Buying a home insurance policy can be a challenge if you haven’t done it before or if you’ve just moved into your new home and have no idea what you need to do. You cannot just shop around and choose the first policy you find. You have to get in touch with a reliable insurance provider before making any decision or purchase.
Talking to an insurance agent will help you understand certain aspects of home insurance policies that can determine the kind of coverage you need. Asking questions is essential as it will ensure that all details and characteristics of the policy are properly explained to you.
To help you start, here are ten questions you should ask about your home insurance policy:
1. Am I required to purchase a homeowners insurance policy?
The first thing you need to know is if you are required by law to purchase a homeowners insurance policy. Knowing this information is essential for determining if you’re doing the right thing.
While not every homeowner is required to get a policy for their home, lenders and banks have made it a mandatory qualification for buying houses through a mortgage. Financial institutions and lending companies regard insurance policies as a guard or guarantee if your home is damaged by fire or any accident or disaster.
2. What do home insurance policies typically cover?
You also have to ask your insurance agent about coverage. Getting a clear picture of the different kinds of coverage is vital in determining that you choose the right policy for your home.
Regular home insurance policies provide four kinds of coverage:
- Personal property - for your personal belongings
- Dwelling - for the physical structure of your home
- Additional or extra expenses - for unexpected or unplanned expenses that you incur when you are displaced and have to find temporary living quarters such as hotels and inns
- Liability - for costs that result from bodily injuries of any household member
Common incidents covered by home insurance policies include theft, fire, smoke, vandalism, windstorms, and lightning. A basic policy does not cover loss and damage due to flooding and earthquakes.
3. Do you recommend that I get basic or regular home insurance coverage?
As mentioned above, basic or regular home insurance coverage protects only four areas. It does not cover losses and damages caused by particular incidents and factors such as flooding, earthquakes, nuclear explosions, power failure, and war. Coverage might be limited, but essential protection is provided (personal and dwelling coverage).
If your insurance agent discourages you from getting basic coverage, ask him to give you alternative options and suggestions.
4. What are the bases for calculating insurance rates?
One of the first things considered when calculating insurance rates is your home’s current condition. A 10-year-old home is classified as higher-risk compared to a two-year-old home.
Additionally, if your home has structural defects and is located in a dangerous area or neighborhood, it is also classified as a higher-risk property.
The size of your home is also a significant factor. If your home is spacious and big, it will fetch higher rates.
Be sure to inform your insurance agent if you’ve already filed home insurance claims in the past, as this is also equivalent to high-risk rates.
5. What are replacement cost and actual cash value?
You have to ask your agent what you should expect to receive after filing a claim. Normally though, the value is indicated in your policy. If you are to get the actual cash value, what you’ll get is an amount that’s equivalent to your home’s depreciated value when it was damaged.
On the other hand, the replacement cost is a cash payment based on the total value of lost or damaged items.
6. Can you please tell me more about policy or coverage limits?
A policy or coverage limit is the maximum amount that your insurance agency can pay for your claim. For example, if your two-story home worth $750,000 was damaged, the maximum limit of your dwelling coverage will be the same amount.
7. Does my home need to be inspected before I can purchase home insurance?
Most insurance companies require homeowners to agree to a home inspection before signing up for a policy. The home visit will provide the agency with detailed information essential for rates assessment.
8. What is renter’s insurance? Do I need it?
Renter’s insurance is different from homeowners insurance, and your agent has to explain this clearly to you.
If you are paying rent for the home you’re living in; you’ll need renter’s insurance. If you own the home you reside in, you’re entitled to home insurance.
9. How long has your company/agency been in the insurance industry?
It would help if you asked this question because knowing your provider's professional background, experience, and capabilities is important. A homeowners insurance agency that has been in the industry for years has more experience handling unique cases compared to those that have been operating for a few months only.
10. How financially stable is your insurance company?
Besides ensuring the insurance company’s knowledge and experience, it is also wise to ask about its current financial standing. If the company is not financially stable, problems regarding filing claims may happen in the future.
Verify the information your agent gives you by visiting the National Association of Insurance Commissioners website. NAIC is the regulatory and standard-setting support organization for the United States insurance industry.
Asking the questions mentioned above will help you – and your insurance agent – choose the best insurance policy for your home.
About the Author
Rachael Harper is the Content Marketing Strategist of Bennett & Porter, a wealth management and insurance firm based in Scottsdale, Arizona. When not writing, she makes use of her time reading books and playing bowling with her family and friends.