By: Drew Madison
In today’s world one can purchase insurance for just about anything. Jennifer Lopez insured her voice for over $20 million and we even have insurance for insurance (reinsurance, a whole different article topic). How about insuring your home? Is that important? Easy? There are actually a lot of secrets that “trustworthy” insurance firms do not want the consumer to know.
Homeowners/Renters Insurance – What You Should Look Out For
The largest trap that people fall into is purchasing an underinsured plan. If it made sense to stop the post here I would, as this is truly the most significant issue to watch out for. Many seek to purchase a more cost effective insurance plan, and come to find out that they wouldn’t be eligible to receive the full value of their homes if an earthquake were to say, obliterate their entire neighborhood.
Similarly for renters insurance, one would not want to purchase an inexpensive renters insurance policy, only to find that when the pipes burst and flood the apartment, those damage costs are not covered past $5,000. This is not an issue if damage to your apartment is worth $500. However, if the potential damage is $100,000, this can be a serious problem!
How to Purchase Homeowners/Renters Insurance: Step-by-Step instructions
1) Go to a trusted source – compare insurance plans on these company websites:
- State Farm
2) Know the basics of your insurance plan:
Homeowners insurance is divided into two main categories:
- Named perils – pretty self-explanatory: based on the named losses that are accepted for coverage under the insurance policy (fire, burglary, etc.).
- Open perils – this type of homeowners insurance will cover all loss except for those specifically listed as excluded from coverage within the policy.
3) Understand exactly what you are covered for:
Find a trusted agent in any type of significant purchase, but this is especially true for homeowners insurance
Keep in mind that agents associated with a specific insurance firm will be trying to sell you on their plans, so if possible search for independent agents, as they will most likely have your best interests in mind
It is standard procedure for your insurance plan to have a list of exact coverage points (fire, lightning, ice/snow related, burglary etc.) with particular legal language, which you can have a lawyer review for you
You MUST review this section of your contract carefully – the reason is obvious – if an unfortunate event causes your entire basement to become flooded and you in turn incur damage costs of $60,000, it is crucial that flood insurance is part of your plan. Otherwise, you will not receive the full value needed.
4) Do I need to purchase homeowners/renters insurance?
Most homeowners will end up purchasing their homes through mortgages and in these cases the lenders (banks) will generally require that insurance is purchased
Renters insurance may not be required, but in the vast majority of cases it will make sense to purchase renters insurance – a significant reason why one decides to rent instead of buy a place is due to lower risk and ease of movement. Not purchasing renters insurance would be a bit self-defeating in this case.
5) Do not base your choice on cost:
This is true for any insurance, but specifically with homeowners it is important to be willing to pay a higher monthly premium
Search for “replacement cost” when signing the dotted line – this is generally the most significant section of a homeowners insurance contract as it covers the insured for the replacement cost of ones home if damage is significant enough
In relation to this keep a keen eye on replacement cost maximum value – this maximum value is… the maximum you will be covered for!
$2 million in damages? Maximum value coverage is 250k, yikes.
As usual do not overstress. Protect and insure your home in an intelligent manner, then do whatever makes you happy. Travel the world, have a cup of tea, call an old friend and most importantly: Enjoy life!