Choosing the Best Homeowners Insurance for Your Needs

Most people do not realize that the cost of homeowners insurance is tied to the location of their home. A location with a high crime rate or lack of access to fire protection will give you a higher premium for homeowners insurance. Comparing premiums can also give you an idea of a quality location for resale value.

When you take out a homeowners insurance policy, it is a contract for a set period. Your insurance company should not be raising your rate during that period, unless something significant occurs that affects your home or potential liability.

What is the best homeowners insurance for you?
The first time you buy homeowners insurance, it's easy to be intimidated by the different coverage areas and exclusions. Each portion of coverage is priced individually and comes with its own restrictions, so you'll need to take time to review the contract with your insurance agent carefully.

Remember that higher deductibles will reduce your premiums but increase your out-of-pocket costs when you make a claim. Be sure to ask very specific questions about what's covered. Don't assume that you're protected from floods, earthquakes or tornadoes, especially if you live in an area where these events are common, since most homeowners policies don't provide protection from natural disasters.

Certain breeds of dogs can affect your ability to get liability coverage or leave you paying a high premium for it. If you own valuable antiques, artwork or collectibles, you'll generally need a supplemental insurance policy to cover them, as homeowners policies typically provide only a minimum replacement value for the items in your home.

There are several types of homeowners policies:

  • Basic coverage for your home and personal property
  • Comprehensive coverage for your home and personal property
  • Renter's insurance, which covers only personal property
  • Insurance specifically for condominiums

The best thing to do is explain to the insurance agent what type of coverage you want. Once you get your policy, go over it carefully. You can always call them back up for a revision. Never assume something is covered.

Factors that affect premiums
Believe it or not, your credit report can affect how much you pay for homeowner's insurance. A credit report tells the insurance company how responsible you will be with your premiums.

Your past claims history is another factor in pricing. If you've made a lot of claims in the past, expect to pay more. In some cases, you may be denied coverage by a particular company.

Your location will also determine how much you pay for homeowner's insurance. It's all about the risk that you represent for the insurance company. If you live in a high-crime area, your homeowner's insurance will be more expensive. If you live in a coastal area, the risk of storm damage will be factored into the price, and flood damage may not be covered at all.

Running a business from your home will increase liability costs, depending on the type of business and any specialized equipment that's needed. For example, a furniture workshop presents a higher potential for serious injury, while a catering business could carry higher premiums due to an increased risk of fire. Swimming pools also raise premiums because of the potential for accidental drowning.

If you're building a new home, it's a good idea to get an insurance company involved in the design phase. Using certain materials or making structural changes, such as reinforcing walls or the roof, could result in significant insurance savings.

What coverage do you need?
When figuring your coverage needs, it's a good idea to start with the worst-case scenarios and work your way down. Imagine a fire burning your home to the ground. What would it cost for you to get back on your feet? In addition to the loss of your home, you'd need to rebuild and to replace all the clothing and furniture you use each day. One way to save on this portion of homeowners insurance is to exclude the value of your land from the policy, since land can be reused unless it's been destroyed in an earthquake or flooded. If it floods, chances are you won't be allowed to rebuild in the same location anyway.

Next, think about the everyday things that can go wrong with a home. A falling branch puts a hole in your roof. A neighborhood baseball game shatters your bay window. A toaster overheats and burns part of your kitchen. These repairs can cost thousands of dollars. Review your household budget and set your coverage and deductible according to what you can afford to pay out-of-pocket.

You should then think about theft coverage. In general, a homeowners policy will provide replacement value for your possessions. Anything of unusual value will require an appraisal and, often, a separate insurance policy.

To make claims easier, it's a good idea to make a videotape of everything you own and store it in a safe location. This will provide you and your insurance company with a reference and proof of ownership in the event of theft or loss.

Finally, you'll need to think about liability coverage, which protects you in the event of a death or injury in or around your home. Again, you'll need to think about what you can afford, as well as what you can afford to lose, as the aim of liability coverage is to protect you from a financially devastating jury or insurance settlement. To manage liability premiums, you may need to do away with hazards on your property, such as a cobblestone walkway, old trees or a swimming pool. A dog that's known to bite will increase your premiums, as will certain types of recreational vehicles, such as minibikes or ATVs.

What isn't covered?
Most polices don't insure "Acts of God," which are loosely defined as lightning strikes, meteors or the sudden collapse of a tree. Be sure to ask specific questions about these events.

If you live in a designated flood plain, you'll need to get a separate flood insurance policy from the National Flood Insurance Program. Areas prone to earthquakes, forest fires, hurricanes and tornadoes also typically require supplemental insurance to pay for damage from these disasters.

Finally, be sure to ask whether you're protected against damage caused by landscape and building contractors. Most policies won't protect you from damage caused by workers that you hire, so it's a good idea to work only with professionals who have their own insurance policies.

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