It can be difficult to pick a homeowner’s insurance policy because there are so many factors to consider. This is especially true if you are a first time homebuyer and you are picking a policy that affects your mortgage approval (the insurance premium will be included in the lender’s calculation of your debt-to-income ratio). Mortgage lenders require that you have a homeowner’s insurance policy before closing on the house, so you will need to learn about the policy options, shop around and pick one in a short timeframe. To get prepared to make this big decision, learn about the questions you need to ask to help you make an educated decision about which homeowner’s insurance policy is right for you.
1. What’s Covered?
The first thing to find out are the types of coverage included in the policy. This may include dwelling coverage, other structures coverage, personal property coverage, personal liability coverage, medical payments, damage to property of others and loss of use. Policies with less expensive premiums may not include all of the same coverages as more expensive ones or they may offer less protection for them. Be sure to consider if you need to add any insurance riders, which are additional policies that go beyond the coverage of the policy, such as for jewelry, art, or other expensive personal possessions.
2. How Much Is The Deductible?
The deductible is the homeowner’s max out-of-pocket before the insurer begins to pay for a claim. If you have a high deductible, the policy will have a less expensive premium but you will have to pay more when you file a claim. For example, if your deductible is $500 vs $1,500 you will see a big difference in the premium you have to pay. It might seem enticing to raise the deductible to lower the premium, but be prepared to pay that amount if you file a claim. You should be able to adjust the deductible with the insurance company to get it to where you want.
3. What’s The Policy’s Limit?
Each type of coverage has a limit that the insurer is willing to pay. The limits you choose for each type of coverage will affect the price you pay for the policy. Remember that you are planning for the unexpected, so beware of lowering the limits to cut costs on the premium and being unprotected if something serious happens. Think of it this way, if there is a fire and the house burns down you want the insurance company to pay to rebuild the structure. If you lower the dwelling limit to 60% of the estimated cost to rebuild, you’ll be responsible for the remainder.
4. What Discounts Are Available?
Most insurance providers offer a few discounts to lower the premium. Some discounts may depend on the property itself, like the level of protection it provides from wind as determined by an inspector or if you have an alarm system. You may also be able to lower the price of the policy if you bundle your homeowner’s insurance policy with an auto insurance policy. There also may be a claim free discount for never having filed a claim. It all depends on what the insurer offers so be sure to ask about discounts – every dollar off counts.
5. How Will Claims Be Handled?
This is something you don’t think about until you need to file a claim. Find out how to file a claim and the process and timeline from filing it to settling a payment. Find out if the insurer’s customer service is available 24/7 and if filing certain claims will raise the price of the policy when it comes time to renew. You’re going to be paying a lot of money for your homeowner’s insurance so don’t be afraid to ask questions.
6. How Does This Policy Compare To Others?
The tip that we cannot highlight enough is that you need to shop around! Get a few quotes and compare them apples-to-apples. This means that you need to make sure that the quotes you are comparing have the same types of coverage and that the limits and deductibles are all the same amount. Then compare the costs including using any available discounts. It isn’t ALL about the premium though, be sure to also compare the ease of filing a claim and level of customer support offered.
Financial freedom begins with good habits.
Rebecca & Tiago, theloadedpig.com