Homeowner's insurance protects you and your mortgage lender from things that can go wrong, including:
• Casualty
Insurance covers most types of damage to the structure of your house like fire, wind, or hail. In areas prone to wildfires, floods or earthquakes, you'll probably need an additional policy to protect you from damage from specific natural disasters.
• Liability
Insurance provides protection in case a visitor is injured in your home.
• Theft or damage to personal property
Insurance covers things like your furniture, clothes, and appliances.
Disaster Insurance
Most home insurance policies do not cover flooding or damage due to earthquake. Flood insurance can be purchased through your insurance agent, and is also available through the National Flood Insurance Program for areas at high-risk for flooding.
Earthquake coverage is also a separate policy or sometimes an endorsement to your existing policy, usually available through your insurance agent. In California, earthquake insurance can also be purchased through the California Earthquake Authority.
Be sure to understand exactly what disasters your insurance covers and what it does not. For a guide to disaster coverage, visit The Insurance Information Institute.
Types of Homeowner's Insurance
There are four main types of insurance related to repairing structural damage:
• Actual cash value - This insurance covers an amount equal to the replacement value of the damaged property, minus a depreciation allowance.
• Replacement cost - This insurance covers the cost of replacing damaged property without a depreciation deduction, but with a maximum dollar amount.
• Extended replacement cost - This insurance covers the cost of replacing your home up to a stated percent (usually 20-30%) over the amount insured.
• Guaranteed replacement cost - This insurance covers the cost of replacing damaged property without a depreciation deduction or a maximum dollar amount.
The terms can be a little confusing. Be sure to ask an insurance professional to give you real-life examples so you can understand the differences.
Saving Money on Insurance
You can save money on your homeowner's insurance by doing your research. Shop around and compare different services and prices. Your family and friends can be good resources. You can also check with the federal government's Citizen Information Center, or AM Best. Other ways to save some money include:
• Increasing your deductible
The higher the deductible, the less expensive the insurance premium. But don't forget that, in the event of a loss, you'll have to pay the amount of your deductible from your own money before your insurance pays for any damages. Don't take a deductible that will be too much for you to pay in the event of a loss.
• Consolidating your insurance
If you buy homeowner's and auto insurance with the same company, you may be able to get a discount.
• Looking at the age and construction of your home
Insurance costs tend to be lower in newer homes with new equipment. Construction designed to be particularly resistant to wind and earthquake damage may also lower your rates.
• Only insuring the value of the structure and its contents
While your home and its contents are at risk from fire, theft, etc., the land your home sits on is not.
• Being safe!
Install smoke detectors, security systems, deadbolts and other safety devices. Safety features can lower insurance rates.
• Quitting smoking
Some companies offer reduced rates for nonsmokers.
• Flaunting your age
If you're over 55, let the insurance company know. You can probably get discounts.
• Getting group coverage
Your college, credit union, or business associations may qualify you for special rebates.
• Staying with your insurance company
Some companies reward loyal clients with reduced premiums.
Title Insurance
Your lender will also obtain a lender's title insurance policy to insure against claims that you do not have "clean title" to your property and that the lender has a first lien on your property. For a small additional fee, the title insurance company will issue a homeowner's policy that gives you the same protection. Your policy will protect you as long as you own the home, even if you refinance or pay off your loan. You should ask your lender for information about a homeowner's title policy.
