You've spent years saving and have finally started to look at houses. If you're reading this article, you're being thorough in your research. Understanding what home insurance covers and how it works will help you confidently step into your new role of homeowner. A homeowners insurance policy includes covered perils and covered items. For your home's structure and your personal belongings, you can choose between replacement cost and actual value coverage. The level and types of coverage included in your policy affect your insurance rate. While it's tempting to find the lowest rate, you still need to maintain good coverage should you need to file a claim. Here are the details you need to know: Covered perils Covered items Coverage strategies Premium costs Considering insurance coverage and cost from the beginning of your house hunt can also help you better assess your price range and negotiate. Ricardo Mello Real Estate Expert Consider insurance costs early: The cost of homeowners insurance can be surprising, especially in states like Florida, when features like the roof are over 25 years old. That's why it's essential to ask these questions at the beginning of your home search. Find out how old the roof is and even how much the seller is currently paying for their policy. Any information you can get, the better because you can use it as leverage in your offer, potentially getting a better purchase price. Covered perils Home insurance policies have specific terms around when coverage applies. These are called covered perils. Some policies are "open perils" or "named perils." Policies with open perils list the exclusions, or the situations where your policy doesn't offer coverage. Policies with named perils list the specific circumstances where the policy's coverage is in force. Some of the common covered perils include the following: Explosion Fire Smoke Riot or civil commotion Lightning Windstorm Hail Aircraft Vehicles Smoke Vandalism Theft Falling objects Freezing Weight of ice Accidental water discharge or overflow Sudden and accidental tearing Cracking Burning Bulging of built-in appliance Sudden and accidental damage from artificially generated electrical current Volcanic eruption Consider everything you keep in your home and your home itself. Obviously, if any of the above events affected your home, a homeowners policy would offer valuable protection. Customer Review: Mandie Bremer from Upper Marlboro, Maryland "My parents had this insurance about 20 years ago our basement caught on fire and Allstate did everything they could to make sure the process ran smoothly and we got everything that was lost in the fire replaced." Whatever your approach to covered perils, be sure to understand what perils your policy covers as there can be variation. For example, events like floods and earthquakes are not covered. In some cases, you may be able to add coverage for uncovered perils or purchase a separate insurance policy. "Many do not realize that many water items such as sewer back up and hidden water are not included in their policy without specifically endorsing or adding it on. Oftentimes, when quoting you need to specifically ask what is not included to be aware of what add ons are available," advises Marissa Sweet, commercial property and casualty insurance advisor. Take Sweet's advice and review your policy before purchasing it so that you understand the coverage you're getting. Reviewing your water damage coverage can pay off in big ways. Customer Review: Megan Rigby "When our water heater went out and water leaked through the walls, carpet and required repairs, State Farm stepped up and handled everything. It was such a smooth process and took a lot of the stress away associated with such an event." Home insurance reviews on BestCompany.com generally focus on the reviewer's experience with their agent and customer service. However, a small number of reviews discuss specific claims experiences. Claims related to water damage were mentioned more frequently than other types of claims. Customer Review: Spencer Shuenman from Pleasant Grove, Utah "They were very helpful when we had a water line burst in our bathroom and provided excellent service and assistance." Personal experience: Damage from animals Christopher Adams, ModestFish founder "We live in a house with a densely populated wooded area in the backyard — less than 100 yards from my back door. We often have spot deer and other wildlife making an appearance in the yard. Last year though, in late August, we arrived home to find a medium-sized buck stuck partially inside our house, having jumped straight through a large pane glass window that is direct to our backyard. After a lot of panic, and several phone calls later — it turns out that this absurd accident would not be covered by our standard homeowner insurance policy. In fact, they let us know that any damage caused by insects, birds, and wildlife would not be covered in most situations. While we were aware of some more commonly known things that would not be included, such as flood insurance, this was a shock out of the blue for us. While we weren’t able to have nearly 3,000 dollars reimbursed — we now have a pretty nice fence around the woodline." Back to List Covered items Home insurance policies usually cover the following four things: Dwelling — Coverage for the home structure and any attached structures like a garage. If you have unattached structures on your property, you can often add separate coverage for those. Contents — Coverage for your personal belongings. If you have high value items, you can insure them separately for better coverage. Personal liability — Coverage if someone is injured on your property or you damage someone else's property accidentally. Additional living expenses — Coverage for some living expenses if your home is damaged and you can't live in it temporarily. All of these coverages protect your finances in worst case scenarios. One of the helpful aspects of contents coverage is that it covers your belongings even outside of your home. One State Farm customer review demonstrates the value of this coverage: Customer Review: Mike Halliday "When my wife, kids and I moved from one state to another, our moving truck was in an accident. All of our furniture and most personal belongings were lost or damaged beyond use. Our State Farm agent helped us submit a claim and we were able to furnish our new house, which brought a great deal of piece of mind. Thank you SF!" Keeping track of your personal property will help you as you determine whether you need to buy additional coverage for some items and will come in handy when you file a claim. "It is advisable that homeowners take a home inventory of their personal property and the structure of their home. Then they can share it with their insurance company or agent who can actually review what is inside your home. Then you can make sure you are properly insured and prepared in case you ever needed to make a claim," says John Bodrozic, Homezada cofounder. Additional living expenses coverage came in handy for another reviewer: Customer Review: Rashida Laumatia from Saint George, Utah "When my house flooded due to plumbing, not only did they put my family up in a hotel, they covered all the damges. Love the customer service and how helpful they were." Instead of having to pay for your mortgage and another place to live while your home is inhabitable and undergoing repairs, additional living expenses coverage offers peace of mind because it covers these extra living expenses. Back to List Coverage strategies Some home insurance policies offer actual value coverage for your belongings and home. With this approach, your insurance company will payout the value of your home or belongings when you make a claim. The value of many things depreciates over time, so this coverage strategy does not pay for the full cost of replacing something. Actual value coverage is cheaper because the insurer is responsible for less. If you could afford to replace many things in your home, then actual value coverage may be a good fit. Replacement cost coverage means that the insurer will pay what it costs to replace your home and belongings up to your policy's limits. If you couldn't afford to replace your things or home, then opting for replacement cost coverage can be a smart move. "Although you want to insure it for what you may have paid for it, if you do not insure it at the replacement cost and are not within the correct percentage of that, the insurer is able to pay claims based on percentages or actual cash value. It is good practice to go over with your agent the replacement cost and how they were able to get to the dwelling value," suggests Sweet. You'll pay higher premiums for replacement cost coverage since the claims payouts are typically higher compared to actual value coverage. Most policies cover the dwelling at replacement cost and personal property at actual value. Some insurers offer the option to increase your replacement cost value coverage with a rider. You can also change your personal property coverage to replacement cost if you want to. Back to List Premium costs After you've considered coverage and policy features, you need to look at cost. Of course, you have to be able to afford monthly premium payments, and it's tempting to adjust coverage levels and the deductible to cut costs. Opting for replacement cost coverage generally means higher premiums because it offers more coverage. Actual value coverage is cheaper because coverage is lower. You can also adjust the size of your deductible. A higher deductible means you take more financial responsibility for expenses initially when you file a claim. A lower deductible puts more of that initial responsibility on your insurer. Adjusting the deductible doesn't affect the coverage limits on your policy. Once the coverage limit is met, you'll resume financial responsibility for repairs and damage. Beyond making changes to the type of coverage included and deductible amount, many home insurance companies offer discounts. Specific discounts vary by insurer; however, some common offerings for the industry include the following: First-time homeowner — Discount applied if it's your first time buying a home. New home — Discount applied if you purchase a newly built home or a new-to-you home depending on the insurer's terms. Claims-free — No claims filed within a specified time period. If you bundle auto and home insurance policies from the same insurer, you'll often receive a discount on your auto insurance rate. Personal experience: Increasing the deductible Kris Lippi, Real Estate Broker and CEO of ISoldMyHouse "The question I wish I asked before was: Is it wise to increase my deductible so that I can save on premiums? This is because doing so entails a bigger responsibility falling on your shoulders, should a claim be made. Plus, there is really no one-size-fits-all answer to this question because the correct answer depends on the financial position of the insured. So, while on the onset, increasing the deductible looks like the better choice, the decision should not be taken lightly — which is why I wished I asked about this before." Protect Your Home with Home Insurance Learn more about homeowners insurance by looking at the top-rated companies and their offerings. Learn More
Your home is where you eat, sleep, and spend time with family. It plays a central role in your life. You may have spent even more time in your home in 2020 than ever before. In addition to being an important part of your day-to-day, your home is also a large financial investment that you want to protect. You need home insurance from a reliable and trustworthy company. Here are eight things to look for in an insurance company: High financial strength ratings Substantial industry experience Appropriate state records Claims process and payment history Positive customer reviews and ratings Coverage options Premium and deductible amounts Discounts available Non-negotiable features If a home insurance company doesn't have good financial strength ratings, claim history, or customer reviews, you'll want to move on to another company. 1. High financial strength ratings Whatever kind of insurance you're buying, you'll want to know the insurer's financial strength ratings. These ratings show how financially stable an insurer is and are an indicator of how likely it is to be able to meet its claims obligations. "You should find out how the company is rated by AM Best Co, the most relied upon financial analyst in the industry. They rate from A+ to D-. A definite red flag would be if the company is not rated at least B or B+," advises Dan Boyer, CLU of Green Mountain Insurance Agency. Pay attention to what ratings agencies the insurer is rated by. The most common ratings agency for insurance is A.M. Best. Others are Moody's Investors Service, Fitch, and Standard and Poor's. Jade Plummer, insurance broker for Unity One Insurance, warns against using insurers that are rated by smaller, lesser known agencies: "There are other rating companies that will give out an ‘A’ rating but are not AM Best or Standard & Poor. These rating services are for smaller insurance companies that are unable to obtain ratings in the standard market due to small financial size or future claims paying ability." Claims payouts are usually large lump sums, so you want to be sure as sure as you can that your insurer will be able to pay your claim when you file one. Checking financial strength and noting which ratings agency it's from will help you identify a reliable insurer. Back to List 2. Substantial industry experience Many insurers have a long history in the insurance industry. With the rise of insurtech, some companies have a shorter time in business. Many of these new insurtech companies sell policies from reputable insurers or are backed by insurers with a long history and good financial strength. However, it's still important to do your research to make sure your policy is from a reliable insurer. "Currently there are new companies that are coming into California in certain fire areas whereas homeowners insurance has become very difficult to obtain. They have cheaper premiums than all of the other companies. What gets overlooked is the real possibility they may go bankrupt. It’s very dangerous what is happening right now," warns Plummer. Back to List 3. Appropriate state records "A great resource is your state’s Department of Insurance. Make sure the company you're talking to is licensed in your state. You can also look up if they have any complaints lodged against them. Make sure the website you're looking at ends in .gov so you know you're at an official government site," says Jeff Falkowski, House Report Card founder. Although it's likely that if an insurer is marketing its products to you, it is licensed to sell insurance in your state. However, it's worth double-checking to be sure. Formal complaints can help you know what to pay attention to as you work with the company and evaluate whether working with the company is worthwhile. Back to List 4. Positive customer reviews and ratings Another excellent insight into the customer experience with an insurer is customer reviews. Reviews are an informal way to assess what a company does well and learn about potential issues. Since reviewers leave both positive and negative reviews, you'll get a fuller picture of the customer experience from buying a policy to filing a claim. Be sure to use a trusted customer review page that puts reviews through a verification process to prevent fake reviews from being published. Trusting Customer Reviews Learn more about why you can trust customer reviews on BestCompany.com. Learn More Insurance offerings and the customer experience can vary by state, so give more weight to reviews from your area. Back to List 5. Claims process and payment history Financial support when you make a claim is the primary reason you buy insurance. You'll want to learn about the insurer's claims process and how quickly it works to ensure that you're choosing an insurance company you can count on. In addition to understanding what customer reviews and formal complaints say about the claims process and claims satisfaction, you'll also want to hear from the insurer. Before you buy a policy, ask a company representative about the claims process. You'll want to understand how to make a claim, how long it takes to process and make a payment, and what customer service looks like. If you're working with an independent agent or agency, they should be able to answer these questions as well. "If you’re working with a good insurance agency, they will have good relationships with carriers and should the worst happen, they will stand behind you and serve as your advocate to make sure everything goes smoothly," says Alan Umaly, Westwood Insurance Agency president. Ask how your agent has helped clients in the past with claims and what they did when there were difficulties with claims. Back to List Additional considerations Once you're satisfied that the home insurance companies you're considering are reliable, you'll need to assess the coverage and discounts offered. Be sure that the coverage you buy meets your needs and fits your budget. 6. Coverage options Before you can evaluate the coverage offered by your insurer, you need to understand your home insurance needs. Even if you've had home insurance for a while, reassessing your needs will ensure that you have what you need. "Homeowners need to constantly evaluate if their insurance needs are covered by their current policy. This is important because homeowners' insurance needs change from time to time," says Matt Rostosky, real estate investor and CashOfferKY owner. There are several types of home insurance coverage. Be sure you understand what your insurer covers in its policies so you can determine if it will meet your needs. Condos, mobile or manufactured homes, and high-risk homes all have their own coverage forms that meet the specific needs of these homes. If you're a homeowner and your house doesn't fit any of these circumstances, you have four options for home insurance coverage: Basic form — Coverage for actual cash value of home under specified circumstances or perils. Broad form — Coverage for replacement cost of home under a larger list of circumstances or perils. Special form — Coverage for replacement cost of home and actual cash value of belongings in all circumstances except those listed in the policy. Comprehensive form — Same coverage as the special form and includes replacement cost coverage for belongings and higher coverage limits for itemized valuables. One key difference to understand is the one between replacement cost and actual cash value. You may think that the cash value of your home is enough coverage, but it probably won't cover rebuilding costs like labor and materials. When it comes to your belongings, the actual cash value will pay the current value of the item. Most items depreciate in value over time. The replacement cost will cover what it costs to replace it. So, if your old computer got destroyed, actual cash value coverage would help you buy the same model. Replacement cost coverage would allow you to replace it with a newer model. Insurers often brand their coverage options, so there isn't name consistency across insurers. However, these are the four main types of coverage you can get for your house and living space. Within each type of home insurance, you'll find coverage for dwelling, contents, personal liability, and additional living expenses. Flood and earthquake coverage is not included in typical home insurance. If you want that kind of coverage, you'll need to purchase a separate policy. Back to List 7. Premium and deductible amounts Once you understand the kind of coverage you need and how much coverage to get. You'll need to look at pricing. "Shopping around will help you reduce your monthly premium because different insurance providers offer different rates," says Rostosky. As you compare pricing, be sure that you're comparing similar products. If there's a big difference in cost, you should double-check to make sure the coverage is the same. You don't want to sacrifice needed coverage for lower prices. You should also pay attention to your policy's deductibles. If you opt for a higher deductible you can usually lower your premium. Boyer also notes your policy may have different deductibles for certain circumstances: "My agency does business in Kansas and Missouri primarily and so many companies require a significantly higher deductible for wind and hail so be aware of separate deductibles for those perils." Understanding your deductible options and how they may vary based on what caused the damage will help you understand how your policy works and plan financially. Back to List 8. Discounts available Insurers offer different kinds of incentives and discounts with their policies. Some insurers have long lists of discounts. Others have a more limited number of discounts. A discount on policies when you bundle home and auto are commonly offered. Other common offerings include discounts for home safety features and client loyalty. Agencies and quote websites like Policygenius may also regularly shop your policy to make sure that you still have a good deal for the coverage you need. In addition to discounts on premiums some home insurers offer programs that lower your deductible or offer claims forgiveness. These features help you save on out-of-pocket costs. Keep premium discounts and deductible features in mind as you evaluate home insurance policies. Best Home Insurance Companies View the top-rated home insurance companies and read customer reviews. Learn More
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