Even if you are not (yet) a homeowner, familiarizing yourself with the basics of home insurance can help you plan for the future. Purchasing a home is a major financial decision in life, so being prepared and having a plan goes a long way. Understanding the costs that come with buying a house will allow you to adjust your spending and credit behavior so you are ready to apply for a mortgage.
By understanding home insurance and taking specific steps to get adequate coverage, you slowly but surely will plant the seeds of long-term financial success, especially when it comes to things like polished credit, better financing and refinancing options, and a better overall risk profile.
What is Home Insurance?
Homeowner's insurance is the type of property insurance that protects private homes against perils as varied as fire, vandalism and a mishmash of meteorological events ranging from hurricanes to blizzards to floods to tropical storms. Coverage classifications run the gamut from dwelling and other structures to loss of use and personal property.
Insurance connoisseurs mean the same thing when they talk about "home insurance," "homeowner's insurance," or "hazard insurance." From a legal standpoint, the insurer covers everything from personal belongings and other home contents to liability that could arise if someone had an accident in your house or within a limited territory that fits within the policy coverage scope.
Home Insurance Policy Types
The Insurance Services Office has defined standard policy types that most insurance companies must comply with. So don't be surprised if you see the same policy applied from one company to another. Basic policy types include:
- Is one of the most basic homeowner's policies
- Some states no longer accept this kind of insurance (check with your insurance agent for more information about availability in your state of residence)
- Your house and its contents are covered against 11 perils
- Fire or lightning
- Glass breakage as long as the glass is structurally attached to the house or building
- Civil commotion or riot
- Malicious mischief or vandalism
- Hail or windstorm
- Fire and other perils causing loss of property on premises
- Broader coverage than what you get with HO-1
- Your house and its contents are covered against 18 perils
- The 11 perils covered by HO-1
- Collapse of building
- Weight of snow, sleet, or ice
- Freezing of domestic appliances, AC systems, plumbing, and heating
- Falling objects
- Sudden and accidental damage to electrical equipment
- Sudden and accidental damage to water systems
- Accidental discharge of water from within house systems as varied as plumbing, air conditioning, and heating
- This is a special homeowner's insurance policy that your insurer would customize to your needs and residence
- Your house and its contents are covered against 19 perils
- The 18 perils covered by HO-2
- All other perils, except nuclear accident, war, earthquake, flood, and other risks that your insurance company would indicate in your insurance policy. Check the fine prints as well as terms and conditions to figure out those perils.
- This applies to renters insurance
- It covers all 19 perils but excludes the dwelling itself-that is something that the property owner's insurance policy would cover. Note that HO-4 also includes liability coverage.
- This policy applies if you own a co-op or condominium
- Again, the actual structure is not covered because the owner's association normally provides the necessary structural coverage
- Your policy covers things like improvements you make to your co-op or condo, liability coverage, and personal property coverage
- This policy is suitable for older residences
- Covers HO-2 perils but reimburses the policyholder for repair expenses or the residence's actual value (this is because a peril, such as fire, could cost an insurer more to repair the house than the unit's fair market value)
Finding the Best Home Insurance Company
To select the perfect home insurance provider, start locally. Talk to the attorney who helped you during the closing process and/or reviewed paperwork like appraisal report, inspection report, deed, and promissory note. Then, reach out to local real estate brokers for more information. If you currently are a policyholder, ask your insurance agent if the organization provides home insurance.
Another way to get good home insurance information is to call your state's or city's Office of Insurance Commissioner along with your local Better Business Bureau branch.
Remember, you also can reach out to friends, relatives, and colleagues for more information.
Don't stop there, though. If real-life, offline information gathering does not work, go online. Check out the best home insurance companies and winnow down the list to providers operating near you.
Reducing Your Home Insurance Premiums
As a homeowner, you can reduce your insurance premium by doing a few specific things and talking to the right people.
Note, however, that the list below is not exhaustive and you should talk to your insurance agent to see whether there might be other tips not covered here.
- Stay with your current homeowner's insurance provider and ask for discounts
- Review the worth of your belongings and the limits in your policy at least every six months
- Seek out other rebates and reductions, such as seniors, members of the military or government employees
- Strengthen security systems in your home with the best home security systems.
- Increase your house's resistance to disaster
It's good to shop around and compare quotes before buying homeowner's insurance. Homeownerselect.com enables you to enter your zip code and compare quotes from multiple providers.
To get a quote, have information such as home type and occupancy status handy. Occupancy status means whether the house you want to ensure is your primary residence, a vacation property, a rental abode or a seasonal residence. Other data that may help determine your insurance coverage amount include requested liability, your credit score, the zip code and the requested content liability.
Bundle Your Services
You can save money on your homeowner's insurance if you combine it with other policies you have with a single insurer. Most large insurers offer multi-policy discounts, so talk to your insurance agent to see what options are available for someone willing to purchase insurance contracts as diverse as home, car, life and equipment with the same company.
For example, Allstate says you can save up to 30% on your home and 10% on your car if you combine both policies. The company also promises to give you more than 30 other discounts like deductible rewards and safe-driver reductions.
Raise Your Deductible
Raising your homeowner's insurance bill by increasing your deductible might sound like a non-starter, but it's the right thing to do in some circumstances. A deductible is a cash you dole out when the unthinkable happens - say, an accidental fire burns down your house completely or wreaks significant structural havoc. Your insurance agent can tell you more about how much you can save, depending on various deductible scenarios.
You also can use a simulator like this one to figure out how much you would pay in premiums based on the deductible amount range. Other financial specialists say you must augment the deductible as high as possible to reduce your premium, but just make sure you have that much money available to cover repairs and improvements when misfortune strikes.
Manage Your Credit Score
Review your credit report before applying for a homeowners insurance policy. That way, you can see in advance what the insurance agent will see when he or she delves into your credit report and can fix inaccuracies before they crawl back into your insurance file and increase your premium unjustifiably.
By law, the top three credit bureaus – Equifax, Experian, and TransUnion – must provide you with a free copy of your credit report once a year. If they fail to respond to your inquiry within 30 to 60 days, you have grounds to sue them.
Home Insurance vs. Mortgage Insurance
Home insurance and mortgage insurance are interrelated, but both concepts are distinct. Mortgage insurance protects your mortgage lender against losses that could result from things like job loss, poor health, your untimely death, and any other event that could make you default on your loan.
Within the insurance sector, mortgage insurance can be a generic term that can further be broken down into mortgage life insurance, private mortgage insurance and mortgage title insurance. All these coverage types serve to give peace of mind to your lending institution, so that it knows it wouldn't lose that much if you were unable to make good on your financial promises.
Home Insurance Recap
You have no ability to influence the premium that a prospective homeowner's insurance provider will quote to you. But by shopping around and doing your homework, you can boost your odds of getting a good deal, especially if you can show your insurance agent that competitors are offering the same service or coverage at more affordable rates.
Besides things like premiums, home insurance also pertains to elements as diverse as policy types, coverage types, and perils that are contractually excluded from a typical policy.