Your home will probably be your most expensive life purchase. While there are no states requiring homeowner insurance, if you take out a mortgage, your lien holder will require homeowners insurance to obtain the loan.
In addition, with that much money and that many possessions at stake, it’s good to make a good homeowners policy purchase one of your primary tasks when buying a home.
Let’s take a look at some of the common coverages, the perils, and the premium impact factors of homeowners insurance.
Homeowner Policy Coverages
As a package policy, homeowners insurance combines more than one coverage type in a single policy. They include:
- Dwelling and Personal Property- This pays for damage to your home, garage and other structures. It also covers any damage or loss to your personal property.
- Personal Liability- If you, a member of your family or your pet become liable for injury or damage for a non-auto accident on or off your property, your liability will be covered.
- Medical Payments- Reasonable medical expenses will be paid if someone outside your family gets injured at your home regardless of fault.
- Additional Living Expenses- If it becomes necessary to move into temporary housing because of damage caused by a covered peril, your company will pay for reasonable and necessary living expenses.
Perils
Now that you know a little about homeowners coverages, following is a list of the perils at least minimally covered by your policy:
- Fire or Lightning; windstorm or hail; explosions; riot or civil commotion; aircraft; vehicles; sudden or accidental smoke damage; vandalism; theft; volcanic eruption; damage caused by glass or safety glazing that’s part of the building
- Objects falling from the sky; ice, snow or sleet weight; accidental discharge or water overflow from your plumbing system; freezing of plumbing; sudden and accidental damage to your water heating system; electrical surge damage
Exclusions
Your homeowners policy will list the things not covered, known as exclusions. These can include:
- Earthquakes; damage from a nuclear accident; damage from war; pollution; the land under your house; intentional damage; business use structures; defective construction; loss due to power failure; theft from a house under construction; freezing of pipes in an unoccupied, vacant or under construction house
- Wear and tear on a home, including deterioration, insect and rodent infestation, settling, cracking, bulging, or expansion of pavement walls or foundations, or damage from domestic animals
- Cars, trucks, vans, motorcycles, aircraft, and boats with anything more than a small motor parked on your property; tenant’s property
- Vandalism and malicious mischief, if the house has been vacant for more than 30 days
- Freezing, thawing, pressure or weight of water or ice to a fence, pavement, patio, swimming pool or dock
- Pets and other animals, birds, and fish residing on the property
- Losses resulting from the failure to protect property after a loss
You can purchase endorsements, additional coverage, adjustments or policies that provide the coverage you are seeking at any time. It’s best to do an annual review of your policy against your needs to make you’re covered properly.
Ways to Keep your Homeowner Premiums in Check
Here’s a list of actions you can take to control your homeowner insurance costs:
- Maintain a Good Credit History- Insurers sometimes use your credit information to price policies. So, keeping a good credit report can help cut your insurance costs. Review your credit report to make sure it’s accurate. (Note: In most states, companies have to inform you if they take adverse action because of your credit history.)
- Check for discounts- For example, if you’re 55 or older, you may qualify for a 10% discount. Companies offer several discounts. However, they vary so much, make sure you check what’s available.
- Install Home Security Systems- Discounts of 5% or more are usually available for smoke detectors, burglar alarms or dead bolt locks. Do your due diligence by checking if your insurer covers what you’re considering buying and if the savings, if any, are worth it.
- Increase Your Deductible- The deductible is what you pay on a loss before your insurance coverage kicks in. The higher the deductible, the more money you can save on premiums. For example, increasing your deductible from $500 to $1000 might save you 25% on your annual premiums.
- Multiple Policy Discounts- If you buy several policies (homeowner, auto, etc.) with the same carrier you can qualify for premium reduction.
- Don’t Insure Your Land- Leave your land value out when calculating your home value. The land is impervious to any of the 17 perils so it doesn’t need insuring.
- Make Your Home Disaster Resistant- If you add storm shutters, reinforce your foundation or roof or retrofit your home to make it stronger against earthquakes, you could be eligible for premium savings.
Homeowner Premiums
Home construction type, age and location, and are some of the factors insurance carriers look at when rating for perils on a home. For example, a brick building is more fire resistant than a frame building so the insurance may be less expensive. Newer homes can be more likely to withstand storm and fire damage making them less costly to insure than older homes.
Some areas have greater crime and vandalism which could also impact rates. Also, the amount of fire protection in the area can impact insurance premiums. Access to the fire department, water pressure and firefighter competence all can factor into your homeowner rates.
Other Homeowner Insurance Decision Factors
Consider the reputation and stability of the companies you’re comparing. Insurance companies get rated yearly by non-partisan agencies for their ability to pay claims. You can see insurance company ratings at A.M. Best (www.ambest.com).
Use the internet, consumer guides, online quote services and your agent to check the company’s claim paying process and reputation for paying claims fairly and on time.