By Shannon Roxborough
There was a time when buying homeowner’s insurance was simply a matter of letting your broker know how much you paid for your house and then adding a buffer for inflation—or just paying premiums with the amount automatically tacked onto your monthly mortgage payment and placed in an escrow account.
But when it comes to what is likely your single most valuable expenditure, it pays to give more thought to the insurance that protects your investment.
So, what should homeowners keep in mind?
Typical Homeowner’s Insurance: What’s Covered
The standard homeowner’s package policy has two components: property and personal liability coverage. Policies generally cover damage to structures and personal property caused by smoke, fire or lightning, wind (hurricanes and tornadoes) or hail, explosions, riots or civil unrest, vehicles and aircraft, theft or vandalism, falling objects, the weight of snow, ice or sleet and frozen plumbing, heating, air conditioning or other household systems. It also covers if someone is injured by you, your family or your property.
What’s Not Covered
Flood and earthquake damage is excluded from standard policies and must be covered by a separate policy. (Flood policies are backed by the Federal Emergency Management Agency’s National Flood Insurance Program, floodsmart.gov.) Damage to your house or garage by falling trees or limbs is covered, but not their removal if no damage is done to any structure. Another, potentially costly, exemption is the ordinance or law exclusion, which means that if you discover when replacing damaged property that current building codes require higher standards than your house has (upgraded plumbing, wiring, etc.), you are responsible for the difference in cost between the old and new.
Loss and Recovery
Although homeowners insurance covers your personal property, including the contents of your home and any personal belongings, coverage is based on the value of your home and there are limits on the losses that can be claimed. Items like cash, antiques, jewelry or furs must covered by supplemental premiums. It’s also important to know that standard policies only cover the actual cash value of items (with a deduction for depreciation). Getting guaranteed full replacement cost coverage typically raises premiums 10 to 15 percent.
Contractor and DIY Renovations
You should consider purchasing additional insurance if you make improvements that increase the value of your home—from a bathroom or kitchen remodel to installing new windows. Also, bear in mind that accidental damage that occurs during rehabs account for large claims on homeowners’ policies, and fires started by contractors and do-it-yourselfers are a common source of claims. Because of this, insurers advise homeowners to make them aware of renovations before starting so they can tell you what to look out for and increase your coverage. Many insurance companies have provisions in policies that they will not cover claims resulting from damage during certain home improvement projects if the homeowner does not notify them about renovations in advance.
The Cost of Security
Owning a home in a gated community will generally save you about 10 percent, while rural homeowners who can prove that the local fire department has access to a lake, stream or other water source can receive as much as a 25 percent discount. On the other hand, having a home in a high-crime area (particularly property crimes) will result in much higher premiums. Having an up-to-date alarm system that detects burglaries and fire will shave about 20 percent off premiums.
Other Things to Consider
Houses with swimming pools are treated as higher risk; those with pools that are not protected by a fence, wall or other barrier with a locking gate will not be covered. Renting out your home can push up premiums by 20 percent over the cost of standard home coverage, insurance industry experts say. That’s because most insurers feel your house is at greater risk because renters tend not to take care of a property as well as owner-occupants. However, some insurers provide discounts if you’re a frequent renter (in the case of professional landlords or owners of vacation homes) because occupied properties are less likely to be burglarized, completely burn down or have a plumbing problem causing major damage. You may also want to consider a policy that covers loss of rental income if your home becomes uninhabitable.
When all is said and done, it pays to take a close look at your current policy for possible ways to reduce your insurance bill and make sure you have enough coverage in the event of the unthinkable.
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Shannon Roxborough is a widely published freelance writer and editor whose work has appeared in numerous national magazines, newspapers and websites. An avid home improvement enthusiast, he has more than a decade of DIY experience and previously ran a property maintenance business.