Homeowners Insurance: 3 Things You Need to Know
For most of us, the purchase of a home will be the biggest single outlay of cash we’ll make in our lifetime. Along with the arduous process of applying for a mortgage, you’ll also have to choose homeowners insurance, another necessary evil in the home-buying process. I don’t know about you, but spending money on insurance is about as desirable as having my eyes dilated – it’s necessary and I know I’ll be glad I did it in order to protect what’s important to me, but it’s still not my favorite thing.
When it comes to selecting levels of coverage, it can be tempting to go with the cheapest in order to save money. But unless you have a significant stash of cash set aside for unexpected house issues like damage, robbery or fire, it’s worth it to make sure you’re properly protected by your insurance. I don’t sell insurance, but as a Personal Finance Specialist, I advise people to maintain certain levels of protection and here a few things to keep in mind when it comes to selecting a policy:
Perils coverage: This has to do with the types of things that could go wrong and whether your policy will cover them. All policies cover the basics: fire, vehicles (as in a car running into your house), lightning, smoke, windstorm, vandalism, hail, explosion, riot, theft, aircraft (heaven forbid!), and volcano. Riots and volcanoes?!? Yep. Seems like that covers most things, right? Not necessarily.
The next level of coverage, called “Basic Named Perils” also includes falling objects, weight of ice/snow/sleet (necessary for my fellow Midwestern Career Girls), accidental overflow of water (especially useful if you have kids who might decide to put all of the toilet paper in the toilet and try to flush), sudden bursting of appliances, freezing of system or appliance and damage from electrical current. These are the things that are much more likely to go wrong in your home, so you should make sure you’re covered for them.
But the best coverage is the policy that covers “Open Perils,” which means your insurance will pay for anything that damages your home unless it is specifically excluded in the policy. This is usually a short list of things like floods and earthquakes.
Personal property coverage: This is the limit of what you would be reimbursed for the items inside your house should you experience a loss. Most policies start with $10,000 of personal property coverage, but let’s be honest: if you had a house fire and lost everything, would $10,000 be enough to buy everything you need to start over? Probably not. Consider buying at least $50,000 of personal property coverage (more if you have a designer shoe collection that rivals Imelda Marcos or an extensive home theater) and make sure you take the time to create a property inventory to reference in case you need to prove any losses. A home inventory can easily be achieved by making a quick video walk-through of your home – just make sure the video is stored somewhere that you could access it should your phone or camera be stolen or destroyed.
Loss of use: If you do have a house fire or other damage that renders your home unlivable for a period of time, you’ll want to have a policy that allows for adequate hotel living expenses. Not only is the dollar amount/number of nights important, but your choice of insurer comes into play here as well. Discount insurance companies are notorious for making it a hassle to take advantage of this coverage, which is the last thing you want to worry about when you’re homeless and dealing with a stressful loss. It was worth it to me personally to purchase my policy from a company with a reputation for generous hotel reimbursement with very little questions asked, even if it costs a little more money per year.
It’s tempting to cheap out when you consider all the other costs that go along with buying a home, but securing adequate homeowners insurance is one of those areas that will make you glad you went with the better options in the event you need it.