Home insurance is an important part of being a homeowner. Most mortgage companies also require it, so it’s a good idea to get some quotes on home insurance policies to ensure you get the best deal.
We’ll show you the basics of homeowners insurance policies so that when you start shopping around for what works best for your family, you know what to look for to ensure your home is insured and secure.
The Different Types of Home Insurance Coverage
Insurance policies aren’t all the same. The cheapest homeowners insurance policy will almost certainly provide the least coverage and vice versa. They provide varying levels of protection based on the homeowner’s needs and the type of residence covered.
There are three levels of coverage.
– Actual Cash Value
Taking depreciation into account, actual cash value equals the sum of the home’s purchase price plus the value of your possessions (i.e., the current value of the items).
– Replacement Cost
Your home could be repaired or rebuilt up to its original value thanks to replacement value policies, which pay the actual cash value of your house and belongings without taking depreciation into account.
– Guaranteed (or Extended) Replacement Cost
Guaranteed replacement cost is the most comprehensive inflation-protection policy, covering the total cost of repairing or rebuilding your home, even if it exceeds your policy limit. Certain insurers provide an extended replacement, which offers more coverage than you purchased, but with a cap.
It’s advisable to purchase guaranteed replacement value policies because you need enough insurance to rebuild your home at current prices and not just enough to cover the value of your home. Guaranteed replacement value policies absorb increased replacement costs and provide a cushion to the homeowner if construction prices rise.
Cutting Down on Insurance Premiums
Even though skimping on coverage is never a good idea, there are ways to lower insurance premiums.
– Keep a Security Solution
A security solution monitored by a central station or directly linked to a local police station can help reduce the homeowner’s annual premiums by 5 percent or more. While smoke alarms are standard in most homes, installing them in older units can save the homeowner 10 percent or more on annual premiums.
– Increase Your Deductible
The higher the deductible, the lower the annual premiums. Choosing a high deductible will likely force the homeowner to pay for claims or issues that only cost a few hundred dollars to fix. These costs can quickly add up.
– Search for Multi-Policy Discounts
Many insurance companies offer a 10 percent or higher discount to customers who keep multiple insurance contracts under the same roof. Consider getting a quote for additional insurance types from the company that handles your home insurance. You could end up saving money on two premiums.
– Plan Ahead of Time for Renovations
Consider the materials to be used if you intend to build a home addition or an adjacent structure. Wood-framed structures are highly flammable and are hence costly to insure. Structures made of cement or steel, on the other hand, will be less expensive because they are less likely to be destroyed by fire or severe weather.
