By Catey Hill on July 5th, 2013 in Consumers
This is a guest post from Catey Hill, a writer for Zillow, the leading online real estate marketplace. This post is being featured on CoverHound as part of Zillow's financial blogger of the week series.
For many Americans, their homes are their most valuable assets. That makes homeowners insurance especially important because it protects a home and its contents in the event of a natural disaster, theft, fire or other emergency. But even though most homeowners have insurance, many don’t fully understand their policies, which can be both dangerous and costly.
Here are four things homeowners need to understand about their homeowners insurance policies:
- Amount of coverage
- Home structure coverage: In most cases, it’s important to have insurance to cover 100 percent of the cost of rebuilding a home. To get a rough estimate of what it would cost to rebuild a home, multiply the square footage of the home by the local building costs. Homeowners can find local building costs by calling an insurance agent, appraiser or local builders’ association.
- Home contents coverage: The standard policy limits coverage to 50 percent of the value of the structure of a home. Homeowners should make a list of the contents of their home and their estimated value to determine whether their policies offer enough reimbursement.
- Liability coverage: Liability coverage protects homeowners if someone gets injured on their property. Most policies provide a maximum of $300,000 in liability protection, which for those with significant assets may not be enough. Most homeowners will want to get enough liability coverage to cover the total value of their assets; some homeowners may need to purchase an additional umbrella policy to ensure they have enough coverage.
- What’s Typically Not Covered
- The Deductible
Homeowners need to make sure they have enough insurance to cover the home’s structure, contents and liability issues. However, having too much coverage can be costly. Homeowners should review their policies or call their agents. Here are three things to review:
Homeowners need to understand not only the amount of insurance they have for the structure and contents of their homes and their liability protection, but also what’s not covered by their policy so they can plan accordingly. Typically, homeowners who live in regions with high probability of flooding or earthquakes need to purchase an additional flood/earthquake policy, as the standard policies won’t fully cover such damages. Plus, many times those with valuable items such as jewelry, furs or artwork may need separate policies to protect those valuables, as the standard home contents coverage won’t cover them. People who own a condo, co-op or townhouse should make sure that the building has an insurance policy to cover the common areas; individual homeowners policies typically do not cover this.
Homeowners have to pay a certain amount of money out of pocket should something happen to their homes before their insurance begins to cover costs. This sum is called the deductible. For example, a homeowner who has a $1,000 deductible and incurs $10,000 of damages on his home would pay $1,000 to repair the damages, and then the insurance company would take care of the remaining $9,000. Homeowners need to know what their deductibles are and have this amount of money set aside in case something happens to their homes. Note that the lower the deductible, the higher the insurance premium. The premium is the monthly payment the homeowner makes to continue insurance coverage. Homeowners should change their deductible/premium amounts to best meet their financial needs.
When potential homeowners calculate their mortgage payments they should include the costs of monthly insurance premiums. Mortgage payments often cost homeowners significant portions of their income, making it especially important for them to pay a fair rate for their homeowners insurance. Homeowners who have had their policies for a long time and haven’t checked comparative rates recently may want to do this to ensure they’re paying fair rates. In order to find the best rates on insurance, homeowners and home buyers can compare homeowners insurance prices with CoverHound’s new homeowners insurance comparison tool. Homeowners can also call policy providers -- companies such as Farmer’s, Liberty Mutual and Geico -- and get quotes for the amount of coverage they currently hold. If a rate is significantly lower than what the homeowner pays for the same amount of coverage, he or she may want to switch providers or at least take that rate back to the current insurer to see whether the company will beat or match the rate. Homeowners can also save money by simply asking their insurer how they can save money. Some insurers will lower rates if homeowners install an alarm system or if the homeowner also buys car insurance from them.