Having the right amount of coverage is one of the most important aspects of shopping for home insurance. There are several types of coverage under a standard home insurance policy and each has its own limits. As a result, figuring out the differences between different policies can be tricky.
Home buying can be a very lengthy, complex process, so you might be tempted to with the quickest, cheapest, or simplest choice. However, making the wrong choice when insuring your home can be a source of massive financial liability. You need to choose a policy that provides you and your property adequate protection while still fitting your budget.
The Basics
Homeowners insurance offers you financial protection for both you and your property. That protection can extend to a variety of circumstances, including loss and damage, primarily.
There are two main types of policies you might have, a replacement cost homeowners policy or an actual cash value homeowners policy, which are two ways to cover repair or replacement if needed for your home.
Additionally, home insurance policies can include different types of coverage, such as:
- Personal property coverage
- Medical bill coverage
- Liability coverage
- Loss of use coverage
Personal property coverage protects the value of the belongings within your house in the event of damage. Most standard policies include coverage to around 50% of the value of your replacement cost limit.
Medical bill coverage kicks in when a guest is injured during an accident in your home. Regardless of who is at fault, medical bill coverage, with limits between 5,000 to $10,000 in most cases, will pay for the resulting medical treatment that is needed.
Liability coverage is financial protection against your financial obligations if an accident occurs to someone on your property due to your negligence. A common example is if someone slips and falls due to poorly maintained flooring or if someone is bitten by a pet that belongs to you.
This coverage can also extend to accidental damage you cause to others’ property. Standard policies include $100,000 in liability coverage, but most experts agree that homeowners should have policies with $300,000 to $500,000 in liability coverage.
Loss-of-use coverage applies when you are unable to live in your home due to damage, and it will cover the cost of temporary housing used while your home is being rebuilt or repaired.
What to Know Before Shopping for Insurance?
Homeowners should always know roughly how much coverage they will need for the replacement cost of their home.
In the event that damage to the home to be completely rebuilt, the policy should fully cover the resulting costs. That will help each homeowner evaluate if a policy extends enough financial coverage for their home.
This value can be determined by the market price of the home or can be calculated by the construction costs, such as material and labor, of the entire structure. Additionally, the homeowner should know what property they will need coverage for in the event of extensive damage in the home.
In cases where your coverage needs exceed a policy’s limits, you can often add on coverage in the form of riders or endorsements from that company. This also applies to damage from specific kinds of natural disasters, such as floods or earthquakes, which are generally not covered in standard home insurance policies.
So, if you live in an area that has different risks or concerns not covered in standard policies, you need to make note of these specific coverage needs so that you or your insurance agent/broker can keep them in mind as you shop for a policy.
Questions to Ask
Once a homeowner understands what their coverage needs are, they can take that information along with their budget to assess three major areas of each policy they research: coverage, cost, and conditions.
Coverage
- What are the limits for replacement cost?
- What kinds of other coverage does the policy include?
- What are the limits for all other types of coverage (personal property, medical bills, liability, and loss of use)?
- What add-ons, riders, or endorsements are available with the insurance company?
- What other types of insurance does this company offer that you need (i.e. auto)?
- How reliable is this company?
Costs
- What are the estimated premiums and deductibles?
- What discounts are there for premiums paid annually?
- What bundling discounts are available for and applicable to your needs?
- What discounts are there for alarm systems, new construction, or renovations?
Conditions
- What conditional limits are there for each type of coverage (replacement cost, personal property, medical bills, liability, and loss of use)?
- What rules does this insurance company have about notification of claims?
- What history of claims have been made on the house and how does it affect this policy?
Each company and each policy will provide a different combination of price, coverage, and stipulations that can result in a confusing insurance shopping process if you’re not properly prepared.
To make this process less painful for you, you need to understand what kind of coverage you need so you can do thorough research. If you are ready to ask these questions about policies and using help from insurance agents and brokers, you will be able to find the right policy for your home in a much simpler and more straightforward process.
