As future homeowners, it is a given that we should take care of our homes and do our part in preventing untoward incidents that might occur in it. However, accidents, thefts, and disasters are unpredictable; but it is important to remember that these occurrences are not our fault and are out of our control. Thankfully, this is where home insurance comes in which is a necessity as a homeowner.
Definition of home insurance
Home insurance, or homeowners insurance, is a form of property insurance that covers losses and damages to a residential property. Simply put, it safeguards our house or property from any untoward incidents. There are four kinds of incidents that are covered by home insurance: interior damage, exterior damage, loss/damage of personal assets/belongings, and injury that occurs while on the property.
Much like any other insurance, may it be life insurance or car insurance, every home insurance policy has a liability limit which means that there is only a determined amount of coverage the insured has should an unfortunate incident occur. Typically, natural disasters such as earthquakes or floods are excluded from the insurance coverage. Thus, a homeowner who lives in disaster-prone areas may need to get special coverage for these types of damages.
Levels of coverage
Investopedia lists down three levels of home insurance coverage:
Actual cash value
"Actual cash value covers the cost of the house plus the value of your belongings after deducting depreciation (i.e., how much the items are currently worth, not how much you paid for them)."
Replacement cost
"Replacement value policies cover the actual cash value of your home and possessions without the deduction for depreciation, so you would be able to repair or rebuild your home up to the original value."
Guaranteed (or extended) replacement cost/value
"The most comprehensive, this inflation-buffer policy pays for whatever it costs to repair or rebuild your home—even if it's more than your policy limit. Certain insurers offer an extended replacement, meaning it offers more coverage than you purchased, but there is a ceiling; typically, it is 20% to 25% higher than the limit."
Cost-cutting insurance tips
Investopedia also lists down several ways to help cost-cut home insurance fees:
Maintain a security system
"A burglar alarm monitored by a central station or tied directly to a local police station will help lower the homeowner's annual premiums, perhaps by 5% or more. In order to obtain the discount, the homeowner must typically provide proof of central monitoring in the form of a bill or a contract to the insurance company."
"Smoke alarms are another biggie. While standard in most modern houses, installing them in older homes can save the homeowner 10% or more in annual premiums. CO detectors, dead-bolt locks, sprinkler systems and in some cases even weatherproofing can also help."
Raise your deductible
"Like health insurance or car insurance, the higher the deductible the homeowner chooses, the lower the annual premiums. However, the problem with selecting a high deductible is that claims/problems that typically cost only a few hundred dollars to fix—such as broken windows or damaged sheetrock from a leaky pipe—will most likely be absorbed by the homeowner. And these can add up."
Look for multiple policy discounts
"Many insurance companies give a discount of 10% or more to customers who maintain other insurance contracts under the same roof (such as auto or health insurance). Consider obtaining a quote for other types of insurance from the same company that provides your homeowners insurance. You may end up saving on two premiums."
Plan ahead for renovation
"If you plan to build an addition or adjacent structure to your home, consider the materials that will be used. Typically, wood-framed structures will cost more to insure because they are highly flammable. Conversely, cement- or steel-framed structures will cost less because these are less likely to succumb to fire or adverse weather conditions."
"Another thing most homeowners should, but often don't, consider are the insurance costs associated with building a swimming pool. In fact, items such as pools and/or other potentially injurious devices (like trampolines) can drive the annual insurance costs up by 10% or more."
Pay off your mortgage
"Obviously this is easier said than done, but homeowners who own their residences outright will most likely see their premiums drop. Why? The insurance company figures if a place is 100% yours, you'll take better care of it."
Make regular policy reviews and comparisons
"No matter what initial price you're quoted, you'll want to do a little comparison shopping, including checking for group coverage options through credit or trade unions, employers, or association memberships. And even after purchasing a policy, investors should, at least once per year, compare the costs of other insurance policies to their own. In addition, they should review their existing policy and make note of any changes that might have occurred that could lower their premiums."
Final say on home insurance
Home insurance, at first glance, might be pricey and make you doubt about getting one, but it is a necessity. Applying for home insurance is surely a proactive way of safeguarding your home instead of dealing with damages and losses on your own in the future. Remember, prevention is better than "cure", so make sure to insure your homes!
Sources:
Investopedia. (2021, June 10). Homeowners Insurance Guide: A Beginner’s Overview. https://www.investopedia.com/insurance/homeowners-insurance-guide/
Kagan, J. (2021, June 30). What Is Homeowners Insurance? Investopedia. https://www.investopedia.com/terms/h/homeowners-insurance.asp