forget it. As you make incremental alterations and improvements on your house, your policy should change right along with it. Here’re some things you should always check upon:
Your policy upkeep:
Every year you should:
- review your written and/or photographic inventory,
- keep receipts for all repairs you may have made in the last year that could add to the value of your property and
- make updates as you add/subtract new assets in your home.
A few insurers may offer a small grace period. However, not every one is generous. There are insurers who are strict towards premium deadlines and will not cut you a break for lateness.
Keep an up-to-date paper trail:
Organize and file all of your signed insurance documents/paperwork that you’ve received in the mail from your insurance carrier each time. They include:
- policy document,
- copies of advertisements,
- notes of conversations about claim activity,
- correspondence and
- premium payment receipts.
Make a detailed inventory of your possessions:
Note down or take pictures and videos of all your possessions that you would want to replace in the event of theft/calamity. Such as:
- jewelry,
- appliances,
- firearms,
- electronics,
- antiques,
- collectibles and
- furniture.
Keep inventory list off-site:
Store your home inventory in a secure place at another location such as:
- your workplace,
- a relative’s house,
- a safe deposit box,
- cloud computing which nowadays have made storing information more easier.
Maintain your home:
A homeowners policy doesn’t pay to repair items that rust with time like rotted porch railings. It becomes your duty to maintain your home such as:
- repairing your roof when it begins to leak and
- cleaning your chimney flue so it doesn’t catch fire.
Filing a claim:
In a situation where you experience a loss, here are some quick things to do before you make the call to your insurance company’s claims center:
Read your policy again:
Your first step before making a formal claim is to try to determine whether the damage can be covered by you or not. If the repairing cost isn’t much more than your deductible, you might want to pay for the repairs without filing a claim.
How often you file a claim and the types of claims you file significantly impact your premium and influence your insurer’s decision to renew you and therefore, you should always read your policy again.
Ask about forms/documents you’ll require:
If you decide to go ahead with the claim, make sure you’ve filled every information correctly and have every document ready for the process.
Protect the home from further damage:
Think nicely before you do anything that could lead you in more danger. For this, you need to access the situation mentally before reacting upon it.
If you think that your house is unsafe then probably you shouldn’t enter it. But if the situation is stable, you can help by minimizing the damage. This could be done by:
- boarding up windows,
- cleaning up water from a backed-up drain and
- spreading tarps to protect damaged areas from rain.
Cooperate with the adjuster:
Once the adjuster arrives to assess the damage, do a walk-through inspection together and discuss his/her impressions. Remember the dates of your conversations by writing them down so that you could be ensured that there’s a record of each visit.
Solving disagreements:
Adjusters can be an enormous help in times of crisis. However, the main purpose of their job is to limit exposure to losses for their employers. Not every claim goes smoothly and sometimes you’ll be denied coverage. But, you should note down that adjusters cannot give final verdicts.
Don’t give in too quickly:
Don’t feel pressured into accepting the first assessment when there’re disagreements between you and the adjuster. Instead of arguing directly with the adjuster, try to resolve your concerns with your insurer. As getting third parties involved can slow down the process considerably.
Gather evidence to support your side:
Assemble all your evidence such as:
- documents,
- photos and
- receipts.
You can also write a detailed account of your complaint and make copies as well. All of your efforts will help you to make a well-reasoned argument that you can submit to the insurer and asking them to reconsider your claim.
Invoke the appraisal clause:
If there is still a continuation of disagreement, find out if there’s an appraisal clause in your policy. An appraisal is an evaluation of a home insurance property claim by an authorized person, usually an adjuster, to determine property value/damaged property value.
Many policies require this appraisal process to resolve claim disputes. This clause allows either you or the insurer to bring in a third-party adjuster to make a binding decision on the dispute.
Call the state insurance department:
If this fails, contact your state insurance department to lodge a formal complaint. The state agency has consumer services staff who can help make your case against the insurer and aid in negotiations.
Hire an independent/public adjuster:
Contact the National Association of Independent Insurance Adjusters (NAIIA) to find an adjuster who isn’t bound to any particular insurance company and is trained to help broker in an agreement. However, the fee of the public adjuster would be about 10-15% of whatever settlement you get.
Lawyer up:
If all else fails, hire a lawyer to step in. Investigate the incident and if there is a need then, argue the case on behalf of you. However, this would be the most expensive option as the legal fees takes up even more of any settlement you might win.
Cancelling/losing your insurance:
You always have the right to cancel your policy for any reason. However, insurance companies must give you a reason for cancelling you after an initial trial period which is usually 60 days from the opening of the policies. The reasons include:
- Late/non-payment of premiums.
- Conviction of a crime that could increase any sort of risks for the insurers such as the illegal storage of fireworks/explosives on the property.
- Willingly neglecting the safety of the property which may increase risks such as ignoring a gas leak.
- Providing the insurer with fraudulent information on your application.
- Changes to the property that could void the policy like physical modifications or additions that may threaten the stability of the structure or local codes.
- Leaving the house vacant for more than 60 consecutive days which could make the structure more prone to vandalism, etc.
It’s important to note the key differences between an insurance company cancellation and a non-renewal.
- “Cancellation” means either you or your insurance company stopped the coverage before the policy’s normal expiration date which is usually 12 months after the policy starts.
- Non-renewal means the company refuses to renew your policy after it expires. Insurance companies generally have the right to not renew your policy if they so desire.
You should be notified in case your insurance company cancels your policy. The number of days varies by state, but it’s generally in the neighborhood of 30 days. If you or the insurer cancels your policy, the company could refund a portion of your premium. Your insurer must also give notice again typically 30 days before it chooses not to renew your policy. You should also ask the insurer for the reason behind the non-renewal.
PULLING IT ALL TOGETHER
Still for many people, insurance is just another piece of paper that is signed and filed away. It’s only remembered in case of unexpected worst situations.
Homeowner’s insurance is a financial agreement. Before applying for it, you should read the policy carefully, look for the right agent, have a complete knowledge of your coverage limits and update the property inventory. Through all this, you can then ensure that your hard-earned dollars will keep that roof over your head.
