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The Complete Guide to Home Insurance


Homeowners Insurance 101: Are You Protected?
A homeowners insurance policy provides homeowners with financial compensation should they suffer losses related to their home. It would pay for the structure and contents of your home if they were damaged or destroyed, as well as legal costs if someone is injured in your home or on your property.

Every homeowner needs homeowners insurance. Here’s what you need to know about it:

What does homeowners insurance cover?
Homeowners policies vary on what and how much they cover, but typically they’ll cover all or part of your financial losses related to:

  • The home itself, including the structure and its plumbing, electrical wiring and central air and heat systems.
  • Other structures on your property such as sheds and fences.
  • The possessions in your home, such as electronics, appliances and clothes, even when they aren’t located on your property.
  • Loss of use, such as paying for a hotel room while your home is getting fixed.
  • Personal liability (financial losses should someone get hurt on your property and sue you).
  • Medical payments for people who get hurt on your property.

What type of policy should you get?
There are a number of different kinds of policies — ranging from an HO-1 to an HO-8 policy — but most owners of single-family homes should opt for an HO-3 policy. This policy is fairly comprehensive, providing liability coverage and covering most “perils” to your home such as fire, wind and theft (but typically excluding flood, earthquake, war and nuclear accident). (The HO-1 and HO-2 policies cover less than the HO-3; the HO-4 is for tenants and renters.)

How much homeowners insurance do you need?
There are a number of things to consider when figuring out the details of your policy. First, ideally you will want to purchase enough insurance to cover 100 percent of the cost of rebuilding your home should it get damaged or destroyed. You can opt for an “actual cash value” policy option — this pays you what the property was worth at the time it was destroyed, minus depreciation — or something more comprehensive such as a “replacement cost” option, which does not factor in depreciation, or an “extended value” option, which will pay you up to 20-30 percent over your policy limit (so a $100,000 policy might have $120,000 – $130,000 worth of coverage; this is designed to protect you against things such as sudden hikes in construction costs due to storm damage). Go for the more comprehensive option so you can cover 100 percent of the cost to rebuild your home.

Next, consider the contents of your home. Make an inventory of your home’s contents (the Insurance Information Institute’s website can help you do this) to determine how much insurance you’ll want to cover your home’s contents. Again, rather than opting for an “actual cash value” option, go for a more comprehensive option, so you can afford to replace everything you own.

Make sure your homeowners policy has enough liability coverage to cover the total dollar amount of your financial assets, like your home, retirement accounts, investments, and anything else worth money.

You may also need to add onto the policy. Most standard homeowners policies do not protect you in the event of floods and earthquakes, so if you live in an area prone to these types of events, you may want to purchase extra insurance. If you have many valuable items in your home such as fine jewelry or expensive artwork, you may need to add a so-called personal property provision to your policy, which will make sure you are fully reimbursed for these if they are destroyed, damaged or stolen.

When should you buy homeowners insurance?
Most of the time, your mortgage lender will require you to purchase homeowners insurance before it will sign off on your loan (this protects the lender’s interest in your home). But even if you don’t have a mortgage, it’s a good idea to have homeowners insurance to protect your investment and provide liability protection. Review your coverage each year to make sure you still have enough coverage to meet your needs; remember, you can add on to your homeowners policy at any time.

How do you shop for homeowners insurance?
You have the option to get quotes from captive companies that offer homeowners insurance such as State Farm, USAA, Nationwide Mutual, and Allstate that only offer one product – their product. You can also use an independent company such as Bennett & Porter Insurance who will obtain quotes from a variety of A-rated insurers (20+) such as MetLife, AAA, Travelers, Allied Insurance, Mercury, Liberty Mutual and more, in search of the best rate and coverage. In regards to the affluent, Bennett & Porter provides additional carriers to accommodate the increased risk associated with greater assets and heightened exposure.

How much does homeowners insurance typically cost?
In very broad terms, expect to pay about $35 per month for every $100,000 of home value. People in risky areas ( areas prone to storms, crime and other perils) can expect to pay more, as can people who add extra coverage to their policies (for things such as floods or personal property). To save money on homeowners insurance, see if you can get a discount for holding multiple policies — like your home and car insurance policies — with one company. You should also call the company to ask how you can lower your rates (by installing a security system, for example), and consider raising your deductible (if you have the savings to pay the higher deductible, if needed). The estimate for cost is normally extraordinarily cheap.

What is a home insurance binder?
A homeowners insurance binder is basically a temporary homeowners insurance policy. It takes awhile to issue a permanent policy, so this policy may be issued in the interim until a formal policy is accepted or denied. Getting this policy can help facilitate closing on a home (because lenders require insurance).

Source: http://www.zillow.com/mortgage-rates/buying-a-home/homeowners-insurance/