Homeowners insurance is only a requirement if you're financing your home through a bank or lender, yet having a comprehensive policy for your house and personal items can afford you peace of mind, especially if you live in an area prone to natural disasters.
Having a good homeowner’s insurance policy isn't only for your home and belongings, however, as these products also feature a liability component that protects homeowners themselves against lawsuits from third parties injured on their property.
Consumers Advocate compiled some useful tips to help narrow down your search for the best homeowners insurance coverage.
Update Your Home Valuation
If your home is undervalued, your homeowner’s insurance policy won't cover 100% of the damages to it if the worst were to happen.
Similarly, if you've recently updated or renovated your house, your coverage amount should reflect those changes.
Keeping track of your home's value over time and updating your policy with each change will keep you fully covered and may even decrease your monthly payments if your updates have reduced risks and made your home safer.
Create an Inventory of Your Personal Items
Since your belongings are also protected by your homeowner’s insurance policy, it pays to have an updated inventory of valuable items such as computers, cameras, sports equipment, and anything of significant value.
As the Insurance Information Institute points out, having an updated home inventory can help you get the right level of coverage, get your homeowner’s insurance claim settled faster, and help you verify losses for tax purposes.
Modify Your Coverage Based on Risk Factors in the Area
If you live in an area prone to flooding, hurricanes, earthquakes, tornadoes, or wildfires, consider purchasing add-on or supplemental coverage that will provide full protection against these perils.
For homeowners in high-risk areas, we also recommend purchasing a full replacement cost coverage that can provide sufficient funds to rebuild the home in the event of a total loss.
Know the Factors That Affect Your Rate
Many homeowners are unaware of the different factors that increase homeowner’s insurance rates.
Having a pool or trampoline, for example, will increase liability risks for your insurer, who will try to outweigh that risk by offering you a higher rate and monthly payment.
As we mentioned in the previous section, the pets you keep can also increase your homeowner’s insurance rates, especially if your pet is a larger dog that could harm another person or animal with a single bite.
Know What’s Covered Under Your Policy
The best way to avoid surprises when it's time to file a claim is by knowing everything that's covered under your policy right from the start.
Did you know, for example, that a renters policy covers items stolen from the policyholder's vehicle? Or that your liability protection covers accidents that happen to others visiting your property, whether inside or outside of your home?
Read the terms of your policy thoroughly and ask as many questions as you need before settling for an insurance provider and product.
Compare At Least 3 Quotes Before Making Decision
Before choosing an insurance company and opting for a policy, make sure to compare all your options to get the best possible deal.
More than half of borrowers don't shop around before choosing a mortgage provider, and for many, homeowners insurance is just an unpleasant afterthought.
However, shopping around and becoming better informed about coverage and prices can help you get a better quote and save thousands of dollars in homeowner’s insurance over the life of your mortgage.
Only Work with Trusted Insurance Providers
Don't let a limited budget scare you into going for the first company that offers you a low rate.
There's a lot more to good homeowners insurance than a cheap price, like excellent customer service and strong financial backing.
Do business with reputable insurers that are accredited by organizations like the Better Business Bureau and have strong financial strength ratings from credit rating agencies like A.M. Best, Moody's, Fitch's, and Standard & Poor's.
Natural Disasters & Being Uninsured
During our research on homeowners’ insurance, we discovered that 60% of American homeowners are under insured by an average of 17% of the cost of their homes.
We also learned that half of California wildfire survivors who owned a home were under insured, and, in the case of Hurricane Harvey, 80% of survivors didn't carry flood insurance.
Most insurance companies will freeze homeowner policies when a natural disaster has occurred or prior to it happening. “In Louisiana, once a tropical storm or hurricane in the Gulf is officially named, insurance policies are frozen,” said Anne Shaffer, a Hurricane Katrina survivor and mortgage loan officer in the state.
There are contributing factors to why so many of us are under insured and not know it, including:
The majority of homeowners will not experience loss or damage of their homes due to a natural disaster or from other causes, and therefore may never review their policy on a regular basis
Construction costs outpace inflation, so even if your insurance company adjusts for inflation, you may still be faced with a higher cost to rebuild your home than what you are covered for in your policy
Rising Premiums
According to the NAIC annual report on insurance rates and trends based on 2015 data of the HO-3 homeowner’s insurance policy (the most common type), premiums have increased from 2007 to 2015 in every state, with some states seeing more significant increases.
The greatest cause of rate increases is attributed to bad weather including natural disasters such as tornadoes, floods, earthquakes, and hurricanes.
What can you do to make sure you are not under insured or don’t have the right level of protection on your home and personal belongings? What we found during our deep dive on this topic is that many insurance companies and industry experts recommend you take the following steps to ensure you have the right coverage for your home and personal belongings:
Read your current policy in detail and, if needed, go through it carefully with your insurance agent or broker and make any necessary adjustments
Find out if you live in a flood-risk area and, if so, look into purchasing flood insurance
The same goes for areas prone to earthquakes and wildfires. Insurance companies have been steadily increasing premiums or dropping policyholders who live in high-risk areas. That makes the process of finding good coverage all the harder, but it's not impossible.
