Buying a house is often the largest purchase you will make in your life. But it’s also where you make a home, raise a family and create memories. Protecting it and the items inside it should be a vital part of your financial plan, but researching insurance can often get overlooked because it’s a complicated subject.
Not only do you have to worry about things like fire damage or someone getting hurt on your property, but you also need to account for the likelihood of natural disasters such as flooding, wildfires or hurricanes.
Listen to this week’s episode of the rich & REGULAR podcast about protecting your most valuable asset, and consider the following when you’re shopping for homeowners insurance.
Get the right coverage
You know that you need to protect your home from everything that can happen in life, but balancing the right amount of coverage with a hefty insurance bill can make it challenging to find the right policy. Although you aren’t mandated to have home insurance the way some states have requirements for auto insurance coverage, leaving your home unprotected could result in a financial disaster if you’re left to replace even part of your home and it’s contents out of pocket.
Getting too much coverage, of course, can also be a problem since you’re paying for more than you need. Consumer Reports recommends buying enough coverage to cover the material and labor costs to rebuild your home if it’s destroyed. Work with your insurance agent to determine how much you need and be sure to account for any improvements you’ve made over the years.
Consider additional coverage
Once you’ve determined the right amount of insurance needed, additional coverages are available that offer extra protection and added peace of mind.
Liability coverage: Most home insurance cover costs arise from lawsuits or someone getting hurt on your property between $100,000 and $500,000. If your assets total more than your liability insurance covers, consider increasing that amount using an umbrella or excess liability policy. Increasing your coverage to $1 million usually only increases your annual bill by a few hundred dollars, so it might be well worth the cost.
Extended replacement coverage: This coverage pays an additional 20-25% to guard against replacement building costs rising exponentially after a natural disaster or with inflation.
Flood insurance: Most homeowner insurance policies do not cover flooding, and you may be on the hook to replace your entire house or its contents if your area floods. Read your existing policy carefully and talk with your insurance agent about adding flood insurance, even if you’re in a low risk area.
Renters insurance covers the contents of your home and is vital to making sure you’re protected if there’s fire or smoke damage, if lightning strikes the building and causes damage to your possessions or if your upstairs neighbor accidentally floods your apartment. Many apartment buildings require proof of renters insurance before they allow you to sign a lease. However, even if you aren’t required to have it, renters insurance is still vital to your financial life and is usually only a couple of hundred dollars a year, depending on your coverage.
The Insurance Information Institute recommends opting for replacement cost coverage whenever possible so that you can afford to replace items at the current market rate, instead of at a depreciated value. Take a thorough inventory of all of your significant possessions like electronics, musical instruments, jewelry or expensive exercise equipment, and keep any receipts or proof of purchase records in a safe place, preferably with digital access.
Lower your premium
The more coverage you add, of course, the more the price of your policy goes up. As you shop around for policies and coverage, consider the following to help you save on your monthly insurance bill.
Bundle with auto or other policies. Bundling your home and auto policies with the same company may help you save up to 30%, depending on your coverage needs and the area where you live.
Make improvements. Updating old plumbing and electrical systems or adding additional smoke alarms and fire mitigation systems may help you save some money on your bill. Additionally, updating your roof to be wind and hail resistant or installing water and gas leak alert systems can help prevent problems and save you money in the long run.
Consider raising your deductible. Raising your deductible might mean having to spend more money before insurance kicks in, but it could create monthly savings on your insurance bill. It’s all a balance, of course, but if you have a robust emergency fund and can self-insure for anything below your deductible amount, this might be a good option for you.
Be savvy about submitting claims. Along with raising your deductible, be smart about the number of claims you submit. Submitting multiple claims against your policy might result in a rate hike from your insurance company, so whenever possible, self-insure against minor losses and save your insurance claims for the significant issues.
Review your policies annually
As we’ve mentioned previously, it’s a good idea to dedicate one day a year to review your home, auto and life insurance policies and spend some time searching for a better rate or better coverage. Evaluate your needs yearly, since a lot can change in just 365 days, and make sure you’re getting the right amount of coverage to protect you and your family.