If you own a home, it’s almost certain that you have homeowners insurance. While insurance agents will help determine the kind of coverage you can buy, it is ultimately your responsibility to know what the policy covers. And remember, insurance agents are salesmen and typically work on commission. This isn’t a bad thing, but be aware of what type of coverage you actually need so that you can spot when you’re being sold something you don’t truly need. Each home and family will have different specific needs, so your policy should reflect that.
At the very least, you should take a few minutes to look at your current coverage. Do you remember the major flooding in the midwest last year? Thousands of homeowners thought they were well out of flooding areas, but the record rains proved otherwise. To make matters worse, flood insurance doesn’t typically come with your standard policy and has to be added on. So, thousands of people lost everything because they assumed they were not subject to a certain risk or assumed that something like flood damage would be covered. Don’t let something catch you off guard. Here are a few tips that are sure to help you better understand your policy and hopefully save you some money.
1. Review your policies annually. A walk-through of your coverage needs with your agent may identify other items to insure(i.e., jewelry, artwork, etc.), as well as ways to save on premiums such as bundling auto and home insurance coverage together with one provider or requesting higher deductibles to help contain your costs.
2. Identify risks you face that are not covered by your homeowners policy. Disasters such as floods and earthquakes need a separate policy or riders to protect your home if tragedy strikes. Risks can change, so don’t assume that what you had in the past is sufficient today.
3. Understand how much coverage you have. Many homeowners believe their insurance policy will replace their damaged or destroyed property regardless of the amount of damage incurred. Remember, it is generally not your home’s market value that is covered, but rather its replacement cost. Home additions and major kitchen or bath remodeling projects can add significant value to your home, which may not be fully covered by your current policy. It is important to that your coverage is sufficient. Take some time to speak to your agent about the differences between replacement cost coverage and actual cash value coverage.
4. Do your homework when shopping for insurance. Get quotes from different carriers. Since rates can vary, make sure you compare coverage on an apples-to-apples basis so you can spot when a lower price really just represents less coverage. Consider higher deductibles to help reduce your premiums or ask if discounts are available for installed safety and security devices such as smoke detectors and alarms.
5. Research carrier performance. Ask your friends and neighbors for references. Also, research the financial strength of carriers through independent third-party sources such as state insurance departments, A.M. Best, Standard & Poor’s, and customer satisfaction ratings at the J.D. Power Consumer Center. With a lot of uncertainty in the financial markets there may be some insurers who are in worse shape than others which can lead to a greater disparity in premiums.
Your home is likely one of your greatest assets, so it pays to make sure it’s properly protected. By keeping premiums down, you save money up-front, and when you make sure you have appropriate coverage, you save money in the end if you have to unfortunately file a claim. Don’t let anything catch you by surprise and take a few minutes to review your coverage today and look for money-saving opportunities.
Author: Jeremy Vohwinkle
My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.