How to Buy Insurance

Every homeowner needs protection against potential disaster. If your home has a mortgage against it, the lender will require that you have certain basic coverage in case something happens to the home. This article is a brief run-down of how to select the proper coverage and get the best deal.

What is Basic Coverage?

If your home falls over or burns down, your insurance coverage is there to make sure you can rebuild. It will also cover less devastating incidents like your roof blowing off during a windstorm or tree branches smashing your deck. Often it will cover things like pipes bursting, vandalism, break ins, and personal liability protection should someone injure themselves on your property.

Your lender will require that you have enough coverage to replace the dwelling should a total disaster happen. This coverage can either be a set amount (usually 20% more than what is needed right now to cover for inflation) or will say something like “Guaranteed Replacement Coverage”, which will have inflation coverage built in to it.

Deductibles:

You can set up your policy’s deductible the way you feel most comfortable with. Typical deductibles (the amount YOU have to pay first before any claim you make is covered) range from $250 – $1,000. Lenders REQUIRE that the deductible be no more than $1,000 when you close on a loan (purchase or refinance). The higher your deductible, the lower your premium will be.

You’re paying the premium year after year after year, and the chances of you ever having a claim are quite small. Should something happen, would it really make a difference to you if you had to come up with an extra $500 to have your home rebuilt? Rather than pay extra to have a lower deductible – use some of the wealth-building strategies on this website to help you build up your savings so you’ll have the money if you ever need it.

Other Coverages:

Your insurance agent will no doubt offer you many “extra” coverage options. Most of these are probably unnecessary – but you should consider your own situation as to what is best for you. Two of the most common “extra” coverages are “Flood Coverage” and “Earthquake Coverage”. Do you need these?

Both of these coverages are very expensive to have – are they worth it? Again, look at your own situation and risk tolerance (don’t come back and try to sue me because I offered my opinion) to decide. For “Flood Coverage” – if your home is in a recognized FEMA flood zone (your lender will be checking for this), the lender will require that you have Flood Coverage. That riverfront property just got more expensive, so make sure it’s worth it. If you are NOT in a Flood Zone – buying Flood Coverage rarely makes good sense.

For Earthquake Coverage, there are a few situations where this coverage is required, but not very many. If it’s NOT required, I would find it hard to recommend it to you.

Are You Saying “Don’t Get Flood or Earthquake Coverage?”

Again you have to decide for yourself, but most people don’t have these coverages on their home. When you are buying your first home, your tendency is to get emotional about it and buy every extra coverage you can get. But the fact is that in this country, we have huge federal safety nets built in to our society. Should a bizarre, crazy disaster happen (think Hurricane Katrina) – FEMA will be on the scene helping out homeowners with federal aid faster than you could even get your insurance company out there to take your claim information. Like it or hate it, that’s just the way our society works.

Personal Liability? Furs, Jewelry, & Collectibles?

Sometimes it makes good sense to get extra liability protection. If your property is readily accessible to the public – maybe you run a business in the home or maybe the site is adjacent to a playground or busy park – you might want some extra coverage in case someone hurts themselves on your property. This coverage can be pretty cheap to get and it might make sense in some situations.

If you have expensive items in the home, having protection against loss can be inexpensive and smart too. Many insurers will throw in this extra coverage at no cost as part of their package – but you’ll need to clearly document the replacement value of these items ahead of time. If you have such items – be sure to let your insurance company know about them or you won’t be covered.

Getting the Best Deal:

Two strategies:

1. Shop Around.
2. Combine Coverages.

I like using the internet to begin your shopping. On this website, there are some links to national insurers
where you can put in a few bits of info and receive quotes back. You may not feel comfortable using one of these places because you’d like more personal local service, but this is a great place to start. Get some quotes to get you started. Rarely will places like this actively pursue you with aggressive sales tactics. You get a quote and never hear from them again. What a great way to get some free info! And who knows? Their quote may end up being the best you find. But more than likely, it will be something you can use to help negotiate the best deal with the insurer you end up choosing.

Next, consider an insurance broker. Many local agencies are set up to offer coverage from several sources – providing the ability to match your needs with the most cost-effective option. I’ve had great success referring clients to some of these and their quotes often come back lower than the clients finds from their “own” insurer.

Once you’ve gotten quotes from the internet and an insurance broker – check out a couple other options. Check out that local guy with his/her name and face all over the billboards, bus benches, and grocery carts. Ask friend and family who they use. Armed with the info you’ve already gathered, make a phone call and see if he/she is competitive. Sometimes it’s worth a few extra bucks each year to have that agent you can go to in person to deal with any claims or problems that come up. But don’t over-emphasize the importance of this benefit. Within a few bucks? Okay. More than that? Come on – you don’t have claims every month.

Combine Coverages:

Compare apples to apples. Many people end up using their current auto-insurer because their quote is the best they can find. What they fail to realize is that the auto-insurer can give a better quote because they also have your auto policy. So when shopping for home owners insurance – be sure to offer your auto insurance business and any other insurance coverage you currently have to each company too. This is the only way you can get a fair comparison between companies, and you may end up saving money on your auto insurance in the process!

Again, start with the internet links here. The information you’ll get will prove very helpful as you do your shopping. Good luck!