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Property & Finance Real Estate // Importance of Home Insurance
Of all the many concerns homebuyers have to deal with, the one that often fails to get adequate consideration is home insurance. Almost all mortgage lenders require buyers to take out a home insurance policy. They want to protect the investment they are making in the home. The home purchase is also an investment for the homeowner but many buyers don’t pay enough attention to the question of how adequate the insurance policy really is. Does it protect their investment?
Unfortunately, many of us can’t answer this question until some disaster strikes and we then learn exactly what our homeowner’s policy covers and what it doesn’t. At that point, we may find we are underinsured. A recent study in the state of Victoria found that 25% of homeowners were in the underinsured category. To protect yourself, here are the key coverage areas a good homeowner’s insurance policy should include:
The minimum mortgage lenders will accept in a homeowner’s policy is the amount of the mortgage; but this amount is rarely sufficient to rebuild the home if it is destroyed by fire, as an example. If you put down a large down payment on the home, you are automatically underinsured at the time you purchase the house and you will sink deeper into that hole as the home appreciates in value and building costs in your area rise. Smart homeowners review their coverage amount and raise the limits periodically to protect against rising replacement costs.
Personal Contents
Standard homeowner’s policies cover the personal contents of your home for about 50% of the total value of the policy. If you own antiques or other collectibles of high value, this amount may be inadequate. Many people really don’t give a lot of thought to the things they own and have collected over the years. It’s a good practice to inventory everything you have in your home to see if you are adequately insured in the event of a total loss.
Personal Liability
If someone gets injured in your home or on your property, you could be sued for damages. Generally, smart lawyers don’t try to sue for more than a homeowner is capable of paying; so the more assets you own, the higher the liability coverage you should carry in your homeowner’s policy.
Living Expenses During Home Repair
Smaller fires that do not totally destroy your home can make the home uninhabitable while repairs are in progress. Does your policy cover living costs you will incur while you live elsewhere until your home is ready? Is the amount adequate?
“Acts of God”
Many residents of New Orleans in the United States were shocked to learn their policies did not cover flood damage, since events like flooding and earthquakes are considered “Acts of God” by the insurance industry. You can add a “rider” to your policy to cover events like these if you live in a potentially threatening area.
While homeowner’s insurance is too important to simply shop for the lowest priced policy, there are ways to save on the cost of a good policy. Many insurance companies offer discounts if you insure both your home and your vehicles with them. You can save as much as 15% of premium costs.
Instead of lowering coverage amounts, raise your deductibles. While this might cost a little more out of pocket, you’ll experience significant savings in premiums over the life of the policy. The Internet has made comparing policies much easier as you can now find sites which offer comparisons of standard policies across companies. Once you narrow your choices down, make you sure you research a company’s claims history. Not all insurers are created equal when it comes to paying after a disaster.
