Getting the right homeowners insurance policy -- at the right price
It's important to find a homeowners insurance company that's financially
strong and will pay your claims without a hassle. But once that's done,
what type of policy should you get? Here's some advice from our expert
sources, along with data from the Insurance Information Institute (III)
about what a standard policy should contain:
- Do I need homeowners insurance? If you own your home free and clear, there's no law that says you have
to have homeowners insurance -- but if you don't, you risk losing your
home and everything in it if there's a fire or other disaster. If you have
a mortgage, your lender will probably require you to have homeowners insurance.
I own a condo, do I need different home insurance? Condo owners will
have two insurance policies. One comes with the condo, to cover common
areas such as the lobby and elevators. The other you will need to buy on
your own, to cover the parts of your condo unit that you own, as well as
the same personal belongings/hotel expenses/liability coverage as a homeowners
if the insurance company turns me down? If you live in an area with
a lot of crime or natural disasters, some insurance companies might refuse
to cover you. To find out which insurers do write policies in your community,
ask around -- your neighbors, your real estate agent or the previous
owners of your house. If you still can't find coverage, call your state
insurance department; you may qualify for government-sponsored home insurance
for high-risk neighborhoods.
What does homeowners insurance cover?
A standard homeowners policy covers four things:
- Damage to your house and
detached structures (such as sheds). Standard policies usually pay
for fire, lightning, hurricane or hail damage, but not flood, earthquake
or wear-and-tear damage. (You may be able to buy flood or earthquake coverage
personal possessions are usually covered up to a specified dollar
limit. A standard policy will pay if they are stolen or damaged in a disaster
that the policy covers.
- Hotel costs, meals, etc. if you have to live elsewhere
while your house is repaired.
- Liability, to pay for property damage or bodily
injury to others.
How much homeowners insurance do I need?
Check four sections of your policy to make sure you're adequately covered:
your house. If you have a mortgage, the lender may require you to have
a certain minimum amount of replacement homeowners insurance. Otherwise,
you can choose the level of coverage you want. An actual cash value policy
replaces your house and belongings, minus a depreciation amount. A replacement
cost policy doesn't deduct any depreciation amount. An extended replacement
cost policy will pay a set amount over the limit of your policy (usually
20 to 25 percent more). A guaranteed replacement cost policy will pay whatever
it takes to rebuild your house. Note, however, that some replacement cost
policies only pay the depreciated value, keeping the difference between
the depreciated value and the replacement cost as a "hold back" until
reconstruction is actually done.
- Your possessions. A standard home insurance
policy pays to replace your possessions, usually with a limit of 50
to 70 percent of the total policy amount (e.g., $50,000 to $70,000 if you
have a $100,000 policy). You may want to do a home inventory to see if
you need to bump up this coverage. Like the coverage on the structure,
coverage can be for the depreciated value or the replacement cost. In the
case of replacement cost coverage, some policies will only pay the depreciated
value of an item unless it is actually replaced.
- Hotel/meal costs while your home
is repaired. A standard homeowners insurance policy may pay up to 20
percent of the amount of your policy for these expenses (e.g., $20,000
if you have a $100,000 policy) or set a time limit for how long the expenses
will be paid. You may be able to buy more coverage if you want.
- Liability. The minimum
amount of liability coverage on a homeowners insurance policy is usually
$100,000, but some experts recommend at least $300,000. You may want
to buy extra coverage if needed to cover a specific risk -- for example,
if you have a swimming pool.
Reducing your home insurance premiums
The cost of your homeowners insurance policy, or premium, depends on a lot
of things: how much coverage you want, whether you have a professional fire
department nearby, whether you have a lot of crime or natural disasters in
your area and more. In 2008, the average American family paid $791 a year
for homeowners insurance, according to the Insurance Information Institute. The
average Texas homeowner pays nearly double that amount, however, and the
average Idaho homeowner paid about half as much. Here are a few ways to save
on homeowners insurance:
- Buy your auto and homeowners insurance from the
same company. Often, you'll get a discount.
- Enjoy loyalty discounts -- but keep
shopping around. Your insurance company may drop your premium rate
-- maybe 5 or 10 percent -- after you stick with them for three years or
more. Still, ConsumerReports.org recommends comparing prices at least every
five years. Another home insurance company may be able to beat that discounted
your deductible. This is the amount you have to pay out-of-pocket before
your insurance kicks in. Experts recommend a $500 deductible at a minimum
-- and a $1,000 deductible could drop your premium substantially.
- Ask if
you can get discounts for beefing up your house. Your homeowners insurance
company may lower your premiums if you make your home less risky --
for example, replace outdated electrical wiring, add a burglar alarm, or
reinforce your house against hurricanes and earthquakes in regions that
are prone to them.
- Ask about other discounts. Your insurance company may charge less for
people over 55, for example, or nonsmokers (less fire risk).