There’s no harm in asking. And when it comes to your homeowners’ insurance, raising the right questions is necessary for selecting the policy that matches your needs.
There’s nothing wrong with wanting to get the most affordable home insurance deal, but know that cost is not everything. Besides, the whole point of insuring your home is to have the protection you need when you need it.
Here are ten questions to ask your agent before purchasing a home insurance policy.
1. What is a homeowner’s insurance?
You probably already know what home insurance is generally all about. Still, just in case there’s something about it that you want to know and understand better, don’t hesitate to ask your home insurance agent to explain things in depth.
Basically, a homeowners insurance policy is a form of property and casualty insurance that protects and covers your home and its contents in the event of loss and some disasters.
2. You mean, it does not cover all types of disasters?
Many people who purchase home insurance for the first time assume that their policy will protect them from every type of disaster, whether natural or caused by human error. If you’re thinking the same thing, well, that is not the case.
Your homeowners’ insurance will only cover specific types of perils, depending on the scope and level of your policy. Basic coverages commonly include damages and losses resulting from fire, smoke, explosion, hail, lightning, windstorm, vandalism, and theft.
3. How about flooding and earthquakes?
Homeowners insurance will protect you from most of the common perils, but standards policies generally exclude coverage for floods and earthquakes. You may, however, purchase flood or earthquake insurance separately. If your home is located in a flood zone, lenders are likely to require flood insurance before approving your mortgage.
Suffice it to say, home insurance policies – no matter how broad – have their limitations. Aside from natural flooding and earthquake, damages from war, power failure, nuclear explosion, and those proven to be intentional or caused by neglect will also NOT be covered by the policy.
4. So, home insurance policies aren’t all the same?
If you’ve been shopping around for home insurance policies, then you’re already aware that insurance companies offer different homeowners insurance programs.
Basic home insurance policies cover normal loss activities. They are the most common and most affordable, and a great place to start when you’re just starting to build your insurance portfolio.
Should you need or want to raise your coverage or protect your home from perils beyond what’s usually covered, you can opt for a higher level of insurance or purchase add-ons.
5. Does my policy cover actual cash value or replacement cost?
If your home gets damaged due to any of the covered perils, depending on the terms of your policy, you will be compensated for either the actual cash value or replacement cost.
With a replacement cost policy, you’ll only have to pay for the deductible out-of-pocket in case of damage. An actual cash value policy, on the other hand, will factor in the depreciation cost into the claim payout, which means you may have to shell out money – apart from the deductible – to restore your home into its original state in today’s market.
Most policies cover home repair or replacement at replacement cost and personal property in actual cash value. You may, however, upgrade your plan and have your belongings insured at replacement value as well.
6. How much personal property coverage should I get?
Make sure that you have enough coverage to replace your personal property – clothes, appliances, furniture, should they get stolen or destroyed in a fire or other disasters. Insurance companies usually offer personal property insurance equal to 50% – 70% of your dwelling coverage. Let’s say you have USD 200,000 worth of dwelling protection. Your recommended property insurance coverage is anywhere between USD 100,000 – USD 140,000.
Still, the best way to determine the appropriate amount of personal property coverage is by conducting an inventory of your belongings.
7. How much liability insurance do I need?
A homeowners insurance policy comes with liability coverage that protects against lawsuits for bodily injury and property damage that you, your family members, and even your pets may have caused on other people. Your liability insurance will pay for legal expenses, including any awards by courts – but only up to the limit of your policy. In addition to legal costs, your liability insurance may also pay for the medical bills if somebody gets injured in your home.
The best thing about liability coverage is that it is in effect you no matter where you are in the world – so make sure you have enough. Liability coverage limits start at USD 100,000, but most insurance representatives will recommend that you purchase more, especially if you have significant assets to protect.
8. Should I increase my Additional Living Expense coverage?
The ALE is a provision found in standard home insurance policies. This portion of your policy pays for temporary living expenses, should you need to stay somewhere else because of severe damage to your home.
Your ALE coverage will pay for hotel bills, meals, and other expenses above your customary living costs. While ALE coverage may differ from company to company, most policies provide an ALE coverage that is 20% of the dwelling coverage. So, if your home is insured for USD 200,000, your ALE would be USD 40,000.
If you want more additional living expense coverage, you can talk to your insurance agent about increasing the limit. Of course, this means you also have to pay more in monthly premiums.
9. Is there a way to reduce my monthly premium?
Ask your insurance agent about possible ways to lower your monthly premium. One of the easiest methods is increasing your deductible. Your insurance provider may also offer you special credits for alarms, modernized plumbing and electrical systems, and other safety installations in your home, so look into that too.
10. Am I eligible for any discounts?
Insurers usually give discounted premiums to students, seniors, and retirees. Your insurance provider may have special discount offers that they don’t advertise, so make sure to inquire.