Paul Sanchez
There are several things to consider when purchasing homeowners insurance, and it can be confusing to understand what type of protection you have and how it protects you. It's important to ask your agent about the different types of coverage, including actual cash value and replacement cost value, and whether you have enough insurance to rebuild your home. You should also ask about personal property coverage limits and whether there are any discounts available, such as for a central home security system or an automated sprinkler system. It's also a good idea to find out about the claims process and whether your policy includes inflation guard protection. Finally, it's worth checking whether you need to add flood insurance to your policy, as most home insurance policies don't cover damage from flooding.
| Characteristics | Values |
|---|---|
| What type of protection do I have and how does it protect me? | Actual cash value or replacement cost value |
| What is covered? | Usually, the structure of the home is covered at a replacement cost, while personal property is covered at actual cash value |
| What is not covered? | Most home insurance policies don't cover damage from flooding |
| What is the process of filing a claim? | The claims process differs based on the insurer, but your agent will know how to advise you |
| How do I determine whether I have enough insurance coverage? | The insurance coverage needed is based on replacement cost, not market value |
| What discounts do I qualify for? | Discounts vary from person to person, so it's best to speak with an agent directly |
| What is the cost of insurance? | The cost of insurance depends on various factors, including location, the age of the home, how it was built, and renovations |
| What is the process of modifying my deductible? | Policies with high deductibles generally have lower premiums, and those with low deductibles will have higher premiums |
| What is included in personal property coverage? | Personal property coverage protects belongings in the home in the case of sudden and accidental damage or theft |
| What is included in liability coverage? | Liability coverage protects the policyholder if they are legally responsible for damage to someone else's property or if they accidentally injure someone |
| What is an appraisal, and do I need one? | An appraisal provides a record of the personal property's existence and its replacement cost; it is helpful for items that are hard to track after a loss, such as jewelry or artwork |
| What are endorsements, and do I have any? | Endorsements make the standard policy more specific to the individual; they can be used to specify special coverage for items such as heirloom jewelry or electronics |
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What You'll Learn
Discounts and how to lower premiums
Discounts are a great way to save on your home insurance. Here are some ways to lower your premiums:
Bundling policies
One of the most common ways to save on home insurance is by bundling policies. You can get a discount if you buy multiple insurance policies, such as home and auto insurance, from the same company. This is called a bundling discount. Not only does it make it easier for you to keep track of your insurance policies, but it also makes you eligible for a discount.
Loyalty discounts
Insurance companies value customer loyalty. So, if you stay with the same company long enough, they may offer you a loyalty discount. Some companies might also lower your rates if you go a certain number of years without filing a home insurance claim.
Security systems
Many insurance providers offer discounts if you have a monitored security system or a smart home system installed. This is because burglar systems deter thieves, reducing the chances of a break-in.
Location-based discounts
Your home's location can also affect your insurance rates. Living in a safe neighbourhood, a gated community, or a neighbourhood with a homeowner's association (HOA) can lead to discounts.
Payment method discount
Some insurers offer discounts if you pay your premium annually instead of monthly. This is called a paid-in-full discount. You can also ask your insurance company if they offer a discount for receiving electronic monthly statements instead of paper statements by mail.
Other discounts
There are several other discounts that you may be eligible for, such as military discounts, employment or organisation-based discounts, and discounts for seniors or retirees. If you have recently bought a new home, some carriers might offer a homebuyer's discount.
It is important to remember that each insurance company has its own discounts and offers different amounts of savings. So, be sure to ask your agent about any discounts you may qualify for and how to lower your premiums.
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Actual cash value vs replacement cost value
When you have a homeowners insurance policy, you’ll have one of two types of coverage: actual cash value (ACV) or replacement cost value.
Actual Cash Value (ACV) calculates your claim payout based on an item's original cost, minus depreciation. Depreciation is the decrease of an item’s value over time due to wear and tear. This means the payout you receive may be less than what it costs to replace that item with a brand-new one. For example, if your laptop is stolen, you’ll first get a check for the actual cash value of your laptop, minus your deductible. Then, you’d buy your new laptop, submit the receipt to your insurance company and get a second check that covers the difference. The cost of ACV coverage is lower, but it also pays less when you have a claim.
Your house is typically covered on a replacement cost basis. Replacement cost coverage pays to rebuild, repair or replace your property, up to your policy’s limit. For example, if your entire roof was damaged by a storm that insurance covers, your insurance company will pay to repair or rebuild your roof based on current costs. Replacement cost coverage likely costs more than ACV coverage, as it provides more comprehensive protection. However, replacement cost coverage also ensures homeowners can replace their items without having to pay out of pocket.
When getting home insurance, you’ll choose a coverage amount to cover your home’s structure against certain things, like fire. A good rule of thumb is to choose an amount that’ll cover the full cost of rebuilding your home. But how much homeowners insurance you need also depends on a variety of factors, including location, the age of your home, how it was built, and renovations. Your personal property, like furniture, clothing, and appliances, are typically covered at actual cash value.
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Personal property coverage
First, it is crucial to understand the difference between actual cash value (ACV) and replacement cost value (RCV) coverage. ACV takes into account the depreciation of your belongings, paying you the current value of your property, factoring in age, condition, and expected life. On the other hand, RCV provides enough funds to replace your damaged property with new items of the same type, kind, and quality, without deducting for depreciation. Ask your agent about the pros and cons of each type of coverage and which option is best suited for your specific belongings.
Next, inquire about coverage limits and sub-limits. Certain valuable items, such as jewellery or artwork, often have specific sub-limits, meaning the insurance company will only pay up to a certain amount for those items, regardless of your total personal property coverage limit. Ask the agent about these sub-limits and whether itemizing or scheduling your valuable possessions can provide a higher level of coverage for these items.
Additionally, discuss with the agent how to determine the appropriate coverage amount for your personal property. Avoid giving estimates or guesses, as this can lead to insufficient coverage. Instead, ask about methods to accurately assess the value of your belongings, such as seeking professional appraisals or creating a detailed inventory. This will help ensure that you have adequate coverage to replace all your belongings if necessary.
It is also worth exploring the possibility of discounts and ways to save money on your personal property coverage. Many insurance companies offer discounts for installing safety features in your home, such as security systems, sprinkler systems, and smoke detectors. Ask the agent about the specific discounts offered by their company and how you can maximize your savings without sacrificing the level of coverage you need.
Finally, understand the claims process for personal property coverage. Ask the agent about the steps involved in filing a claim, the documentation required, and the timeline for receiving compensation. Knowing this information upfront will help you navigate the claims process more effectively if you ever need to utilize your personal property coverage.
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Flood insurance
Even if you don't live near a body of water, flooding can occur anywhere it rains or snows, and just one inch of water can cause thousands of dollars' worth of damage to your home. Flooding is the most common and costly natural disaster, and it is important to understand your risk level. The Federal Emergency Management Agency (FEMA) provides flood maps that indicate your community's flood risk, flood zone, floodplain boundaries, and base flood elevation. If you live in a high-risk flood zone, your mortgage lender may require you to purchase flood insurance. However, even in moderate to low-risk areas, flood coverage is recommended as there is still a possibility of flooding.
You can purchase flood insurance through an insurance agent or directly from your insurance company. The NFIP partners with over 47 insurance companies and thousands of independent agents, all offering the same rates. You can also visit floodsmart.gov to find a provider or call the NFIP directly. Keep in mind that NFIP policies typically have a 30-day waiting period before they go into effect, unless purchased alongside a newly purchased home or in certain other circumstances.
NFIP flood insurance policies typically cover up to $250,000 in damages to a residential property and up to $100,000 for the contents. It covers direct physical losses to your structure and belongings caused by flooding, including damage to the foundation, electrical and plumbing, finishings, appliances, electronics, and personal belongings. However, it's important to understand the circumstances that factor into what is covered, as location, the type of home, its age, and construction can all play a role. If you have an expensive home or expect severe damage, consider asking about "excess flood insurance" options.
The cost of flood insurance varies depending on factors such as your location and the coverage amount. The average cost for private flood insurance is $98 per month, while the average cost for NFIP flood insurance through FEMA is $75 per month. However, it's worth comparing options as costs can vary significantly, and you may find cheaper policies through private insurance companies.
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Claims process
The claims process for homeowners' insurance can be lengthy and complex, so it's important to understand the steps involved and what to ask your insurance agent. Here are some key points to consider:
Understanding the Claims Process
Firstly, it's crucial to know when to file a claim. If the damage is minor, you may want to consider covering the repairs yourself, as filing a claim will only be worth it for more extensive or costly damage. If you decide to file a claim, notify your insurance company as soon as possible. The time frame for reporting a claim varies by state, so be sure to ask your agent about this. You can file a claim online, over the phone, or in person at a local office, depending on your insurance company's procedures.
Providing Information and Evidence
When filing a claim, you'll need to provide detailed information about the incident and the extent of the property damage. This includes a description of the damage, the date and time of the incident, and any relevant police reports or contact information if the damage involves a crime such as theft or vandalism. It is also essential to provide an inventory of lost or damaged items, including receipts and photos or videos as evidence. Creating a detailed inventory before any damage occurs can be extremely helpful in the claims process, so consider using a home inventory app to document your belongings.
Working with Adjusters
An insurance adjuster will be assigned to your case to assess the damage and determine the settlement amount. You can work with the adjuster sent by your insurance company or hire a public adjuster who will work on your behalf. The adjuster may visit your home to inspect the damage, or you may be asked to share images and videos of the damage digitally. It is important to provide as much information and evidence as possible to expedite the process. Make temporary repairs if necessary, but do not dispose of any damaged items until the adjuster has inspected them.
Understanding Settlement and Payments
Once the adjuster has evaluated the damage, your insurance company will determine the settlement amount. This can be based on either the replacement cost or the actual cash value of your home and belongings, depending on your policy provisions. The settlement is typically paid out in two instalments. The first payment is based on the estimated cost of repairs, minus depreciation and your deductible. The second payment is issued after the repairs are completed and the contractor's final bill is received. If your home is mortgaged, the settlement cheque will likely be made out to both you and your mortgage lender, and the funds will be released in instalments as the repair work progresses.
Handling Disagreements
If you disagree with the insurance company's decision or the amount of your loss, you have several options. You can state your case directly with the insurer, request a second opinion from another adjuster, or pursue legal action. It is important to understand your rights and seek additional support if needed, such as consulting an attorney or your state's department of insurance.
Remember to keep detailed records of all communication, forms, and correspondence during the claims process, and don't hesitate to ask your insurance agent for clarification or guidance at any stage.
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Frequently asked questions
The insurance coverage needed is based on replacement cost, not market value. Ask your agent if your policy provides actual cash value or replacement cost and find out what you need to do to get the best protection.
Personal property coverage protects the belongings in your home in the case of sudden and accidental damage or theft. Certain types of property, usually more valuable items, like jewelry or artwork, have specific coverage sub-limits. Ask your agent about your personal property coverage limits and if there are any items you should consider itemizing.
Most home insurance policies don't cover damage from flooding. Ask your agent how you can get flood insurance added to your policy for an affordable rate.
Many insurers offer discounts that can be added to premiums to reduce rates. For example, UPCIC offers a discount for homeowners who have a central home security system and a discount for those with automated sprinkler systems. Speak with your agent directly about what discounts you may qualify for.
The claims process differs based on your insurer. Ask your agent to detail the claims process for you and ensure you will have access to a claims professional when needed.
