Home Insurance: How to Get Smart Coverage

Young Latino couple looking at home insurance plans.

It’s important that you choose the right home insurance to protect your home and personal belongings.

Buying insurance for your new home isn’t a matter of maybe. It’s a must. Your mortgage lender requires it. And as a matter of financial common sense, you should have it for your own protection and peace of mind.

Here are some pointers on getting the best deal.

What’s Not Covered

Homeowners insurance is not just about what’s covered, but what’s NOT. Most standard policies cover your risk of loss from major hazards: fires, lightning strikes, roof damage, ice and snow, plumbing system breakdowns, explosions and stuff like that.

But ask about language buried away in the block print of the insurance contract that may limit coverage for situations like wind damage and long-term pipe leakages that produce huge repair expenses. If you’re in an area with exposure to periodic hurricanes, violent thunderstorms or tornados, standard policies may only cover a small portion of what you’ll need to spend. You might need extra or extended coverage to handle typical losses from a major wind event.

Comparison Shop

Comparison shop for home insurance like you comparison-shopped for a mortgage, checking out at least several competitors. You might start with the insurance company that already provides you coverage on your car. Insurers love to “bundle” policies and will give you a break on costs if they can sell you more than one type of coverage. Check out sample policies and quotes from at least one local “independent” agent — a company that sells policies for more than one insurer. Also get quotes from one or more insurance companies that sell direct to the consumer. Your builder, lawyer or realty agent can recommend sources for you to comparison shop.

Understanding Homeowners Insurance

Understand key working parts of homeowners insurance: deductibles, premiums and exclusions. Deductibles are what you’ll be expected to pay on a claim before the insurer has to kick in. The higher the deductible, the lower your premiums — your monthly or annual payments for the actual coverage — are likely to be. A $1,000 deductible will get you lower premiums than a $500 deductible.

Exclusions, which shoppers often miss but need to ask about up front, spell out damages or conditions the insurer absolutely refuses to cover, such as from floods or earthquakes. If your home is located in a designated flood zone, you’ll need to get separate coverage through the National Flood Insurance Program. Details are at FloodSmart.gov.

Protect Personal Items

Beef up on personal property loss protection, especially if you have lots of jewelry, silverware, antiques, rugs or other valuables. Standard policies provide coverage up to a set percentage of your home’s insured value, say 75 percent. But check out the limitations the policy has for specific types of personal goods. If you’ve got $10,000 worth of jewelry but your policy limits coverage to $2,500, you’ll want to buy extra coverage to close the gap. If you’ve got an antique Oriental rug that’s a family heirloom, get it appraised and purchase additional coverage for it. None of this extra protection should add a whole lot to your premiums.

To be certain of having all your possessions covered, take video or photographs and document what you’ve got. This will help immensely in the event you have to file a claim. As a general rule, opt for “replacement cost” coverage if possible over “actual cash value,” which may be a much lower amount in the current marketplace. That’s because the insurance company subtracts “depreciation” from the object’s original cost. A couch that cost you $1,000 eight years ago may only be worth a few hundred dollars in actual cash value today.

You should also consider getting “loss of use” or “additional living expense” coverage to handle temporary lodging and meal costs in the event that damage to your house is so severe that you can’t occupy it for a period of time.

Extended Replacement Costs

Go for Extended Replacement Cost coverage on the house itself, ideally with an inflation guarantee add-on. Your house is likely to appreciate in value over time. In the event of a total loss, you will want insurance money to rebuild it. Extended replacement cost coverage provides payments for rebuilding the structure up to a set percentage above the originally insured amount. An inflation protection guarantee keeps you more up to date with current market value changes. If you live in an area where prices are rising fast, you may want to get an updated market value estimate, or appraisal for your house, and adjust your insured amount upwards if there’s been a big change.

The world of home insurance is difficult to navigate. It requires you to anticipate what’s missing and know how to accommodate for this missing coverage at little extra cost. But, with a little research and careful consideration of your regional weather needs and the value of personal goods, you can feel good about the kind of coverage you’re receiving to protect one of your most valuable assets: home.
In addition to his articles for NewHomeSource, Ken Harney writes an award-winning, nationally syndicated column on real estate for The Washington Post Writers Group that appears in 90 newspapers.

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