Homeowners insurance is a necessity. If you have a mortgage, your lender will require coverage -- and if your home is mortgage-free, then you should have coverage anyway.
But not all insurance coverage is alike. Policies and protections differ, and so do costs. Your goal is to find the right amount of protection for the least amount of money.
3 types of homeowners insurance
Homeowners insurance generally comes in three standardized packages:
- HO-1: Basic package offers protection against such perils as fire, theft, and certain types of liability.
- HO-2: More comprehensive package protects against damage from broken pipes, the weight of ice and snow, and broken water heaters.
- HO-3: The highest level of coverage, it generally includes just about everything and excludes only earth-shaking events such as earthquakes and floods.
Determine which policy will work best for you
To determine which policy is best for you, make a list of valued possessions and the types of coverage you'd generally like to have. Then, sit down with an insurance broker to review what's included (and excluded) from each policy form and the other forms of coverage that may be available. You may find all the coverage you want in a general form, or you may determine you need special coverage at extra cost.
Ask the right questions
To get the most from your policy, it helps to create a list of questions to ask your insurance broker beforehand. Some examples:
- What works best in your situation?
- What is included -- and excluded -- for each option?
- What coverage will you need for antiques, jewelry, and other high-ticket items?
- How much personal liability protection will the policy provide? What is the cost of additional coverage? What about an "umbrella" policy?
- If you have a loss, will coverage be for actual cash value or replacement cost? Ask your insurance broker to explain the difference.
- What is the policy deductible? (Generally lower deductibles mean higher premiums, higher deductibles result in lower premiums.)
- How can you reduce policy costs? For instance, if you buy auto and home insurance from the same source, will your combined expenses decline?
- What home improvements can you make that would result in lower premiums?
- How are claims handled if you have a loss?
Find the best price
Finding the best price on homeowners insurance can be tricky. You don't want to simply sign up for whatever policy is the cheapest and end up underinsured, but you also don't want to pay more than you have to.
To make sure you're getting the best deal, ask your insurance broker for a list of comparable plans from about three other providers. The price for similar coverage can vary from provider to provider. Finally, don't forget to factor in your own circumstances. The location of your home, the size of your home, and even your credit score can affect your insurance costs.
Updated from an earlier version by Peter. G Miller
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