Home Insurance - Is it necessary

One of the biggest concerns among home buyers is that they might end up with not enough home-insurance.

Generally, people don’t like insurance because they are thinking only of the present time and not the future. Because at the present time, it seems like a waste of money. Besides, to many of us the word ‘insurance’ suggests a way of getting things replaced in terms of its worth-in-kind.

So they go in for a partial substitution for the same and hope that they are actually relieved out of the situation. Because, this is when they think that you are doing everything right. Then, if by chance the house gets flooded and they might then find out that their home-insurance didn’t cover flooding and invariably have to shell out thousands. People believe that since they didn’t live in a ‘flood zone’, they might not need it…..but usually learn their lesson the hard way.

So how do you go about it ?

Basically, just sit down and calculate the value of your home and how much it would cost to replace.

This would also include the valuables that you keep in your home. Then add and compute their totals separately. As they are two different coverage levels, make sure that you split them up while computing. Also make a note that you’ll only get reimbursed up to a certain amount of coverage that you purchase. In other words, if you do not carry enough coverage for your “contents” you may not be able to replace everything should you have a fire, theft, etc.

Another factor, you need to know is what exactly are you are paying for. This is especially true if you live in a flood zone or area in which hurricanes are common. Generally speaking, there will be provisions in your home insurance policy and you need to know what they are UPFRONT

Now there are generally two types of Home Owners Insurance.

Actual cash Value is the cheapest home insurance policy. So generally most professionalls avoid this policy.

Now, why do professionals avoid this policy?

Suppose you buy a policy which covers your house $10K when your house value is the same. If after a year if your house valuation increase to $12K. But there is no increase in policy cost. In other words, there is no room for inflation and your coverage amount will be same when you buy the policy.

Then there is the Replacement Cost Policy:

In this type of coverage policy amount rise with the rate of inflation. $5 - $ 30 to your annual premium. So please make sure you get all the facts about the policy you think is right for you.

Now, apart from actual cash value coverage and replacement cost coverage, there is another type of coverage available for the home owners, it is called the Guaranteed or extended replacement cost coverage.

Guaranteed cost coverage offers the highest level of protection. It will meet all the expenses of re-construction even if it crosses your coverage limit. Naturally, it is the most expensive form of coverage.

According to market surveys, extended cost coverage pays to about 20% to 25% over the coverage limit for re-building your home, i.e. if you have a $10,000 policy, your coverage will get extended to $12,000 for the 20% extended cost coverage. Many experts now recommend extended cost coverage for its flexibility. It also works well as a hedge against inflation.

But then again, please check this with your agent before nose-diving into it.

Last but certainly not the least is the Liability Coverage.

What would you do if your dog bit the mailman? How about if somebody falls coming onto your property? You need to have liability coverage in case somebody gets hurt on your property, and in turn decides to sue you.

Now there are areas where you can save as well. For example, many people insure both their home and the land the home is on. Forget the land, and insure only your home if you want to save on home insurance.

Purchasing your homeowners insurance and your car insurance from the same insurance carrier could save you up to 15% on both premiums.

If you have added new security devices to your home would also reduce your policy rates. Insurance companies highly value the protection afforded by fire sprinkler systems, burglar and fire alarms — especially those connected to monitoring agencies such as your local police and fire department. Accordingly, some carriers reduce premiums by as much as 20% if you install some of these features.

A new home's electrical, heating, and plumbing systems are likely to be in better condition than those of an older home. Hence the insurance rates for them are generally lower as any potential hazards are reduced. Accordingly, if you have made any home improvements, you should make it a point to check whether a new policy would reward you with insurance policy discounts.

Ideally, you would want your policy to cover any major purchases or additions to your home, but you should not spend money for coverage that you don't need.

Lastly, homeowners insurance rates are always fluctuating and vary from company to company. So take time to review the amount of home-insurance that you actually need, rather than buying more coverage then you need. This can be achieved by taking time to compare multiple home-insurance quotes will help you find the right amount of home-insurance that is in line with your budget.

In short, be careful when buying home-insurance. Your home is a big investment, and you want to keep it covered in terms of structure and possessions, while also carrying liability coverage. And there is nothing wrong if you are concerned about making mistakes when buying home-insurance.

Please note that the above is only a general idea into the facts of home-insurance. The important thing is that you take your time, speak with the right people, and avoid problems by making the right decision.