As you embark on the exciting journey of homeownership, one of the most crucial steps to consider is understanding how to protect your new home. In my experience, many new homeowners often overlook the importance of this aspect. This guide is my way of helping you navigate the complexities of homeowners insurance, an essential part of protecting your latest investment.
In this comprehensive guide, I’ll break down the basics of what homeowners insurance is, what it covers, and what it typically excludes. I’ll also share my own insights on how to choose the right coverage for your situation, and I’ll even provide some quick tips that I’ve accrued over the many years I spent operating an independent insurance agency.
What is Homeowners Insurance?
As a new homeowner, you’re about to make one of the biggest investments of your life. It’s a decision that comes with a lot of excitement and, admittedly, a fair share of challenges. One of those challenges is ensuring that your investment is protected.
After all, what’s the point of spending all that time, money, and effort buying a home, if you’re just going to let Mother Nature take its toll a week later.
Homeowners insurance is the ultimate safety net for your home. It can help cover your financial loss in the event that your home is damaged, and even extend coverage to other structures on the property, as well as your personal property, inside the home.
But why is it so important? Well, let me give you an example.
Let’s say you’re living in the great state of Georgia, and one of those wonderfully timed tropical storms makes its way up to where you live. You thought living further north, near Atlanta, would keep you safer from hurricane season.
Well, you were wrong.
One day, you wake up to missing shingles, a tree leaning against the house, and the best part is the bill. You called a contractor in to give you an estimate, and he hands you an estimate for $11,000, to replace the roof. As if that wasn’t enough, you have to pay someone to chop the tree up and remove it – another $1,500.
See what I’m talking about? And if you’re thinking “Well, that’s got to be a pretty rare scenario” – it’s not. According to PolicyGenius, the average property damage claim, from 2016-2020, was $13,962.
My point is, many people think that insurance, in general, is a waste of money, but I disagree. Homeowners insurance helps mitigate huge financial risks, ensuring that you’re not left to handle the burden alone.
Key Components of Homeowners Insurance
Now, let’s break down homeowners insurance into pieces you can easily understand. It’s not just about signing up for a policy and forgetting about it. You need to know exactly what coverage you’re getting.
Here are the essentials:
- Dwelling Coverage: This is the big one. It’s all about the house itself – the walls, roof, and yes, even that garage you plan to turn into a man cave. If a storm decides to redecorate your living room, this part of your policy is what helps you pick up the pieces, literally.
- Personal Property Coverage: Think about everything you own – your TV, clothes, that fancy blender you never use. This coverage helps replace these items if they’re damaged or stolen. But be advised, if you’ve got something really pricey, like a diamond engagement ring or a rare painting, you’ll need to disclose those items because they fall under something called “Special Limits of Liability” – more on that later.
- Liability Protection: Imagine someone slips on your front porch and decides they don’t like you all that much. No common, but it can happen. This coverage saves you, and your wallet from the pain of legal fees and settlements. In most cases, the insurance company will actually go to court on your behalf, and you’ll like just need to give a deposition.
- Additional Living Expenses (ALE): So what happens if your home is absolutely wrecked? ALE has your back. It can help cover hotel bills, meals, and other costs when your home is getting a fix-up. No, it’s not a vacation, but it sure is better than feeling rain hit your face, through the hole in the ceiling.
Although I always recommend speaking with a licensed agent, having a firm grip on the basic coverages can definitely put you in a better position when shopping your homeowners insurance.
Navigating Policy Coverage and Exclusions
Alright, let’s dive into the nitty-gritty of what’s covered and what’s not in your home insurance policy. It’s like reading the fine print, but I promise to make it less boring, than it usually is.
Here’s the basics:
- What’s Covered: Your standard policy covers quite a few scenarios, but not everything. Typically you’ll have coverage for fire damage, wind damage, vandalism, or the occasional tree taking a nap on your roof. Joke’s aside, most modern homeowners insurance is considered “open peril” which is just a fancy way of saying “everything is covered UNLESS we’ve specifically excluded it”
- The Exclusions (aka The “Not So Fast” List): Of course, not everything is covered. The most common exclusions I warn everyone about are flood and earthquake coverage. I can assure you, no matter what company you choose to work with, these scenarios are likely not covered. You’ll need separate policies. Also, don’t forget, “wear and tear” isn’t covered either. The insurance company expects you to maintain your home, and they also assume that you are aware of your properties condition at all times. If your roof is 20 years old, don’t expect the insurance company to foot the bill. I highly recommend to have your home regularly inspected, and for you to create an annual maintenance checklist so you can be aware of your home’s condition.
- Special Limits of Liability: This one’s important, especially if you’ve got some fancy stuff. “Special limits of liability” is just another fancy insurance term for “you have to tell us about your expensive stuff so we can charge you accordingly.” This prevents someone from taking advantage of the insurance company, and fraudulently claiming more money for “gramma’s priceless $80,000 engagement ring” that they so happened to remember right when the house was burning down, and nothing could be recovered. We appreciate the effort, but that’s not going to fly.
- Policy Riders or Endorsements: Again, another weird insurance term, but you can think of these as add-ons to your policy. They’re usually quite cheap, and in most cases they’re optional. Most reputable insurance agents will add a handful of these “endorsements” to better tailor your coverage. When you’re going through endorsements with your agent, this would be the right time to disclose Gramma’s Engagement Ring – not during the claim.
Remember, the goal is to have a policy that fits your life like a glove. Not all policies are created equal. You don’t want any surprises when it’s time to file a claim. So, take your time, ask questions, and make sure you’ve got everything covered. It’s better to spend an extra $100 per year, instead of seeing them stamp “Denied” on a $30,000 claim.
How to Choose the Right Homeowners Insurance Policy
Choosing the right homeowners insurance isn’t just about finding the cheapest option. It’s about figuring out which company offers the best deal, and then tailoring your coverage to your needs. This is why I always recommend independent insurance agencies, over buying directly from the insurance company.
If you’re intent on carving this path, alone, then this is what you need to do.
- Assess Your Needs: First things first, grab a pen and some paper. Ask yourself some of the following questions:
– How much would it cost to rebuild my entire home?
– Do I need coverage for any other structures? (Pool, Gazebo, Detached Garage, etc)
– How much would it cost for me to buy all my things back, if I lost everything but the clothes on my back?
– How much financial assistance would I need if I had to live somewhere else for a year, and still pay my mortgage?
– How much of a potential claim can I, personally, afford?
- Compare Policies and Providers: Don’t just settle for the first quote you get, or the cheapest. Shop around. Compare policies from different providers like you would compare smartphones. Look at coverage, limits, deductibles, and, yes, the price too.
- Understand Your Policy: Read the fine print. Yes, it’s tedious, but it’s crucial. Know what’s covered, what’s not, and what the limits are. You don’t want to find out during a crisis that your policy is as useful as a chocolate teapot.
- Check for Discounts and Bundles: There are quite a few options to lower your pricing. Home Security discounts, paid-in-full discounts, new roof discounts. Insurance companies also typically love to bundle. If you’ve got a car, see if you can bundle your auto and home insurance. It’s like getting a discount for buying the full set. You might even save money on the car insurance, in the process.
- Review Annually: Your life changes, and costs are always going up. It’s important to review your coverages to make sure they would still take care of your needs, during the unthinkable. It’s also a good idea to update your agent when you make changes to your home, like remodeling your kitchen or bathroom.
- Seek Professional Advice: Talk to an insurance agent. We’re like the tailors of the insurance world. We don’t charge you any money to shop your coverage, and we can help fit a policy to your specific needs, ensuring you’re covered without paying for unnecessary extras. Look, you’re the boss and you make the final decision, but you could think of us like your personal advisor.
Remember, the right policy is one that provides adequate coverage at an affordable price, and fits your situation like a glove. Don’t rush the process. Take your time, do your homework, and make an informed choice. Trust me, it’s worth it in the long run.
My Tips for First-Time Homeowners
Stepping into your first home is a big deal, and getting the homeowners insurance right is a crucial part of that journey. Here are some insider tips I’ve accrued after writing over 10,000 Home Insurance policies.
- Start Early: Don’t wait until the last minute. The insurance companies don’t care about your timeline. If they want additional information, there’s noting you can do but supply it to them, and then wait the standard 3-5 business days (if you’re lucky). Start shopping for insurance as soon as you have a closing date for your home. It gives you enough time to compare options, make an informed decision, and removes the risk of pushing back your closing date.
- Understand Replacement Cost vs. Market Value: This is a biggie. Insure your home for its replacement cost, not its market value. Many people get this mixed up. Replacement cost is what it would take to rebuild your home from scratch, while market value is what you could potentially sell it for. The insurance company is insuring the cost to repair or replace the structure, not what someone might pay for it.
- Bundling Can Be Your Best Friend: If you already have auto insurance, why not just ask what your bundle rate might be? If you’ve already done a home insurance quote, then you likely only need to give them the VIN’s and your driver’s license number to run a confirmed auto quote. Most of the time, it’s cheaper to keep everything with one company, and your agent will likely handle the transition for you.
- Keep an Inventory: Document everything you own. Take photos, make lists, and keep receipts for high-value items. This makes the claim process smoother and faster if you ever need it.
- Raise Your Deductible for Lower Premiums: If you can easily afford a higher out-of-pocket cost in the event of a claim, consider raising your deductible. It can lower your monthly premiums. Just make sure it’s a cost you can handle comfortably.
- Don’t Underestimate Liability Coverage: This isn’t just about your property; it’s about protecting yourself from potential lawsuits. Make sure you have enough liability coverage, especially if you have features on your property that could increase the risk of accidents, like a swimming pool. In all honesty, personal liability is so cheap on homeowners insurance. The difference between a $100,000 limit and a $1,000,000 limit is usually less than $30 per year.
- Ask, Ask, and Ask Again: No question is too small or silly. Ask your insurance agent about anything you don’t understand. It’s better to ask now than to be confused when it matters the most. If your agent seems to be annoyed with the questions, or is rushing you to make a decision, it’s time to get a new one.
Remember, homeowners insurance isn’t just a formality; it’s a safety net for one of your biggest life investments. Make sure you understand your policy, tailor it to your needs, and stay proactive about your coverage.
And there you have it – a crash course in homeowners insurance for new buyers. From understanding the basics of coverage to fine-tuning the details, I hope this guide has shed some light on what can often feel like a confusing process.
Homeowners insurance is more than just a contract; it’s your peace of mind. It’s knowing that if life throws a curveball your way – like a storm or an unexpected accident – you’re not facing it alone. You’ve got a plan, and more importantly, you’ve got protection.
As you embark on this exciting chapter of homeownership, remember that the right insurance policy is a key part of building a secure future. Take the time to get it right, and don’t hesitate to lean on the expertise of professionals when you need it.
So, go forth, buy that dream home, and rest easy knowing you’re well-prepared for whatever comes next. Congratulations on your new home, and here’s to a future that’s both safe and secure!