There are plenty of people out there who simply don't know a lot about insurance. When it comes to buying a home, they might be eager to pick out the decor, arrange their furniture, and even mow the lawn but find the very idea of shopping for homeowners insurance perplexing.
If you're in this camp, stick around. We'll go over ten basic things that will help you understand homeowners insurance and empower you to make informed decisions before singing the contract.
What Is Homeowners Insurance?
Homeowners insurance provides financial protection against disasters, vandalism, and other damages to your home. It will provide coverage for your possessions as well (although some items might need Personal Property Floaters). It might even cover damage caused by your pets.
You can also opt for package policies that combine property and liability insurance into a single bundle.
The following facts and tips will help you figure out what kind of policy you need.
1. Different Damage, Different Policies
Homeowners insurance typically covers damage caused by the majority of disasters, but there are some exceptions like poor maintenance, earthquakes, and floods (see Does Homeowners Insurance Cover Natural Disasters? for more details). For certain risks, you'll need a specific form of coverage, such as earthquake or flood insurance. Maintenance issues and other forms of neglect, however, are literally your own problem.
2. Coverage for Personal Belongings
This normally includes clothing and furniture, and will often range over other items like electronics and sports equipment. The policy offers protection from damage due to fire, theft, and other listed perils.
Coverage for more expensive items, like jewelry and antiques, often have a limit (find out more in An Intro to Insurance Sublimits). So, make sure you assess your property and figure out whether you'll need any special protection for your valuables.
3. Shop Around a Little
When you're feeling overwhelmed, it's easy to just settle on the first policy you find. But you should contact a minimum of three insurance companies before purchasing. By comparing the coverage and rates they offer, you could end up saving on your premium, and those monthly savings will add up quickly.
4. Ask Questions About Your Coverage
Before anything gets set in stone, make sure you've asked all the pertinent questions about your coverage. Don't be shy; get all the information you need to be sure your coverage will be enough. Don't sign the contract before you know whether the policy will cover your property when it's outside the home and how much protection it will give for your shed, deck, or garage.
5. Understand the Policy Details
Poring over an insurance document is nobody's idea of fun. But you need to make sure you understand the policy thoroughly before you settle.
Does the policy have a deductible? Is it a reasonable amount? What kind of liabilities does it cover you for? What kind of exclusions are listed and can you live without that protection? Know the answers before you lock yourself into a contract (feel intimidated by the policy language? Check out these 25 Key Personal Insurance Terms You Should Know and Understand.)
6. Escrow Your Payments
This means that you pay premiums and property taxes through your escrow account, like with mortgage payments. Lenders actually prefer getting paid this way.
7. Ask About Discounts
Insurers offer plenty of discounts and you might be able to take advantage of some. Having an alarm system, for example, lowers the risk of break-ins and thefts. That gives you peace of mind, bu it can also translate into a lower premium for making your home more secure (find out How Smart Devices Can Protect Your Home and Help You Save on Insurance).
8. Double Check Your Policy
So, you followed our advice and made sure you understood the policy back and forth. Great! But now you need to make sure everything's in place. Double check the document to make sure there are no mistakes and that your responsibilities and rights are spelled out crystal clear in the document. Remember, this is a legal contract so all the details matter.
9. Shop in the Right Places
There's a lot of money involved here. When your home needs major repairs or you need expensive personal effects replaced, you'll need your insurance company to come trough for you. That's why you need to deal with a reputable company (and be sure to find out How to Choose an Insurance Company That Won't Go Out of Business).
Start by asking friends and family who they deal with and what their experiences have been. But don't just take their word for it; do your own research as well.
10. Cheap Insurance Could End Up Costing You
If a company gives you a cheap quote, find out why. If you're lucky, you've struck gold and found a great deal. But most of the time, you get what you pay for. Cheap policies tend to have more exclusions or higher deductibles. You'll have cheaper payments, sure. But you might be left to pay out of pocket for repairs.
The home insurance buying process can seem intimidating from afar, but if you go into it with a little knowledge, it's really not that bad. Keep these tips in mind and you will be able to find a policy worth your while.