Buying home insurance is a bit more involved than shopping for car insurance. For most people, their home will be their largest investment – so it’s extremely important that you have good coverage, a company you can trust, and to know you’re not paying more than you should be.
In this guide, I’ll be breaking down all the coverages my agency recommends to our clients and a good strategy to investigate the carrier and agent you want to work with.
Let’s get into it!
Choosing the Right Home Insurance Coverage
Dwelling (Your Home)
Your dwelling coverage limit (listed as Coverage A on your Policy) is the maximum amount that your home insurance company will pay to replace your home, in the event of a total loss.
So I’m sure it goes without saying – you should make sure this limit is high enough to rebuild your home.
Your agent should be running something called a “replacement cost estimator” while quoting your home insurance. This replacement cost estimator, or RCE, helps the agent determine how much coverage you need for your home.
I always advise clients to ask for, and go through the RCE just to be sure the insurance agent has all of your home details correctly listed.
Personal Property (Your Stuff)
Personal property, or contents, will likely be your second largest limit.
It’s industry practice for the personal property coverage limit to be at least 55% of the Dwelling coverage limit – however you can adjust this with your agent if you feel that’s too much or too little.
It’s also worth mentioning that you need to tell your agent about any unusually high valued items.
For example, does your wife have an engagement ring? Maybe you have a Rolex, a priceless painting, maybe a gun collection? Really anything that has a self value of at least $1,500.
You need to bring these items up to your agent, because there’s a good chance they won’t be covered during a claim.
You see, most insurance companies impose something called a “special limit of liability” onto certain categories of your personal property.
So categories like cash, jewelry, art, or computer equipment – can be limited to something like a “$1,000 limit per item” or $3,000 per claim”
Obviously, you should consult with your agent first, but it would never hurt you to mention that you own such items. It’ll only make the claims process smoother in the long run.
Liability (Your Assets)
Liability is likely your most important coverage limit. At my office, we typically recommend at least a $500,000 limit – because it’s fairly cheap and we’d rather you be over-insured than under.
The reason I say liability is your most important coverage, is because it really protects your income.
If you lose your home or your car – you can rebuild from that. No it won’t be easy, and you’ll have to save for quite a while – but if someone sues you, and they end up garnishing your wages…..you’ll likely lose everything PLUS your ability to save and rebuild.
That’s something you can’t come back from, and I’d personally rather be safe than sorry.
Deductibles
Choosing a deductible is extremely important, and not many know that you actually have 4 different types of deductibles.
Wind/Hail Deductible, Hurricane Deductible, Endorsement Deductibles, and finally your All Peril Deductible.
Your deductible is also the amount of money YOU cover during a claim, so you need to select an amount that is affordable.
Most families will elect to have a max deductible of $2,500 or $1,000 – and we personally recommend $1,000, at my office.
Supporting Coverages
So “Supporting Coverages” are considered endorsements or “changes to the policy”
We add these supporting coverages to our home insurance policies because they can help approve claims that would normally be denied by the base policy.
The “bare bones” home insurance policy will do the job, but excludes quite a few scenarios that are common in certain areas.
So if your agent recommends an additional coverage – it’s likely because they were educated on the fact that these claims are happening, and not typically covered.
Extended Replacement Cost
This coverage can extend the dwelling replacement limit by up to 200% of the value stated, depending on the home insurance company.
As an example: If you have an “Extended Replacement cost of 150%” and your home is being insured for $250,000 – that means the carrier technically has increased your dwelling limit to $375,000 in case $250,000 is not enough.
This is particularly helpful during times of high inflation, when material costs can increase the cost to rebuild a home by 20-50%.
Inflation is a major issue for home insurance contracts because most policies are only reviewed annually, at renewal. If there’s a major spike mid-term – you could be underinsured which is NOT a fun situation to deal with.
Personal Injury Coverage
A relatively “cheap” coverage that not many know of. Personal offense is actually an optional coverage you can add to your homeowners, since it does not usually fall under the standard protection of your average home insurance policy.
Depending on the carrier, personal injury coverage can help cover:
- Libel and/or slander
- False arrest, detention or imprisonment
- Malicious prosecution
- Wrongful eviction or wrongful entry
- Associated legal costs
I always add personal injury coverage solely for the reason of libel or slander.
In today’s world, run by social media, it’s quite easy for someone to “slander” another, and all it takes is a free consultation at a law firm – to create your personal hell.
Water Back Up Coverage
Exactly as it states, Water Back Up Coverage is for when water backs up via clogged sewer lines, sump pumps, or sometimes septic tanks.
Water back up is not generally included on your standard home insurance policy, and it’s a pretty common claim (especially if you have a basement – failed sump pump)
Obviously you should always discuss this coverage with your agent or insurance carrier – but we typically add this to every policy we issue: at least a $10,000 limit. What exactly is covered under this endorsement, may change from carrier to carrier so PLEASE speak with a licensed agent.
At least they can call the company and confirm what scenarios are covered.
Contents Replacement Cost
Many clients are unaware that their home insurance policy typically only provides cash value (sales value) coverage for your personal property, whereas the most useful coverage option is replacement cost coverage.
To keep things simple, ask yourself this question:
“If I suffered a loss, would I want the money to replace my item with a new one, or would I want what I could sell it for?”
In most cases, you’ll want the money to replace your personal property – because time can devalue what your items are worth. It’s very unusual for common contents to appreciate in value.
Another example: Let’s say you buy a 55″ 4K Samsung TV for $1,000. Let’s say a year or so passes, now that technology is outdated (to some extent) and now it’s selling for only around $500.
That’s depreciation, and it’s something you can run into when you don’t have replacement cost coverage for your contents.
Roof Matching Coverage
What happens if you roof is only partially damaged? When does your home insurance policy dictate a complete replacement roof, or a partially repaired roof?
Well with Roof Matching, the insurance company gives you an additional limit used to repair the undamaged portion of your roof.
This can be extremely helpful with complex roofs that are only partially damaged, or roofs made of materials that are no longer available.
My agency recommended limit for Roof Matching is $10,000, unless the home is over 5,000 square feet – in which case we bump the limit to $20,000.
Loss Assessment
Loss assessment is a fairly cheap coverage that can help you in the event of a major loss affecting your home or condo associations community property.
An assessment is your share of a fee that may be charged against you from your home or condo association.
You’ll see this more commonly if a storm seriously damages some of the common areas that everyone uses, the homeowners association may charge a fee to the neighborhood to help with the costs associated with rebuilding.
If you live in an HOA, we usually send out a minimum $10,000 limit – but if your neighborhood is “higher end” and has things like golf courses, fountains, gated security, club houses, pools, tennis courts, etc.
We’ll usually bump that limit to around $50,000 due to all the higher valued property that could possibly be assessed against the community, if a covered catastrophe were to take place.
In terms of the cost to your home insurance policy, it’s fairly cheap ($10-$15 bucks per year) but consult with a licensed agent first.
Service Line Coverage
Service line is a relatively newer option for on home insurance, that can help you cover the cost of excavation, repair, or replacement of your service lines.
Service lines are your cable, your water, natural gas, electric – anything that powers or supplies your home, typically ran underground from the main-line in the street, to the meter on your home (side of the house)
The homeowner is always responsible for these lines, and the most common claim would be tree root damage – when the roots grow near the pipes and cause them to crack or burst.
We usually recommend a $10,000 limit to a typical homeowner with a standard length distance between their house and the street – however if they’re home is pretty far from the street, we’ll bump that limit higher to around $20,000.
Choosing a Good Company
Ask Around
Yes, it sounds stupidly simple, but we’ve found some of our best carriers came at the recommendation of roofers, plumbers, and general contractors.
Think about it – these trades work with insurance companies all the time when their clients file claims!
So wouldn’t they develop favoritism for the carriers that approve claims more often?
Bottom line, if you know a roofer, give them a call.
Check JD Power Surveys
Our favorite source of verified reviews is JD Power.
I always skip over places like Google, Bing, or Nextdoor for reviews because there’s an interesting dynamic at play in the insurance industry – related to customer reviews.
Think about it like this…
(and you may have participated in this)
Do you ever wonder why nearly EVERY insurance company has bad reviews online, but most insurance agencies have positive reviews?
Well, it’s quite simple – when a client has a good claim experience, they credit the agent for signing them up for the policy…
BUT – When the client has a bad claim experience, the agent usually pawns the experience off on the company…I mean they’re the ones who denied the claim….
Right?
So if you’re still following me, you’ll have realized (just like us) that online reviews can be extremely skewed and you should take them with a grain of salt.
JD Power has a verification process in place, and they have multiple surveys: property claims, auto claims, overall, home insurance studies, etc
Everyone who participates has to have filed a claim or been a verified customer within a specific period of time.
On top of that, they have a ranking system (1000 point scale) and they repeat the same surveys every year to show trends in quality service.
You can see the latest JD Power Property Claims Satisfaction Report by clicking here
It’s important to mention that there are hundreds of property insurance companies out there, so their mere presence on this these surveys means they’re good carriers.
Check Financial Ratings
Financial ratings are a letter grade provided to an insurance company, from a third party source. Most commonly, big names like Fitch Ratings, A.M. Best, Standard and Poor’s, Moody’s, and the Kroll Bond Rating Agency, can be used to tell if a company has the financial ability to pay their claims.
Obviously an extremely huge portion of WHO you end up going with, is if they have enough money in the bank.
Here at our office, we don’t work with any carriers below an A- rating.
Many times, we’ll get objections from our clients saying:
“Hey this COMPANY offered me $$$ less than you did?”
Our response EVERY time is: “Did you check the company’s financial rating, and did they match the coverage WE offered you?”
Most of the time, one of those (or more commonly – both) are “No, they/we didn’t”
Lowering your Costs
You can also lower your costs by either de-risking yourself or applying for optional discounts. Discounts are always available, and some need additional steps to be completed.
We found that most agents don’t bring discounts up to their clients, so it’s important that you ask your agent “Hey Mr. Joe, are there any optional discounts I can take advantage of?”
Check with your company or agent, first – this list will vary from insurance company to insurance company.
Automatically Applied Discounts
Multi-policy – A discount applied when you carry multiple products with one insurance company: typically bundling home & auto insurance
Pay In Full – a discount that is typically applied when you pay the entire policy up front
New Home Construction – a home that has been bought and constructed, for the client at hand.
Construction Type – discounts depending on the material the home is made of (frame, masonry, metal, non combustive)
Advance Purchase – a discount applied when you buy a policy a week in advance
Claims Free – a discount applied to accounts that are free of claims within 5 years
Optional Discounts to Investigate
Home Security Systems – if you have a monitored home security system, you’ll typically get a discount in exchange for providing a central alarm certificate
Water Leak Detection – having systems that detect and alert water leaks, can provide discounts on your homeowners
Home System Upgrade – upgrading systems like HVAC, Electrical, Plumbing, or any major home system; can result in a discount if you provide proof of installation
New Roof – having a roof that’s less than a year old, can sometimes provide a discount on your policy
Hail Resistance/Wind Mitigation – upgrading your home for wind/hail resistance will usually involve a discount, but you’ll be required to get an inspector to officially confirm the wind mitigation level
Gated Community – living in a neighborhood with manned security, at the entrance, can provide a discount
Full Sprinkler – having sprinklers installed by a professional company can result in discounts due to your lowered risk for fire damage
Although it was long, we hope this was an informative and useful article that outlines how to choose your coverage, choosing an insurance company, and some of the discounts you can utilize to help lower your costs.
Ultimately, you should always be seeking the best price once you’ve determined good coverage, and a good carrier to offer it.
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