Insurance Basics for New Homeowners

If you own a house, you need homeowners insurance. It doesn’t matter how safe your neighborhood is, having homeowners insurance is a necessity. Not only will this protect your property in case of an accident or even a robbery, having homeowners insurance is usually required if you’re looking for a loan from a bank or mortgage company. It’s common to get lost in insurance terminology and various types of policies, so we’ve compiled a simple guide to the basics of homeowners insurance and how it works.

The Benefits of Having Homeowners Insurance 

In case of a fire, natural or weather-related event, vandalism, theft, accident, or other covered disasters, a standard homeowners insurance policy should cover related costs. Compensation includes damages inside or outside of your house, losses or damages to personal belongings, living accommodations while repairs are being made to your home, and even damages caused by you or your family to others. It’s important to note that many insurance policies do not cover floods, earthquakes, or poor home maintenance, so you may have to look up the right kind of policy if you require this kind of protection. If you own a separate garage or shed, those structures must also have separate coverage.

Different Types of Home Insurance Coverage

When it comes to proper coverage, you usually get what you pay for. If you’re paying minimum insurance rates, you will most likely receive a minimal amount of coverage. In the United States, there are eight common kinds of homeowners insurance, and they each offer varying tiers of protection depending on the owner’s needs and the type of residence. However, there are three main levels of coverage: actual cash value, replacement cost, and guaranteed (extended) replacement cost. 

Actual cash value covers your house and belongings after deducting depreciation, while replacement cost covers everything without deducting depreciation, so you have extra freedom to repair or rebuild your home to its original value. The most comprehensive type of coverage is a guaranteed replacement value, which essentially offers more coverage than what you purchased. This option is strongly suggested if you plan on keeping your home for awhile. The higher cost usually reflects increased economic prices, repairs, and extra protection in case construction rates increase.

Typical Cost of Home Insurance 

According to the National Association of Insurance Commissioners, homeowners in the United States pay an annual premium average of $1,096. Of course, this price varies depending on where you live, how much coverage you want, and how much liability protection you want. Homeowners can only make this decision after evaluating their home’s market value and conducting an overall household inventory. Other cost factors include your zip code. If you reside in a high-crime area, your premium will probably be higher. Insurance companies also consider the size of your home, its proximity to a fire hydrant, home system conditions, the number of claims previously filed against your home, and even your credit score.

Tips to Reduce Insurance Cost

There are several simple ways you can lower premium payments. This includes installing home upgrades such as security systems and smoke alarms, raising your deductibles so that you cover the cost of small damages, searching for multiple policy discounts, paying off your entire mortgage, looking for neighborhood changes (for example, a new fire hydrant in the area), customer loyalty, and making regular policy reviews and comparisons. You may also be eligible for discounts if you’re a senior or work from home. Following these tips can significantly cut your home insurance premium down.

Picking the Right Home Insurance Company

There are several things to keep in mind when you’re deciding what insurance provider is right for you. Your first step should be visiting your area’s Department of Insurance website for a list of accredited home insurance companies. This website should also share the average cost of home insurance for your location. While researching insurance companies, you should also consider running a company health check, looking at how the company handles their claims, and evaluating current policyholder satisfaction and customer feedback. If annual reports, online reviews, and testimonials show that your insurance company has a low insurer retention rate, this is considered a red flag.

Since homeowners insurance policies vary so much, it’s important to get multiple quotes from different companies. This way, you’ll know you’re getting the best bang for your buck. Try contacting at least five companies for a quote, so you know what other insurers are offering. This information will also prove useful while negotiating a better price. However, you should also look beyond the price tag and consider the insurance coverages and limits and what it truly covers. For more details and direct answers to your questions, try speaking with an independent insurance broker.

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