Homeowner Insurance Essentials

There're two principal reasons to insure your home - you can't get a mortgage without home insurance, and you have to protect such a huge asset like your house.

The purpose of home insurance is to pay for major losses. When you use it too often, the insurer can raise your rates, reduce your coverage or even to terminate the policy.

Deciding On Your Policy

Comprehensive Policy covers all risks for both the house and its contents. Property damages caused by natural disasters like floods and earthquakes are excluded.

Basic Policy will pay for damages to the house and the contents from specific perils. This coverage is the cheapest, and it provides a minimal protection. You must be insured at least for fire damages to qualify for a mortgage.

Broad Policy is a combination of comprehensive and basic policies. Your house will be protected from all risks, and the contents only from named perils.

Liability - Standard policies provide a only limited coverage for injuries or property damage caused by you or members of your family living in the house.

You may consider an extra protection for you guests if you have a swimming pool on the property. A home based small business requires an additional coverage for your clients and employees.

Insured Value is typically depreciated. But if you purchase a replacement value guarantee, the house can be rebuilt and its contents replaced at current prices.

Lenders will accept nothing less than the replacement value coverage for a house, and when you repay the mortgage in full it's still in your best interest to keep it that way.

Exclusions - Every policy has a long list of exceptions. Even the all risk policy still has a long list of perils which aren't included. Nevertheless, an extra protection can be purchased for some excluded perils.

  • The most common is a flood exclusion. Think twice about buying a home in a flood zone, even if it's a dream house. Your insurance costs will be high, and you may not be able to sell the home in the future.

  • Exclusions also kick in if you break policy rules. One of them says how to prevent water damage when you're away for more than four days during the heating season.

    You have to shut water supply and drain pipes, install a water flow alarm monitored by a home security company, or have someone check your residence every day.

  • Your insurance company wants to know about any major change you've made to the house or the way it's used. You must inform them when you operate a home-based business, renovate, or create a rental suit in the house.

    If the insurer wasn't aware of new circumstances which increased the property value or risk levels they would have enough reason to cancel your entire policy.

  • Policies are conditional on a regular maintenance, and prompt repairs once a problem is noticed. They don't protect against damages caused by wear and tear. If a rusty oil tank leaks or water seeps through a deteriorated foundation, you are on your own.

Where To Seek Help

The General Insurance OmbudService is an dispute resolution service. This is where policy holders who are in a dispute with one of GIO's member companies can file complaints and ask for assistance.

How To Lower Premiums

Average homeowner insurance cost is about $800 annually. This figure will fluctuate, depending on the property size and age, its condition and location.

Discounts - Most companies offer a multi-policy rebate if you keep with them your other policies.

You can also get a better rate for having an alarm (especially if it's run by a third party), dead bolt locks, fire extinguishers, smoke detectors, carbon monoxide detectors, sprinklers, and automatic gas and water shut-off.

Deductibles are losses you agree to absorb. For example, if the deductible is $500 your insurance will pay only $4,500 when you claim $5000.

Choose the highest deductible you can afford, while staying within your risk tolerance. Usually, $500 is a mandatory minimum. If you increase it to $1,000 you may save as much as 25% on premiums.

Credit Check - A good credit record will improve your risk profile. Ask the insurance company if they can reduce your cost in exchange for permission to perform a credit check on you.

Reduce Coverage - Consider a basic named peril policy protecting you from fire, and perhaps some other hazard. You may not be able to recover from fire, but you can possibly make it through a flooded basement or a leaky roof.

Pay Annually - There may be an extra cost if you pay monthly, and you can save some money by paying your year's premium all at once.

Small Claims - Every claim you make affects your risk profile and your premiums may increase. Use your insurance only for a major loss you can't cope with. Avoiding small claims helps to build a good record.

The insurance company doesn't have to keep you. Once you're rated as a high risk client, your premiums may go up dramatically.

If they refuse to renew the policy, it might be difficult to find another insurer and you can only expect paying much more for much less.

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