Basic Homeowners Insurance

Top Rated Homeowners Insurance

These frugal money saving tips help you to better understand homeowners insurance coverages and how to best insure your house at the most affordable rate.

Securing top rated homeowners insurance is only as good as knowing how to determine your coverage level while being able to cut costs at the same time. You'll find both of these solutions below.

Homeowners Insurance Basics

• Liability Coverage

  This coverage is set up to cover you (and your family) for damage caused to other people either inside or outside of your home. It will cover other people's medical bills. For example, you have someone over your home and they trip over something and break their arm. Your liability insurance will cover this person’s costs to recover, including medical bills.

  Or perhaps, your kid is riding a bike and runs into another kid on a bike injuring him or her. Your insurance will cover the other kid's medical bills if your child is found liable.

  You'll find this coverage to be very important since it will also help protect you from personal injury lawsuits brought against you.

• Your Home

  You'll find this to be the main piece of your basic homeowners insurance policy. It basically covers your house (and other structures such as a shed or detached garage). It's very important to have because even a small amount of damage can really hurt you financially would you have not had this coverage.

  If a utility pole or tree falls through your roof or you have a house fire for example, you're covered.

• Personal Property

  Your basic homeowners insurance will also cover the contents in your home.

The most common homeowners insurance in the U.S. is HO-3 coverage. Among other things, it generally provides you with coverage from damage resulting from

• Fire
• Lightening
• Freezing of plumbing pipes
• Sudden damage to your hot water system
• Windstorm and hail
• Explosion
• Theft or Vandalism
• Roof collapse due to weight of snow and ice
• Plumbing water overflow
• Personal property
• Liability issues

• Floods
• Earthquakes
• The land beneath your home
• Sewer backup
• War or nuclear accident
• Intentional damage
• Structures used for a business
• Vehicles, motorcycles, boats
• Freezing pipes from a vacant or under construction house
• Tenant property
• Animals
• Losses resulting from the failure to protect property after a loss

What Coverage Level Do You Need?

Actual cash value (ACV) will pay you for the replacement value of your home "minus" depreciation. What this means is that if you have a loss, under an ACV policy you will only get what any item was worth at the time of the loss.

Actual Cash Value doesn’t just apply to content losses in homeowners insurance claims. Actual cash value comes into play for all insured losses. Third party claims, auto insurance claims, and homeowners insurance structural losses are all subject to depreciation and reimbursement based on Actual Cash Value.

On the other hand, if you have replacement cost coverage (we highly recommend this) you'll have a basic homeowners insurance policy that pays for the full cost of replacing damaged property without a deduction for depreciation up to the dollar limit you have stated in your policy.

You don't want to be caught having a household tragedy and not being insured to replace your dwelling or personal contents at replacement cost. For example, you have fire damage to your living room furniture that you paid $4,000 for years ago. Factoring in depreciation, this furniture may only be worth $1,000 today, and that is all the insurance company will pay with ACV. This would not be the case with replacement coverage.

Determining Your Coverage Level - The Dwelling

You can accomplish this by hiring a licensed appraiser, or speak to at least three different insurance agents to help you figure out your home's value. We suggest that you speak to at least three agents because it's free and with three different quotes you can better zero in on the cost to rebuild your home.

One word of caution, insurance companies use software for determining coverage that is in the best interests of the insurance company. They will generally overvalue the cost to rebuild your home because they can charge you higher rates. That's why, the more quotes you get, the better.

Especially in a market with declining home values, don't let the insurance company get away with over-quoting you.

Determining Your Coverage Level - Your Personal Property

When it comes to basic homeowners insurance, the best way to get this done is by either taking pictures, or using a video camera. We used a video camera because you can both show and talk about specific possessions, their cost, and when you bought them.

It will also help to indicate the serial numbers of items should you have that info.

You'll want to keep a copy of your video tape out of your home should a tragedy occur. We keep our tape in our bank's safe deposit box.

Determining Your Coverage Level - Liability Protection

Umbrella policies will kick in after you've used up the liability insurance in your homeowners policy. An umbrella policy is not part of your homeowners policy. You have to purchase it separately, but it's pretty affordable.

That's why you won't see insurance agents trying to sell you umbrella coverage. It's doesn't cost much and they make very little on commissions.

Avoid Being Overcharged On Basic Homeowners Insurance

We recently reviewed our homeowners declarations page which summarizes your coverages and the premiums charged for these coverages.

Even though home values have been on the decline, our policy indicated an increase in our dwelling value! The value of our personal property also increased! We immediately contacted our agent indicating the coverages are over-inflated. It was hard for the agent to argue with this so he reduced our coverages and are policy cost dropped.

So it's a good idea to do an annual review of your basic homeowners insurance policy to make sure you're not being taken advantage of. A big flag would be a significant increase in your annual homeowners premium.

If you've been a policyholder of the same insurance company for years, you have even more leverage; especially if you mention that they may lose your business.

How Much Is Homeowners Insurance?

• Check your credit rating

  Many insurance carriers will check your credit because they use that in helping to determine how much of a risk you are to them. A poor credit score, in most cases, will lead to the insurance company charging you higher premiums.

  Even if you know you have good credit, you should check it at least annually to make sure no mistakes were made on your credit report.

• Increase your deductible

  Increasing your deductible to $500 and especially $1,000 can pay off big time in premium savings. By increasing from $250 to $500, you can save 10% to 15% and up to 25% with a $1,000 deductible.

• Group your policies together

  Having both your auto and homeowners policies bundled together with the same insurance carrier will get you a premium discount.

• Group coverage

  Many times you can get a premium discount if you have group coverage. For example, we save 25% on premiums by being a member of the MDA (Michigan Dental Association).

  You can also get group discounts through business or alumni associations or belonging to a certain credit union. You can ask the insurance agent how to get group discounts.

• Senior discounts

  Many insurance carriers offer senior discounts because retired people are in their homes more often and are in a better position to prevent a tragedy, such as a fire. If you're 55 or older, you should inquire about this discount.

• Reduce your home's risk

  Having smoke alarms installed, fire extinguishers, dead bolt locks or a security system (if you can afford it) will also save you money on your premiums.

• Shop for rates

  Especially on-line, you can shop around with many different carriers for a quote. You can also ask your family and friends who they're insured with and their experiences with their carriers.

  Also, by having some quotes in your pocket, you'll have additional leverage to negotiate your premiums when speaking with other insurance carriers. Let them know you got a better quote elsewhere for the same coverages. They'll fight for your business.

Summary - Basic Homeowners Insurance

We're happy to have shared our frugal approach to basic homeowners insurance tips with you. If put to use, you'll have the appropriate coverages you need and save money at the same time.



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