Buying a home is a huge accomplishment, but protecting it with the right type of homeowner’s insurance should be on the top of your list of to-do’s.
“You don’t want to wait till you have a claim to and find out what you weren’t covered on,” said Jeanne Salvatore, senior vice president of public affairs & consumer spokesperson for Consumer Spokesperson, for Insurance Information Institute (I.I.I.) in New York City.
Here are some tips for understanding homeowner’s insurance and what you need to do to get the right kind and right amount:
What is homeowner’s insurance?
Homeowner’s insurance is a policy that protects your home and belongings in the event of a disaster. It also does double duty by covering your liability or legal responsibility for injuries or damage you or members of your family cause to other people, says Salvatore.
Homeowner’s insurance also gives you additional living expenses if you cannot live in your house while it is getting repaired or rebuilt.
What type of disasters are covered?
If your belongings are stolen or destroyed by a fire, hurricane, tornado, thunderstorm, hail or lightning, you are covered by your regular policy. Some policies also list other disasters that are covered – depends on what type of policy you want to get.
What other items in your property could be covered?
The I.I.I. states that most policies also include detached structures such as a tool shed, gazebo or garage for about 10 percent of the amount of insurance a homeowner has on the structure of their home.
How can you keep track of all your belongings for reference in case something does happen?
Insurance agents will ask you to do a home inventory and will store that information in a safe place – not in your house or in a fire safe deposit box. Many of the larger insurance companies offer free digital inventory platforms.
For instance, Allstate calls its inventory app Digital Locker. It’s free and lets people create an inventory of items and store your information and photos securely in the cloud.
How do you choose homeowner’s insurance?
Everybody has a lot of questions about homeowner’s insurance, but many people just don’t ask them, says Salvatore.
You need to ask your potential insurance agents what is covered in their plans and what isn’t. Understand what disasters are and aren’t covered.
If there are certain disasters you are concerned about – such as a flood – you need to ask if you must purchase flood insurance separately.
Do you need flood insurance?
Damage from flooding is not covered by standard home insurance policies, the I.I.I. website explains. Ask your insurance agent or broker about whether or not you need flood insurance in your location. If it can be avoided, you probably won’t want to include it in your payments.
Do you need earthquake insurance?
The I.I.I. explains that earthquakes are not covered under standard home insurance policies, even though they can happen in the majority of states. Earthquake insurance is sold in most states through private insurers as an endorsement to your regular homeowner’s policy.
In California, the California Earthquake Authority handles the sale of these endorsements.
What other endorsements, riders or floaters do you need?
If you have extra stuff, such as expensive jewelry, a rare book collection or priceless paintings, you need to have extra coverage.
A regular policy only covers a certain percentage of the value of items. Your insurance will also depend on what the item is and where you keep that item. For instance, a ring you wear on your finger daily will cost more to cover than one you keep in safety deposit box.
Why would you need more liability insurance?
If you put in a swimming pool, a trampoline or any other features that could cause injuries or death, you may want to consider getting an umbrella liability policy. It gives more protection in the event someone sues you.
“You automatically get $100,000 of liability protection with most policies,” Salvatore says. “You want to make sure you have enough to cover your assets. And if you are very active in the community, you might be at higher risk. You need to talk with your agent about those situations.”
How much insurance do you need?
Salvatore stresses that you need to make sure you get enough insurance to cover the cost of rebuilding your home at current construction costs.
Don’t base the rebuilding on the purchase price of the home. Some lenders and banks require a homeowner to get enough insurance to cover the amount of the mortgage.
And once you do get a policy, make sure to read it from cover to cover. Make sure you understand any exclusions. If any questions pop up, call your agent. Don’t wait till it’s too late.