Tuesday, June 9, 2020 / by Byron Brenes
Are You Covered? A Homeowner’s Insurance Guide
A homeowners insurance policy covers your home—as well as the belongings in it—in case of theft, accidental damage, or certain natural disasters. In fact, most financial institutions require that you purchase homeowners insurance before they issue a mortgage. While coverage varies, most policies also help to protect you from liability should someone outside your household become injured on your property. And that liability coverage is often extended to include damage you (or anyone living in your household) may do to someone else’s property.1
With all the protection offered, it’s equally important to understand what a home insurance policy does NOT cover. For example, homeowners insurance won’t pay to repair malfunctioning systems and appliances within your home. And terms vary, but standard policies typically exclude coverage related to floods, earthquakes, slow leaks, power failure, neglect, aging, faulty repairs or construction materials, and acts of war.2
Homeowners Insurance Covers Things Like:
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Most Standard Policies DON’T Cover:
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NARROWING THE COVERAGE GAP
So how do you minimize your risk when so many potential issues are excluded from a standard homeowners policy? Many insurers offer supplemental coverage options that can be tacked on to a basic policy. We explore this further in the section below on “7 Tips for Purchasing Homeowners Insurance.”Some homeowners also choose to purchase a home warranty, which covers many of the systems and appliances in your home that are NOT covered by homeowners insurance. Home warranties are separate from homeowners insurance, so if interested you’ll need to seek out a policy through a dedicated provider.
While terms vary, a home warranty will often pay to repair or replace components of your HVAC, electrical, plumbing, and some appliances that fail due to age or typical wear and tear. Unlike homeowners insurance, home warranties aren’t required by mortgage companies. But many homeowners like the added financial protection and peace of mind that home warranties provide.3
Keep in mind, if you do purchase a home warranty, you will still be responsible for paying a service fee, or deductible, every time you use it. And you will be limited to using service providers who are contracted through your home warranty company.
7 TIPS FOR PURCHASING HOMEOWNERS INSURANCE
Whether you’re shopping for a new policy on your first home or you’re considering switching providers on an existing policy, it’s important to do your research beforehand. Not all insurance policies—or providers—are created equal. A little due diligence can save you time, money, and hassle in the long run.
- Prioritize Service and Value
- Choose the Right Level of Coverage
- Inquire About Additional Coverage
- Decide on “Replacement Cost” or “Actual Cash Value”
- Consider a Higher Deductible
- Try Bundling Your Coverage
However, bundling isn't always the best or least expensive option. In some cases, you may find better coverage options, service, and/or pricing if you split your policies between multiple insurers. So be sure to consider all of your options before making a final decision.
- Reassess Your Policy Each Year
MINIMIZE RISK, MAXIMIZE VALUE
Now that you understand the basics of homeowners insurance, you should be ready to start shopping for a policy that best fits your needs and budget. Your goal should be to minimize your risk while maximizing the value your policy provides.
While you never want to leave yourself without a safety net should disaster strike, you also don’t want to overpay for insurance you don’t need (and will hopefully rarely use). Aim to strike a balance that will provide you with adequate protection at an affordable price.
NEED MORE GUIDANCE? WE CAN HELP
If you’re in the market to purchase homeowners insurance or a home warranty, give us a call! We get a lot of feedback from clients on the best (and worst) providers and are happy to share what we know.
We can also put you in touch with a trusted insurance professional who can answer your questions and help you find the best policy to meet your needs.
The above references an opinion and is for informational purposes only. It is not intended to be financial or insurance advice. Consult the appropriate professionals for advice regarding your individual needs.
Sources:
1. Insurance Information Institute -
https://www.iii.org/article/what-covered-standard-homeowners-policy
2. Insure.com -
https://www.insure.com/home-insurance/exclusions.html
3. American Home Shield -
https://www.ahs.com/home-matters/cost-savers/whats-the-difference-homeowners-insurance-vs-home-warranty
4. Insurance Information Institute -
https://www.iii.org/article/how-much-homeowners-insurance-do-you-need
5. Realtor.com -
https://www.realtor.com/advice/buy/buying-home-insurance
6. Texas Department of Insurance -
http://www.helpinsure.com/home/documents/acvvsreplace.pdf
7. Insure.com -
https://www.insure.com/home-insurance-faq/bundle-insurance-policies.html
8. National Association of Insurance Commissioners -
https://www.insureuonline.org/consumer_homeowners_ten_tips.htm
9. HomeAway -
https://help.homeaway.com/articles/Do-I-need-a-special-vacation-rental-insurance-policy-for-my-property