All home insurance policies have coverages that you may never use or understand. The last thing you want is for a disaster to occur and it’s not covered by your homeowners insurance policy. The second worst thing that can happen is paying for more than you need. I explain to you which cover you can forget and which cover is a must. This way you are assured of good protection without paying too much.
To better explain what isn’t needed, let’s first look at what’s needed on home insurance. Most insurance companies offer packages with the most recommended coverage, but here’s a list of what to look out for:
- Home – This provides money to rebuild or replace your home if a covered loss occurs. Home coverage is not the same as your market value of the home, but is the estimated cost to rebuild the home if there is a total loss. Having the right level of coverage is important, so ask your insurance agent what is recommended based on your home’s current setup.
- Personal Properties – For everything else you own, including clothes, furniture, stereo, and more. Certain items, such as jewelry or fine arts, may not be covered by the standard policy, so check with your insurance agent. Most companies provide 75% of home coverage as personal property protection. This means that if you have $200,000 in home coverage, you will likely have close to $150,000 in personal property coverage. It is difficult to know exactly what amount to provide, so a percentage of the property is used.
- Loss of use – Most people don’t know what this cover is for, but it can be very useful. Having to move to a different location while your home is being repaired or remodeled will add to the cost of living in a different location. For example, if you rented an apartment for 2 months while your house was being rebuilt after a fire, the rent would be covered. Each policy varies from company to company, so be sure to ask about what’s included.
- Personal Liability – While this coverage is rarely used, it is the most bang for your buck. In the event that you are liable for damage or injury to someone else, this provides coverage to protect you from lawsuits. The average homeowners insurance policy is $300,000, but it may only cost an additional $20 per year to rise to $1 million.
Hopefully you now have an idea of what is required on home insurance, so let’s take a look at what you may not need. To save the most money on home insurance, there are certain options you can cut to save a few bucks off that premium.
The deductible you choose ultimately has the most influence on your premium. Most agents will recommend a $1000 deductible, but there are other options. The average homeowner makes a claim on their policy every 7 years and it is usually a roof or water related claim. Home insurance is not designed to protect against the little things like a broken window, but more importantly, the big losses like a roof or a flooded basement. This is where your deductible comes into play, the higher your deductible, the lower your premium. Consider having a 1% deductible on your policy, which is 1% of the home cover. For example, a $200,000 home insurance policy would have a $2,000 deductible. This can drastically lower your annual premium. Make sure you fully understand this option because as the home increases with inflation, so does your deductible.
One option that most insurance companies have come up with recently includes an à la carte package. This allows you to determine what is and what is not covered, plus separate deductibles for different losses. It may sound confusing, but ask your broker if there are options and how they affect your premium.