Homeowners insurance can be a little confusing but it’s also important. For most Americans, their home is their greatest asset and homeowners insurance protects it. This guide will help explain some of the coverages and is a helpful tool for navigating your homeowners insurance purchase.
Before I get into the good insurance stuff, a quick disclaimer: This guide speaks in general terms and every policy, home, insurance company, and claim are different. It’s always advisable to review your specific policy and situation with a licensed agent. You know, like us here at Safford Insurance (just saying).
Let’s get started! Here are the top ten tips and considerations when buying homeowners insurance:
1. Start Early
When you’ve found a house to purchase, or when you want to review the insurance on your current home, contact your insurance agent right away to make the process as smooth as possible. In many cases, a home insurance policy can be quoted and ready in a couple of hours. Other times, it may take a few days for an agent to find you the best pricing or coverage. Give yourself the best opportunity, don’t delay!
2. Understand what home features might cause delays or increased cost
No two homes are the same. Underwriting is when an insurance company reviews the risk factors of a house, and the more complex the situation, the more time it will take for your insurance agent to find you the best value. Here are the kinds of things we’re talking about:
- Claims: If you OR the property you're insuring has had homeowners insurance claims in the last 5 years, you’re likely looking at increased costs or reduced coverage. Fire, theft, and water claim claims particularly need additional consideration by the insurance company.
- Coastal exposure: If you're within a few miles of the coast, your options can be limited or more costly.
- Intended use: Is this a vacation home that will sit unused for periods of time? Are you planning on renting the home out on a short-term basis? These may require extra work by your agent to make sure you have the right coverage and get the best pricing.
- Pools: For the most part, pools don’t pose an issue. However, having a diving board, slide, or inadequate fencing may narrow your insurance company options.
- Trampolines: Most insurance companies won't accept homes with trampolines. Other companies have coverage exclusions for trampolines, meaning if someone gets hurt on the trampoline and you get sued, you wouldn’t be covered.
- Animals: Certain breeds of dogs will make it hard to secure homeowners insurance. If you want to learn more, here's an awesome article about dogs and insurance. Exotic, pack, or unusual animals may also need special attention to find the right coverage.
- Condition: “Pride of ownership” is a common term around insurance companies when talking about what they're looking for. Insurance companies like homes that are well-maintained. Siding and paint should be in good condition, the yard and bushes reasonably well kept, outbuildings in good shape, sidewalks and steps without significant cracks, and no debris or trash laying around. That said, homeowners coverage can usually be found for homes that need some work, just be prepared to pay a little more.
- Home age: Generally speaking, the older the home is, the more expensive it will be to insure it. On one end of the spectrum, you have new homes that get a major pricing break (through new home discounts). On the other end, you have historic homes on stone foundations that are required to be restored to exacting standards after a claim, and these can cost a small fortune to insure. Of course, most homes fall somewhere in between.
- Roof age: Some companies won’t accept a roof over 15 years of age while others use a sliding-scale pricing based on the roof’s age. Often, the newer the roof, the better the pricing.
Pro-tip: Let your agent know when you’ve replaced your roof as this may reduce the cost of your insurance.
- Updates: If the home is roughly 25 years old or older, insurance companies start asking about updates. Usually, they want to know when the roof, plumbing, electrical, and heating/AC systems have been last updated. If you’re buying a house and aren’t sure when the updates were completed, talk it over with your insurance agent and a good estimate of update age may be used.
- Others: There are plenty of other situations that could be added to this list (e.g. a home businesses or hobby farming). The more you tell your agent about the house and how you plan to use it, the less likely you are to have coverage gaps at the time of a claim.
3. Consider putting your home & auto insurance with the same company
Wanting to focus on the task at hand is understandable, so it may be tempting to want to just insure the house now. But that may not be a good idea; looking at the whole package may prevent coverage gaps and result in cost savings. A good agent will usually ask to review your whole account for two reasons:
- To ensure all your insurance fits well together and . . .
- To make sure you’re getting the biggest discounts and credits (e.g. multi-policy or account credits).
However, there are times when splitting an account across insurance companies makes sense. This is where a good independent agent is important to minimize gaps in your coverage. Common reasons for placing your homeowner insurance and auto insurance with different companies are:
- Cost savings: Company A has an awesome rate on the car insurance but a terrible rate on the home insurance, and Company B has the reverse situation.
- Acceptability: There are times when a home must be placed with a company that doesn’t offer auto insurance. This is common with coastal properties or properties/owners with a history of claims.
- Coverage: Sometimes it’s in your best interest to split companies when specific coverages are needed. A home business, farm exposure, or historic homes are all good examples of this.
4. Use an Independent Agent
There are three main ways to buy home insurance:
- Independent Agent: Independent agents can access many companies to find the right coverage, fit, and value for your unique home and family. This means you get a licensed agent to work with and options. Using an Independent Agent also means when it benefits you to change insurance companies down the road, you can keep working with the same agent who already has your information and knows your story.
- Captive or Direct Agent: These types of agents can only sell a single brand of insurance. Here you get an agent to work with but only one insurance company option.
- Online: Since you're the one reviewing the company and picking the coverage, you're expected to be the coverage expert. With this option, if anything goes wrong, it's you vs. the company with no dedicated agent to help you.
Am I biased towards the Independent Agent option? You bet I am! I'm a believer in the Independent Agent system not because I am one; rather I became one because I believe the Independent Agent system is best for the customer. After all, would you use a Realtor® who can only show and sell you one house? Purchasing options and professional advice are both very good things when it comes to protecting your property and investment.
5. Understand the coverage and deductibles
Coverage is the reason for buying insurance. You hope you don't use it but you want it to be there if you need it. Not every home or family needs every coverage but here are few of the main coverages you'll want to consider when protecting your home, assets, and income:
- Dwelling coverage: Make sure you have enough coverage to handle a total loss. New construction is expensive, but reconstruction is even more expensive due to debris removal and the emergency nature of the construction. It’s widely reported that roughly 2 out of every 3 homes in the U.S. are underinsured.
- Extended dwelling coverage: This coverage is to protect you from spikes in cost in material or labor (as often happens after a natural disaster). This low-cost coverage provides and extension of your dwelling coverage, usually as a percentage of the dwelling coverage amount.
- Personal property: Most of us tend to underestimate how much we have and how much it would cost to replace it. Remember, you’re not going to want to have to bargain hunt for months when you’re shopping to replace damaged items that you need now.
- Liability: Homeowners insurance is more than just coverage for physical damage to your home and personal property. It also provides liability coverage that helps protect your assets and income from lawsuits arising from accidental injury to another person.
- Personal injury: This extends liability coverage to losses from liable, slander, and false arrest. Personal injury claims are rising in frequency and this is a critical coverage in our social media and litigious world.
- Sewer backup & sump pump overflow: This is a good coverage to have in general, but if you have a basement, it's even more important. This covers you for water that backs up through your sewer lines into your home. It also provides coverage for overflow from a sump pump (often because of a sump pump failure). The value in the coverage becomes immediately clear when you’re looking at a cost of many thousands of dollars in repairs after a couple of inches of water in a basement.
- Service Line: Typically, homeowners insurance won’t cover sewer, water, gas, or other service lines between the street and your home (or personal well and septic to your home). But tree roots, collapse, corrosion, and more can create costly damage and leave you with a nasty bill. Service Line coverage fills the gap and can cover buried utility lines leading to the street or private well or septic.
- Equipment breakdown: The best way to understand this coverage is if it breaks it’s probably covered, and if it’s just worn out, it’s probably not. This typically covers your personal property and home systems from mechanical breakdown and electric short. The electric short coverage is handy if you have a power surge that knocks out your TVs, gaming systems, alarm system, etc. Commonly covered items are furnaces, A/C units, pool pumps, and home appliances. It doesn’t cover regular wear and tear (for that, you need a home warranty). Providence Mutual has a very nice interactive equipment breakdown experience.
- Heating oil/Fuel escape: For homes with an oil tank, this covers you for oil leaks and the cost of clean-up. Make sure you get both the liability and the property damage coverage parts.
The deductible is the amount you pay towards damages, and insurance companies can offer significant reductions in premium (the cost of your insurance) in exchange for higher deductibles.
Some companies offer different deductibles for different kinds of claims, and this can be confusing and leave you with a surprising bill at the time of a claim. Be sure you understand what these differences mean to you; an independent agent can help you work through the details.
6. Don't skimp on coverage
For most people, their home is their biggest investment and asset. Homeowners insurance protects that asset in many ways. You may not need every coverage available but cutting corners to save a couple of dollars a month can come back to be a huge expense in the long term.
Remember that homeowners insurance is more than just coverage for physical damage to your home and property. It also provides liability coverage that helps protect your assets and income from lawsuits arising from accidental injury to another person.
7. Understand mortgagee billing (also called “escrow billing”)
With mortgagee billing, you pay extra on your monthly mortgage payment and that extra amount goes into a separate account (escrow). When your insurance premium is due, the mortgage company will pay it out of the escrow account.
- Advantages: Your payments are essentially spread across a full year and it’s conveniently wrapped into your mortgage bill.
- Disadvantages: Paying into escrow account monthly (so there’s enough money to pay the insurance when it’s due) means money is leaving your pocket before it’s actually needed to pay your homeowner insurance premium.
8. Get replacement cost coverage on your house and personal property
Replacement cost coverage means the insurance company will repair or replace damaged property with a new one of similar kind and quality.
If you don't have replacement cost, you probably have actual cash value (ACV) settlement, which means the insurance company will pay you the depreciated value of your covered property (e.g. if a roof is halfway through its lifespan and needs to be replaced due to a covered claim, the insurance company will pay about half the cost to replace the roof).
However, it's worth mentioning that in some cases ACV may be your only coverage option due to property condition, construction, or claims profiles. In these situations, your agent should be able to explain why they’re not able to provide replacement cost coverage.
9. Consider flood insurance
Homeowners insurance policies don’t cover flood damage. Whether they know it or not, everyone lives in a flood zone.
Most people live outside of high-risk flood zones but, according to FEMA, 20% of insured flood claims come from these low risk flood zones (like where you probably live).
Most homes can get flood insurance starting at a couple of hundred dollars a year, and an experienced agent can help you get right policy. Flood insurance is available through the government NFIP (National Flood Insurance Program) plan or a private flood insurer.
It’s worth noting that some private flood insurance policies provide a great deal more coverage than the NFIP and are worth exploring.
10. Protect your home with more than homeowners insurance
Sometimes, the greatest threat to your home is an inability to pay the mortgage. Insurance can play a part in helping protect your income and assets from loss, meaning you'll be better able to pay the bills in the case you find yourself in a difficult situation.
- Life/Disability: Would your ability to make your mortgage payments change if you lost the income of a household member? Life insurance is usually surprisingly affordable and disability income insurance can be immensely helpful in protecting your income should you become one of the millions of disabled Americans.
- Additional Liability: Sometimes lawsuit demands can exceed what your home or auto insurance limits; in those cases you’ll want a little more protection. Umbrella policies are a great low-cost way to provide additional coverage that sits on top of your homeowners insurance, auto insurance, other insurance, and an umbrella even fills some other gaps in coverage. Just remember, for coverage to apply, you'll need to have the umbrella in place before a claim.
- Home Warranties: Refrigerators, ovens, dishwashers, furnaces, air conditioning, pool pumps, and more - when they break your wallet takes a beating. Home warranties can help take some of the sting out of the cost of repairing or replacing broken appliances and home systems.
Following these tips will go a long way toward helping you find the right homeowners insurance for you and your family.
If you have questions, would like to learn more, or want a quote, please reach out to us and we’ll be happy to help! Give us a call at 774-847-1106 or use the handy form below to send us your questions.
Lastly, an important disclaimer: This information is general in nature and intended to be educational. Nothing in this should be considered an offer or provision of coverage. Every insurance company, situation, person, and animal is unique and pricing and coverage will vary. Depending on the situation, in some cases coverage may simply not be available. At the time of this posting, Safford Insurance, LLC services the states of MA, RI, and TN.