Homeowners insurance: we all know of it, we all know we should have it. Most mortgage companies require obtaining it.
Yet home insurance is not a catchall. There are multiple levels of insurance, riders, and additional liabilities to explore when purchasing homeowners insurance.
Options can differ enormously between individuals. It is essential that you be upfront with your broker, so they can help you get the right homeowners insurance.
So what is homeowners insurance? All homeowners insurance protects against accident, theft, or disaster affecting your home.
Yet it does not guarantee every incident- in fact, while most insurance will cover things like structural damage from a fallen tree, other natural occurrences like floods and earthquakes are most likely not covered, and will need additional insurance.
Homeowners insurance also covers against liability- for example, if a visitor trips on a rug and has to get treatment for a broken bone, or if an accident occurs on your property, this insurance can help cover medical bills, defend against lawsuits and other related expenses.
Furthermore, homeowners insurance also protects personal belongings.
Sounds like even basic insurance covers a lot, right? The answer is yes, and no. Most basic insurance rests on actual cash value, aka the value of your belongings at the time that the damage/ theft occurred, not when it was initially purchased.
So, if you purchased an oven three years ago, and it gets damaged in a storm, you will only get back money for the value of a used oven. This often doesn’t cover the full cost of replacement, and the difference falls on the homeowner.
While insurances based on actual cash value means lower premiums, it could mean greater out-of-pocket expense should something happen.
Knowing how much “cushion” you have in your savings for the off chance of accident, and discussing it with your broker, can help you make the right decision when it comes to choosing insurance.
Another more expensive but “safer” option is replacement cost coverage. Replacement cost coverage means that the company does not take into account the depreciation of an item over time, but instead provides money for a complete replacement.
In our case of the oven, after filing a claim, the homeowner should be able to purchase the same oven, brand new, at no personal cost.
This coverage, of course, only goes up to your coverage limit, so carefully reviewing your policy with your broker is important. Many homeowners who have most of their finances tied up in their home prefer this option.
These two options are just a very broad overview of the breakdown of homeowners insurance, and there are many nuances and in betweens.
For example, it is possible to purchase insurance which adjusts for inflation, so that the money you receive for your replacement oven does not just reflect how much it cost at the time, but how much that translates to in today’s economy.
Additionally, local considerations play a big role in both pricing and in choosing the right plan. If you buy a home in a neighborhood with a high crime rate, or with high construction costs, this will affect your premiums.
While deliberating, you may even want to consider climate and how that will impact the likelihood of wear and tear, natural disasters, and mold. Reviewing these unique components can help you make an informed decision for you and your family.
Finally, before searching for homeowners insurance, every homeowner should have a great working knowledge of their personal finances. By truly evaluating how much of your wealth lays in your property, you can better understand how much you can afford to pay on your own, should disaster strike.
While it may seem pessimistic, considering the worst case scenario is one of the best things you can do when you look for the best fit for you.
Find Homeowners insurance daunting? Speak to one of our brokers to guide you through today.