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For those who own homes, shopping for insurance can seem like a painful process. Understanding homeowners insurance policies can be quite difficult.
Most people don’t understand what the purpose is, how policies work, what they cover, what they don’t cover, and how rates are decided.
However, ignorance is not bliss when it comes to your protection and coverage. Understanding your homeowner’s insurance policy will not only help make the shopping process easier but also help you feel in control of the process.
By the end of this guide, you will have a clear understanding of the purpose of your insurance policy, the coverage available, how to shop and save, and how to file a claim.
Why do You Need Homeowners Insurance?
Homeowners insurance or “home insurance” was created to cover your home and its contents.
It’s a policy line that covers both your property and liability for your property. Usually, your premium is based on the cost to replace your home and property inside.
Homeowner’s insurance is necessary for three main reasons. The first is to cover your property in case your home or personal property is damaged.
The second is for liability reasons. This is for any sort of accident that could occur on your property involving someone not covered under your plan. If someone was injured or killed, your insurance would help protect you in the case of legal fees.
Lastly, most mortgage lenders require you to have a policy. To be able to obtain and keep a mortgage, you must have a home insurance policy and the lender is listed on the policy.
Lenders require you to have an insurance policy so that their investments are also protected. When you take out a loan, the lender is investing in that piece of property. They don’t want anything bad happening to their investment before you finish paying them back the money they lent you for it.
Although it may seem like a high price to pay, compare it to the price of replacing an entire home and its contents and the decision becomes easier. Home insurance will protect you in any case of damage, accident, robbery, and much more.
It’s important to learn the different aspects of homeowners insurance policies because policies aren’t all created equal. Being fully aware of what you are paying for will ensure that you get the coverage you need while paying the right price for it.
First, let’s talk about the kinds of things that are covered under a home insurance policy. These include damages from the elements like fire, smoke, hail, lightning, ice, snow, explosions, theft, vandalism, trees, and even sudden plumbing, heating, ac, or sprinkler ruptures.
Things like floods or sewage backup, earthquakes, landslides, mudflows, war damage, damage from pets, pollution damage, and normal wear and tear are not covered under your insurance policy.
The type of reimbursement you get for these damages all depends on the type of policy you buy. This is why it’s important to be fully aware of what you are getting into beforehand so there are no surprises when perils arise!
Most home insurance policies cover the same issues unless stated otherwise. However, there are some policies offered that have modified coverages for older homes and condo unit owners.
There is also a form offered called a dwelling fire form which covers only fire and the dwelling itself. This is a more basic policy that is a popular choice for vacation homes.
You may have been surprised to learn that floods and earthquakes are not covered under traditional policies. In the case that you live in an area with a high risk for these natural disasters, you can obtain coverage.
This coverage can be sold as a completely separate policy, or you may be able to purchase an endorsement. An endorsement is essentially a clause added to your insurance policy that states modifications to your policy. These policies can be pricey, but worth it for those who are at high risk for these catastrophic events.
Another important aspect of your insurance policy is your deductible. This is the amount the insurer has to pay out-of-pocket before the policy will pay. Each policy is different, and the amount of your deductible will also affect the price of your policy.
How to Shop for Insurance
The best way to decide on an insurance policy is to shop around! You can visit this site to help you find insurance agencies in your area.
Contacting multiple agents, having them breakdown their policies and coverages for you, and comparing the options is the best way to decide on a policy.
Just because a policy is the cheapest does not mean it is the best. Focusing on both price and coverages will help you get the most for your money.
Your premium can be based on many different factors. The cost to rebuild your home, what your home is built with, the age of your home, emergency accessibility, the types of pets you have, having high-risk amenities like a swimming pool, and even past claims from your neighborhood can all affect the price.
Most of these things you cannot control, but there are a few things you can control to help save you some money. Choosing a higher deductible will help lower your premium significantly. However, it’s important to only choose a deductible that you can afford in the case of an emergency.
Also, insurance companies will also offer 5-15% discounts on your premiums if you bundle multiple insurance policies together. So if you choose to do both your home and auto insurance through the same company, it could end up saving you some money. Make sure you know what you look for when you start your research on how to compare home and auto insurance bundles.
Other things like buying safety devices for your home, keeping a good credit score, and making your home more resistant to catastrophes could all save you money as well.
The Importance of Understanding Homeowners Insurance
The process of searching for and buying home insurance doesn’t have to be a difficult one!
Understanding homeowners insurance is essential to making the process easier, while also making sure you are getting the right price.
For more home help, read up on How to Choose the Right Home.