Buying homeowners insurance is not only a way to protect your investment, but it’s usually required by lenders in order to get a home loan in the first place. Several different types of homeowners insurance policies are available, but share a common purpose: Cover the cost of replacing or rebuilding your home and your personal property if they or part of them are damaged by fire, theft or other unforeseen events.
Just what events are covered, however, and how much money will be available depend on where the home is located-insuring a home in a flood plain will be harder and more expensive to insure against floods-and how much the home is worth. Unlike a life insurance policy, which can theoretically have no ceiling but whatever you are willing to pay, a homeowners policy is based directly on the value of you home and to a certain degree the assets inside, as well as the reasonable costs to rebuild the home in your particular community.
Coverage Options
Aside from price, the main things that distinguish one homeowners insurance policy from another are the coverage details. Several different types of policies are available, such as HO-2 and HO-3 policies. HO-2 coverage, which is widely used, lists specific perils that are covered by your insurer, such as fire, wind theft and so on. An HO-3 policy, is also known as an “open peril” policy and includes any damage-causing perils, except those specifically spelled out in your policy.
HO-6 coverage is for owners of condominiums and co-ops and covers improvements to the property as well as standard protection for the basic structure and your possessions. HO-8 is unique to older homes and is based on repair costs or market value of the home, not necessarily replacement cost.
Paying Homeowners Insurance
Because your homeowner’s policy must be set at the time you buy your home, in most cases, you’ll know what your annual premiums are at the time you close on your home. Usually, your mortgage payment will include a portion to cover your homeowners insurance, as well as an amount to pay for property taxes.
If your insurance rates go up, which they are likely to annually, your mortgage payment will have to be adjusted to cover the difference.
Lowering Your Insurance Costs
As with any purchase you make, shopping around before selecting an insurance company is a wise move. The company you have your car insurance with may offer good deals on homeowners insurance, and may extend a discount because you already have your car insurance with them. Other companies provide discounts if you switch all your insurance policies-car, home, life-to one insurer.
You can also raise your deductible, which can help lower your premiums. The benefit is obviously that your monthly out-of-pocket expenses are less. The risk, of course, is that if you need to file a claim, a larger portion of the damages will have to be covered by you, the homeowner, before the insurance company starts to pay.
Upgrading your home with improvements such as hurricane shutters (if you live in an area vulnerable to such storms) may also lower your rates. A home security system, for example, can lead to discounts, too.
If you’ve been with your insurer for a long time, ask about “customer-loyalty” discounts for long-term policy holders. And while you’re at it, always feel free to ask your local insurance agent for ways to save some money on your policy. An independent agent who works with many insurance companies may be able to help find you a policy that is a little friendlier to your wallet.
Renters Insurance
If you don’t own your home, you obviously can’t get homeowners insurance. But renters insurance is available and is recommended to cover your personal property if its stolen or damaged.
Some renters and homeowners insurance policies also provide money for temporary housing in the immediate aftermath of a disaster.