New Homeowners, It’s Time for an Insurance Checkup
You cannot buy a home without homeowners insurance unless you are paying cash in full.
There are few things more exciting in life than buying a house. When they hand over the keys to your brand new home the thrill can be intoxicating but don’t let all of the excitement go to your head, reviewing your home insurance needs have never been more important.
In most cases, your new home is the biggest personal investment you will make and you want to make sure that you protect it, which means that it’s time to make sure all of your insurance ducks are in a row.
Lets have a quick look at the various insurance products you should be considering:
Homeowners insurance
This is the obvious one. You cannot buy a home without homeowners insurance unless you are paying cash in full. Your lender will require proof of homeowners coverage before you can close so make sure you have all of the paperwork in order before the big day.
Homeowners insurance covers the cost of repairs or rebuilding if your home is damaged or destroyed by covered perils. These usually include fire, storms, or vandalism. It will also cover the cost (minus the deductible) of replacing any of your personal possessions that are destroyed or damaged. There are exceptions in every policy so make sure you read your policy in full. (Helpful Link: What is homeowners insurance?)
It is important to purchase enough coverage to rebuild your home, and replace all of your possessions should they be destroyed in a catastrophic event. Your agent should be able to advise you on the proper coverage levels. (Helpful Link: Analyze Replacement Cost & Dwelling Coverage)
In addition to choosing coverage levels you will have to decide on a deductible amount. The higher the deductible, the lower your premium but remember, you will have to cover the deductible every time you need to make a claim so choose a deductible amount that you can easily cover in the event of a claim.
Keeping an up to date home inventory can be a tedious job but will be a necessity when you need to make a claim. There are a number of apps available that make compiling a home inventory much easier. You can take a photo of your possessions as well as enter important information such as serial numbers, purchase date and even a photo of your receipt.
There are numerous upgrades and riders that are available for a homeowners policy that you may want to consider. Here are just a few:
- Coverage for Collectibles – Coverage for items such as art, jewelry, furs and other expensive items are capped on most homeowner policies. You can buy additional coverage in most cases for a very reasonable premium.
- Replacement Value – The majority of homeowner policies will only pay the fair market value for your lost items. This means they will take the price paid, minus the deprecation of the item and cut you a check for that amount which means your claim check will not cover the cost to replace your possessions. Paying for replacement value coverage means your insurer will cover the replacement cost of all of your possessions.
Flood insurance
If your new home is located in a flood zone, a flood insurance policy will be a necessity. A standard homeowners policy will not cover flood damage. Your lender will require proof of flood insurance if you live in a high-risk zone.
Coverage can be purchased through the National Flood Insurance Program which partners with several national insurance companies that sell and service the flood policies. The rates are set by the government and recent changes to the program have pushed prices up dramatically. If you are considering a high-risk home it is wise to get a flood insurance quote before you sign on the dotted line, you may be surprised by the cost.
Earthquake insurance
Earthquake damage is not covered by a standard homeowner policy. If you live in an area that is a high-risk for earthquakes, an earthquake policy is a necessity. Depending on your insurer, they may or may not write earthquake coverage. You will need to shop around to find an insurance company that will offer coverage.
Much like flood insurance, this type of coverage is fairly expensive. In addition, an earthquake policy comes with a 15 percent deductible, which means that on a $200,000 home, you will have to cover the first $30,000 in damage.
Umbrella coverage
This type of policy will kick in once the limits of your other policies have been hit. This can be especially important if someone was injured on your property and they sue you. A judgment can easily exceed the liability limits of your homeowners policy.
Umbrella coverage also kicks in if the limits on your car insurance policy are reached. This can easily happen if you are at fault in a serious accident. It will also protect you from slander, libel and defamation suits.
Umbrella insurance is usually very affordable.
For all new home purchases, please consider our home insurance shopping service so you can focus on other important things like counter tops, appliances and flooring.