If you’re thinking about buying a new home, you’re probably already aware that homeowner’s insurance is mandatory. Mortgage lenders aren’t going to loan you the money for your new home without it. So you know you have to get it. However, there are several details to keep in mind, and not all of them are obvious.
Why You Need Insurance
The most obvious reason you need homeowner’s insurance is the one I just stated – you can’t get a mortgage without it. Your lender is giving you a lot of money, and the home is the only collateral they have. They want to make sure it’s protected.
However, just because you have to have insurance doesn’t mean you should get the cheapest thing you can find. Fire, flood, earthquake, falling trees, hail storms, vandalism or burglary could all result in substantial loss. When you’re talking about as much money as you’re spending on your home, a loss could significantly set you back. Insurance might cost a lot every month (it probably does if it’s worth having), but if it means you don’t wind up living under a bridge and in debt for the rest of your natural life, it’s worth it.
What to Insure
The most obvious thing you’ll be insuring is the home itself. It’s also the most mandatory portion.
For your own peace of mind, you’ll also be insuring the property you keep in your home. Furniture, electronics, the kids’ toys, your power tools – these are all covered by your insurance policy. But – and this is important – you have to know they’re there.
[Here’s a tip – your insurance provider probably has an app that will help you create an inventory. It’s a good idea to do that BEFORE you lose your stuff.]
Another handy thing that your insurance will cover is called loss of use coverage. When you can’t live in your home because a tornado dropped a sedan in the kitchen, the insurance will pay for the hotel or rent house. They’ll also throw you a few bucks if you have to eat out for a few weeks. Just don’t expect some kind of meal stipend – the insurance will only cover the difference between your normal grocery budget and the expense incurred when you have to eat out every meal for a week.
Finally, you have the part of homeowner’s insurance that just feels unpleasant – liability insurance. When the neighbor’s kid hops your fence and breaks his leg falling out of your tree, the neighbor could sue you. Fortunately, your homeowner’s insurance will help cover legal fees and protect your assets if you or your family are responsible for injury or damage to other people.
Insurance Mistakes and Pitfalls
- You might think your coverage includes a home rebuild if damaged. But code upgrades can cause massive cost overruns. If you have an older home, you may have to replace plumbing, wiring, insulation or other elements to get them up to code.
- Most policies exclude flood and earthquake insurance. Learn about the most common hazards in your area and make sure you’re covered.
- Business coverage obviously won’t be useful for everyone. But if you do run a business out of your home, your homeowner’s insurance won’t cover that.
- Seriously valuable belongings like expensive jewelry or collectibles are typically capped for repayment value.
- Depreciation can take you by surprise if you’re not prepared for it.
Most insurance providers offer more than just homeowner’s insurance. Not to mention they would love to be your one-stop shop for car, motorcycle, boat and supplemental insurance. Talk to your provider and get quotes for bundled insurance. In many cases, you can save a considerable amount by getting all your insurance from the same company.
The worst thing that can happen is to find out that your affordable insurance won’t pay their claims. Before you choose a provider, do a little internet research and find out what kind of reputation your potential pick might have. Bigger names tend to pay better, but it’s not uncommon to find a local agent who will make sure your claims get paid quickly. Our house fire was pretty horrible, but the insurance company we had took care of everything so well that they made a catastrophic situation merely a rough couple months. They cost more than some alternatives, but when we needed them, we were glad we didn’t go with the cheapest provider we could find.
Filing a Claim
This is one of those things you really hope you never have to do. It’s funny, you spend thousands of dollars over the life of your home, and you hope it was all for nothing. But when that worst-case scenario happens, when burglars make off with your home entertainment suite or your water heater gives out and fills your living room with tepid water, you’ll be glad it’s there.
- The first step is to call your provider. If you have a local agent, call them. This is, unfortunately, just the first step. Your provider can walk you through a lot of the steps, but it helps to know what to expect.
- If your loss was the result of a crime, your first step is really to call the police. Get names of all the officers and document everything you can – your provider is very likely to ask for that information.
- You might be inclined to start cleaning up while you wait for the adjuster. Don’t do that.
- Make sure your property is secure while you wait. Make sure to lock your home if you leave. Or that someone is keeping an eye on the place.
- Photograph everything. The more detailed a report you can file, the happier you will be.
- Your adjuster may recommend vendors to do the work you need. Keep in mind that you are not obligated to use their recommended vendors.
- Documentation is the key to compensation. Record every expense, keep every receipt, and get the names of every person who will be handling your claim.
- If there are things with irreplaceable personal value it’s not a bad idea to keep them with you.
Homeowner’s insurance can be tricky, but it can also save your home. Take the time to understand what you need to do to protect your home and your family, while enjoying the peace of mind knowing you’re covered.