Asking these questions can help you get the coverage you need at a price you can afford.
Although purchasing insurance is not as enjoyable as buying new furniture or paint colors, it is a crucial part of homebuying. Your homeowners insurance policy is a financial safety net in case of a disaster, so you’ll want to ask a few important questions to make sure you have the coverage you need at a price you can afford.
How much is the area of your dwelling?
Imagine if your policy doesn’t cover enough to rebuild your home after a fire ravages your house. This could happen if the dwelling coverage, which is the portion of your policy that covers your home’s structure, is not sufficient.
This can be prevented by refusing to accept the amount of coverage that your insurance company recommends for your first dwelling. Ryan Andrew, president and chief executive officer of The Andrew Agency, an independent agency that provides insurance services in Washington, D.C., Maryland, Virginia, and Washington D.C., says, “Insurance companies use substitution cost calculators, however, they’re not 100% precise by any means.”
Amy Bach, executive director at United Policyholders (a non-profit that advocates for consumers of insurance), suggests that you ask your insurer for an accurate estimate. Ask a local builder who is experienced in new construction for a cost estimate of your home’s reconstruction.
After you have chosen a suitable dwelling limit, consider adding extended coverage for replacement costs to your policy. Your insurer will pay you 10% to 50% more for this coverage to help you rebuild. This coverage could save you thousands of Dollars if prices rise due to unforeseeable reasons, such as a shortage of lumber or high demand following a disaster.
Guaranteed replacement cost coverage is a more expensive option that will pay for your home rebuild regardless of its expense.
Are there multiple deductibles?
Homeowners may not realize that on some policies, higher deductibles may apply for claims due to wind, hail, named storms or other disasters.
Imagine a hurricane causing wind damage to your roof. Andrew says that your insurance policy may have a wind-deductible of 5% on your dwelling coverage instead of the $1,000 deductible that applies for most other claims. If your house was insured for $250,000, then you would have to pay $12,500 for any damage.
Comparing quotes from different insurers can help reduce or eliminate high deductibles.
Your policy might have exclusions that surprise you. “Flood insurance, which is excluded on almost all homeowners policies, is definitely a big one,” Andrew says, adding that this is especially important for homeowners with finished basements.
Andrew warns that even houses located far from a body of water can flood during heavy downpours. Standard homeowners policies are unlikely to cover such damage.
You can buy flood insurance through companies that participate in the National Flood Insurance Program. In 2019, the average flood claim payout was $52,000.
Andrew recommends that you add water backup coverage to any policy. This covers damage to your home from water backing up from sump pumps, sewer lines or other water lines.
A common coverage gap is keeping current with building laws. Bach states that if you need to make changes when you are repairing or replacing your home because codes have changed, most policies will not cover you.
Andrew says that even though this can be expensive for older houses, Andrew says “even a house built five years ago has to comply with code.”
Andrew and Bach both recommend that you add ordinance or law coverage in your policy to cover these expenses.
What can I do to save money?
Although having the right coverage is more important than just paying the minimum, there are ways to save money. Andrew recommends purchasing your homeowners, car, and other insurance through one company to get bundling discounts. This can help you save up to 20%.
Bach states that raising your deductible is the best way to lower the cost without sacrificing coverage. Your premiums will be lower if you are willing to make smaller repairs than you would if you file a claim.
Talk to an agent if you have any questions about your coverage or discounts. Andrew advises that it’s worth taking the time to fully understand what you are purchasing. A house is the most valuable asset most people have.