One of the most important steps in the home buying process is to make sure your home is immediately protected against theft, fire and other mishaps. Purchasing homeowners insurance is similar to buying any other type of insurance and it’s important to do your homework before settling on a policy. If you’re feeling overwhelmed by the sheer number of choices, keeping these four tips in mind can make it easier to choose one.
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1. Know How Much Coverage You Need
The first step in selecting a homeowners policy is figuring out how much insurance you actually need. There are several individual costs you’ll need to break down to get an accurate estimate.
The most important figure to consider is how much money it would take to rebuild your home if it was completely destroyed. Insurers use this as the base amount when drawing up your policy. From there, they’ll also factor in the cost of replacing your personal possessions, the cost of repairing or replacing other structures on the property such as fencing or a shed and personal liability costs that you may incur if someone were to get hurt at your home.
One mistake that homeowners tend to make is only purchasing enough insurance to cover the value of their mortgage loan. Instead, it’s important to look at the bigger picture to make sure you’re adequately prepared for the worst.
2. Take a Look at What the Policy Covers
There’s no such thing as one-size-fits-all homeowners insurance and it’s a good idea to read up on the details before you pick a policy. For example, an HO-2 policy outlines 16 specific perils that are covered, including damage caused by fire, smoke and lightning. An HO-3 policy on the other hand, covers your home against just about anything except certain perils that are specifically excluded.
In addition, there are also policies that cover condos or townhomes, new construction, older homes and mobile homes. The type of policy you choose should reflect the type of structure you’re purchasing and its overall condition. You also need to take into consideration the geography of the surrounding area to determine whether additional coverage against things like floods or hurricanes might be necessary.
3. Pay Attention to the Deductible
Like any other insurance policy, homeowners coverage requires you to cough up a deductible before the insurance company will pay any claims. Deductibles are usually set at $500 or $1,000, but some insurers will allow you to set it as high as $10,000.
Going with a higher deductible means you’ll pay more out-of-pocket if something happens to the home, but it does offer some advantages. It often means a lower monthly payment. Plus, any time you make a claim, your policy rates are likely to go up but if you’ve got a high deductible that requires you to cover those expenses yourself, there’s less risk of your premiums increasing.
4. Choose the Best Way to Pay Premiums
You have two options for paying your homeowners insurance premiums and you have to decide what’s more feasible for your budget. The first is to simply pay your annual premiums upfront once a year. Depending on the value of the home and where you live, that may mean handing over a few thousand dollars at once.
If parting with a big chunk of change isn’t reasonable, the other option is to roll the premiums into your mortgage. The upside of doing so is that you’re able to break the premiums down into smaller pieces but your mortgage payments are going to be higher each month as a result. You have to decide which method for covering the premiums is least painful for your budget.
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