Protecting your biggest investment - your home - is crucial, but it can also be costly.
Do Your Research
When buying a home, don’t just consider the cost of the house - you should also factor in the amount you will pay for insurance. Many homeowners overlook the coverages not included in a standard policy, like flood and earthquake damage, but these add-ons can add up.
Before buying, check the Comprehensive Loss Underwriting Exchange (CLUE) report of the home to help you judge some of the problems the house may have. If coverage will cost more than you expected, consider a cash-value policy as a budget-friendly option.
What Affects Home Insurance Prices?
1. Type of Construction: Certain building materials make the house less disaster-prone than others.
2. Age of House: Newer homes may qualify for discounts.
3. Disaster Resources: The proximity of help and disaster relief resources to your home will affect your rates.
How It Works
All homeowner policies automatically cover household contents, but the way these contents are covered can vary greatly depending on the type of policy. Purchasing a cash-value homeowners policy means when you file a claim, your lost, stolen or damaged items will be paid out at a depreciated value. In other words, you will be paid the actual cash value of the items instead of their retail value. For example, if your TV originally cost $1,000 but at the time of the claim it is five years old and now worth only $500, your policy will pay out $500.
On the other hand, a replacement-cost policy would pay for the cost of a brand new TV similar to the one that was stolen or damaged. You would get the full $1,000 back in the event of a loss, but at a cost of higher monthly premiums. Depending on your situation, replacement-cost coverage can be affordable. However, cash-value may be a better option for homeowners on a budget. In fact, experts estimate that opting for replacement-cost coverage over a cash-value policy could cost you up to 15 percent more each month in premiums.
A cash-value policy still gives you peace of mind by adequately insuring your home and its contents in case of a loss, but it also offers the benefit of lower monthly premiums. For many families, cash-value coverage is the affordable solution.
Cash-value Policy Considerations
While a cash-value homeowners policy can be a great option for some, it is not right for everyone. To discover what type of homeowners policy you need, take the time to analyze your home and possessions by making a list of your home’s contents.
Any type of homeowners policy will cover household contents to some extent, but you won’t know how much - or what kind - of coverage you need until you know what you have. Waiting until after a catastrophic loss or devastating natural disaster is not a good time to realize you failed to adequately assess your insurance needs.
Follow the tips listed to both successfully analyze your homeowners coverage needs and prepare yourself in the event of a claim in one fell swoop.
Inventory 101 for Homeowners:
- Make an itemized list of everything that could possibly be damaged, lost or stolen in an incident, disaster or accident - be sure to include household furnishings, equipment and any other personal possessions.
- Clearly identify the item by providing a brand name (if applicable), serial/identification number and detailed description, including color, size, style, features and unique characteristics.
- Include the date the items were purchased or acquired on the list.
- Note the purchase price of all items on the list - this is especially important if you have a cash-value policy.
- Update your inventory list frequently. A good rule of thumb is at least every six months or when making an expensive purchase or another large change.
- Keep several copies of your list - it is a good idea to keep one inside and one outside your home in case of disaster.