HOME INSURANCE BASICS
When shopping for homeowners insurance, there’s much more to consider than cost.
You need to buy the right type of policy. You need the proper level of protection, plus special
provisions for valuables such as jewelry, your computer equipment and other
possessions. You might also need
additional coverage for such things as earthquakes or flooding.
Lending institutions usually require mortgage customers to purchase
homeowners insurance. Don’t rely
on the coverage levels mandated by your bank or mortgage company. Those levels are designed to protect
the house itself, but not necessarily your possessions. That’s why it’s important to check with
your agent or insurance company, to make sure you have adequate coverage.
Basic policies
Below lists the basic types of Texas home insurance
policies:
HO-A
- Covers your home and
possessions against named perils only, for actual cash value.
HO-B
- Covers
the dwelling for all perils unless excluded against all risks and contents
against named perils. The house is covered for replacement cost up to
policy limits, while contents are covered for actual cash value unless you
buy additional replacement cost coverage.
HO-C
- Covers house and contents
against all risks not specifically excluded by the policy. Again, the
house is insured for replacement cost up to policy limits, while contents
are covered for actual cash value unless you buy additional coverage.
There are variations on these policies as well. For example, landlords can
buy coverage that insures only their buildings and not your personal property
(which is what a renters policy would cover). You can get special policies to
cover mobile homes (a.k.a. manufactured housing).
Starting an application
When you apply for homeowners insurance, you’ll provide a
great deal of information. The
insurance company will ask you about your current occupation and employment
history, marital status, previous addresses, date of birth and Social Security
number. The insurer will check your criminal, credit, and insurance history to
see if you are a "good risk." In addition, the insurance company will look at
your "loss history" to see what kinds of home insurance claims you've
made in the past.
Then, you’ll have to decide what type of homeowners policy you want, the
deductible, and how you’ll pay for the coverage. Your agent or insurance
company will determine how much it would cost to replace your home and many of
the items inside. For more
expensive property, such as jewelry and computer equipment, you might need
special coverage in addition to the basic policy.
Analyzing your home
Many factors go into determining the premiums for a
homeowners policy. The age of your
home, the materials used to build it, where it’s located, the square footage,
and the number of rooms all play a role.
How do you heat your home? What’s the overall condition of the house? How many people live in your home? How close is your home to the nearest
fire station and fire hydrant? The
answers to these questions also help determine how much you’ll pay for your
homeowners policy.
Ways to save
If your home is equipped with an alarm system, smoke
detectors and deadbolt locks, you could save money. Those items help make your home safer and more secure. If you have an in-ground pool or a trampoline,
you might pay higher premiums. You can also expect to pay more if you are
located in a higher risk area, such as a coastline. Your insurance company will
also want to know if you plan to use the home for any business purposes, of if
you plan to rent all or part of the house, both of which can increase
liability.
Armed with all this information, insurance companies can determine how much
to charge you for insurance, sometimes in a matter of minutes.
Your policy´s dollar limits are important
If you insure your house for $100,000, that´s the most you will get if it is
destroyed, even if it would cost more to replace it. The Declarations Page on
the front of your policy shows how much coverage you have. Talk with your agent
or company representative if you have any questions about your insurance limits
Don´t wait until you have a claim to learn your policy´s limit.
Replacement cost coverage for your personal property
Most
homeowner policies contain replacement cost coverage on the home and actual
cash value coverage on personal property.
Homeowners policies automatically cover household contents - furniture,
clothes, appliances, etc. - up to 50 percent of the amount your house is
insured for. This means if you insure your house for $100,000, its contents are
insured for up to $50,000. You can get more coverage by paying a higher
premium. This automatic coverage pays only the actual cash value of damaged,
stolen, or destroyed household goods. Actual cash value is an item´s
replacement cost, minus depreciation.
Replacement cost policies give you more protection than actual cash value
coverage. For example, what happens if a burglar steals your six-year-old
television set. With actual cash value coverage, you get only what you would
expect to pay for a six-year-old television set. With replacement cost
coverage, the insurance company pays to replace your TV with a new set similar
to the stolen one.
Insurance companies generally want proof you replaced an item before paying
your claim in full. An insurer might offer to replace the items instead of
paying cash, but the choice is yours.
Take inventory
Many people learn after a fire or storm they didn´t have enough personal
property coverage. Taking inventory will help you decide how much insurance you
need. It also will simplify claims.
Your inventory should list each item, its value, and serial number.
Photograph or videotape each room, including closets, open drawers, storage
buildings, and your garage. Keep receipts for major items in a fireproof place.
What other protections does my policy provide?
Homeowners policies regularly provide other types of coverage, including
off-premises theft protection and unauthorized use of your credit cards. Make
sure you understand which provisions are included in the standard coverage you
elect to purchase and which might require supplemental premiums.
Supplemental coverage
Homeowners
policies cover specific risks.
Depending on what you own and where you live, you might need to
supplement your policy with special coverage.
Flood insurance
Homeowners policies do not cover flood damage. The National Flood Insurance
Program (NFIP) offers flood coverage in many areas. Local insurance agents sell
NFIP flood policies and can tell you about the program in your area.
For more information, call NFIP
at 1-800-427-4661 or CLICK HERE to visit the NFIP website.
If a mortgage lender determines a home is in a special flood hazard area,
the borrower might be required to purchase flood insurance.
Earthquake
insurance
If you are concerned about earthquakes, you can get coverage with a separate
policy.
Extra coverage (Endorsements)
You might want more coverage for certain items than your policy provides.
For an extra premium, you might be able to buy endorsements that expand or
increase the coverage on these items. Some of the most common endorsements
cover jewelry, fine arts, camera equipment, coin or stamp collections, computer
equipment, and radio and television satellite dishes and antennas.
Personal
umbrella liability insurance
If you want more liability coverage than a homeowners policy provides, you
can buy a separate umbrella policy. Because policies vary, make sure the agent
or company fully explains the coverage.
Higher deductibles, lower premiums
Deductibles allow you to cut the cost of your insurance, by assuming some of
the risk. If you have a $250
deductible on your homeowners policy, you agree to pay $250 to cover any
losses, before the insurance company pays the rest of your claim. By increasing that deductible to
$1,000, you might save 20 to 30 percent on your premiums. You must decide whether lower deductibles
or lowering your premium is right for you.
Bad credit could cost you
Some insurance companies might charge you higher premiums, if you have
problems with your credit history.
Insurers say past experience has shown people with financial problems pose
a greater risk.
“An insurance score is different from a credit score,”
explains Jeanne Salvatore of the Insurance Information Institute. “An insurance
company uses credit information, together with your insurance history, to
predict whether you are more or less likely to file a homeowners claim,” adds
Salvatore. “This allows them to provide insurance to more people and to offer
it at a lower cost to those who qualify.” |