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11 Things To Consider When It’s Time To Purchase Home Insurance
You may think you’ve found your dream home, but can you easily and affordably insure it?
If you’ve found your dream home, now is an excellent time to buy! Mortgage rates are lower than ever and the market is shifting away from being a seller’s market to make it easier on potential homebuyers. But before you close the deal on your dream home, you need to make sure you can easily secure homeowner’s insurance for your intended property. Where the home is located, how susceptible it may be to natural disasters, and certain conditions on the property will all impact how easy or hard it is to get good coverage with an affordable monthly premium. So before you sign on the dotted line, make sure to take these 11 questions into consideration so you can be sure your home will be protected when you need it most.
Is your new home in a fire area?
You’ve likely heard about the fires that have been ravaging the West Coast on the news. But what you may not have heard about is that living in an area that is particularly susceptible to fire damage may make it harder to get good insurance. In fire-prone places, residents are finding that it’s significantly more difficult to find reasonable home insurance. In these areas, many residents are being dropped by their former home insurance carriers because of the risk factors associated with where they live. Similarly, some residents are finding their home insurance will pay for current damage, but then their carrier will drop them as clients to avoid spending money paying for future fire damage. Even if residents don’t lose their existing insurance, they may face sky-high premiums and non-renewal rates.
If your intended home is located in a fire-prone area, make sure to investigate your coverage options and what they will cost you before the deal is done. Even with low mortgage rates, high insurance premiums could make the home unaffordable and you’ll want to know this while you can still back out of the deal relatively unscathed. Depending on what you learn, you’ll need to decide if this home is right for you and your budget.
Do you need flood insurance?
Consider the weather and conditions in your area. If you live in a rainy area or an area prone to hurricanes you may need to consider investing in flood insurance, as well as a hurricane policy. This would be an additional insurance policy, as flood insurance is not typically covered under a standard home insurance policy. With an additional policy also comes added costs. If your home could be impacted by flooding, you’ll need to weigh the costs and benefits to decide if you want to take out an additional flood insurance policy to protect your home. If you are only just considering making an offer on a home or entering escrow, now is the time to decide if this is something you are willing to deal with to own the house in question.
Do you need an earthquake policy?
Just like flood insurance, an earthquake policy may be an additional policy and expense you will be required to take care of if you live in an area where earthquakes are common. However if you live in an earthquake zone, it would be most prudent to pay for this insurance coverage. The policy is meant to specifically cover any damage caused to your home, belongings, or any other buildings on your property. Because earthquake insurance likely is not included in your home insurance policy, this is something you need to know to ask about in advance. Rates and qualifications for earthquake policies may vary greatly from your normal insurance policy.
What happens if an “Act Of God” occurs?
Disasters can happen when you least expect them. When a freak accident or disaster occurs that couldn’t have been prevented or mitigated by human intervention, insurance companies will often refer to the event as an “Act of God.” These typically include natural disasters, such as damage caused by an unexpected lightning strike. Damage that results from human error, such as faulty wiring, would not be considered an “Act of God.”
The general rule of thumb is that most insurance policies will cover “Acts of God.” After all, that’s what insurance is for, right? That said, make sure to read the fine print. Depending on your policy, certain “Acts of God” may not be covered. There may also be restrictions or caveats as to how much money the insurance will pay in extraordinary circumstances that you’ll definitely want to know about in advance.
What is excluded from your policy?
Just like with “Acts of God,” what insurance companies will and won’t cover may vary between carriers. Before you choose your new homeowner’s insurance, make sure you know what is excluded from your policy and if that makes sense for you. For example, some home insurance policies provide coverage to pay for medical expenses if a guest is injured on your property. However, certain dog breeds, such as pit bulls, are often excluded from insurance coverage. If you owned an excluded breed that attacked a guest, you would be financially responsible for all of the medical bills and would not receive any assistance from insurance.
Other common insurance exclusions include trampolines, water slides or diving boards, or any other potentially dangerous features on your property. Additional exclusions to look out for are damage caused by poor maintenance, power outages, and certain natural disasters. It’s important to be aware of these exclusions prior to choosing an insurance policy because you may need to plan to purchase additional policies or adjust your savings to bolster your emergency fund.
Do you need liability coverage?
We mentioned briefly that some insurance policies provide resources to assist you financially and legally in the event a guest is injured in your home. This means your homeowner’s insurance policy will provide financial aid to cover medical expenses for bodily injury to a guest or covered resident that occurs in your home for which you are legally responsible. It may also cover expenses incurred by property damage that occurs in your home.
While most homeowners insurance policies include a minimum of $100,000 in liability coverage, it’s important to confirm this and make sure you know what is and isn’t covered by your liability coverage. For example, there are usually exclusion policies surrounding injuries that occur in your home while conducting business related activities and damage that occurs on purpose instead of by accident. Depending on your specific household’s activities and comfort levels, you may also want to increase the amount of liability coverage available to you.
Are there any surprise loopholes you may be missing?
Whether you are moving to a new or old community, you will want to check for any tax assessments or insurance loopholes that may lead to unpleasant surprises later. While you are researching insurance policies, it’s a good time to investigate other hidden fees that need to be considered when you are budgeting how much your insurance payments and mortgage will cost you. For example, many Californians were unpleasantly surprised by Mello-Roos taxes. Mello-Roos taxes allow certain districts to place extra taxes on certain districts. The purpose of these taxes is to raise money for local projects, and improvements to the community and infrastructure. Mello-Roos taxes typically occur in newly developed neighborhoods in California, and only people who will benefit from the improvements will be forced to pay. However, affected residents could find they are shelling out thousands of dollars a month they didn’t intend to be spending. It’s important that you check for any special tax assessments or loopholes in the area you live in or want to move to so you can be sure of your investment in your home and financial stability.
Will your insurance protect you from robbery or burglary?
Although we always hope for the best, it’s also important to plan for the worst. Even if you live in a safe neighborhood with a security system, sometimes robberies or burglaries can still occur. You may want to look into if your homeowner’s insurance policy will help cover damage or loss caused by theft. If it’s not already included, you may want to consider adding theft coverage just in case a robbery or burglary did ever happen in your home.
Will your insurance protect your personal property?
When researching homeowner’s insurance, personal property is a key term you will likely see a lot. Personal property is meant to cover your belongings in the event of loss or damage. It covers items like furniture, clothing, sporting goods, electronics, and more. Some form of personal property insurance should already be included with your homeowners insurance, however you need to make sure you understand the terms of your specific policy. You should make a note to ask your insurance agent about items and events that won’t be covered by your policy and consider adding additional coverage if it’s appropriate to do so for your situation. You may also want to ask how the replacement cost of your personal property or certain items of value will be calculated if damage or loss does occur.
Do you need an additional insurance rider for valuable items?
As if you don’t have enough insurance already, you may still need to purchase additional coverage for extra valuable items in your home. You may need an insurance rider or additional policy entirely to fully insure certain collectibles, artwork, antiques, fine jewelry, and other items of high value. While your existing homeowners policy may cover these items to some extent, the additional policy may be required to insure your item for its full value. In order to secure an additional insurance rider for your most prized items, your insurance agent may ask you to seek an appraisal, or provide photos and detailed descriptions of your valuables. Although the process is a bit of a hassle, you’ll be glad to be completely financially protected if any damage or loss occurs with any of these priceless items.
Did you shop around?
While insurance is there to protect you, insurance companies are businesses that also want to make money. Before you decide on a home insurance policy for your home, make sure to do diligent research. Compare quotes and exclusions offered by different insurance carriers in your area, and read all the fine print. Read reviews and ask friends about their experience if you know someone who works with an insurance policy you are seriously considering. Don’t be afraid to ask insurance agents hard questions, and carefully analyze the transparency of their answers and the customer service you receive. While not guaranteed, you may also have opportunities to negotiate with insurance companies to lower the initial prices you are presented with, price match quotes from other insurance providers, or adjust policies and exclusions for your specific situation. Even if the policy you choose isn’t perfect, homeowners who research can at least be sure they are getting the best deal available to them.
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