5 Things to Understand About Homeowners Insurance

Real Estate Agent with Athome Realty, WA

I teach a first time homebuyer seminar every month. During the seminar, one of the topics that we spend time discussing is the importance of Homeowners Insurance. Since you cannot purchase a home without having it, future homebuyers need to understand why and how it is really a tool for the homebuyer. There can really be a difference in the quality of the coverage- whether you are thinking about buying a condo/townhome or if you are buying a single family home. 

•1.                         Look for exclusions to coverage. For example, most insurance policies do not cover flood or earthquake damage as a standard item. These coverages must be bought separately.

•2.                          Look for dollar limitations on claims. Even if you are covered for a risk, there may a limit on how much the insurer will pay. For example, many policies limit the amount paid for stolen jewelry unless items are insured separately.

•3.                          Understand replacement cost. If your home is destroyed you'll receive money to replace it only to the maximum of your coverage, so be sure your insurance is sufficient. This means that if your home is insured for $150,000 and it costs $180,000 to replace it, you'll only receive $150,000.

•4.                          Understand actual cash value. If you chose not to replace your home when it's
destroyed, youll receive replacement cost, less depreciation. This is called actual cash value.

•5.                          Understand liability. Generally your homeowners insurance covers you for accidents that happen to other people on your property, including medical care, court costs, and awards by the court However, there is usually an upper limit to the amount of coverage provided. Be sure that it's sufficient if you have significant assets.

Most importantly, I always recommend that homebuyers examine a few different quotes when considering homeowners insurance policies. Just as one would shop around for a good lender with the best pricing and best rate, a homebuyer should also get shopping for competitive rates on insurance.

One mistake that I have seen many homebuyers make is by checking with Progressive and Geico for thier home insurance rates. These companies might offer some great discounts on auto...but they don't have the best rates on home. I always recommend checking with a name brand insurance company like Allstate , Farmers' or State Farm as they have consistently had the most affordable rates. And, if you think about the discount they could offer for auto with a home policy, you could really look at saving some money!!! This is especially true if you need to have special riders for dogs or jewelry. These items can definitely complicate a policy quote.



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Ken & Mary Deshaies
SnowHome Properties - Breckenridge, CO
Good advice for consumers, Michelle.  And I am one.  But this makes this product much easier to explain to our clients.
Aug 02, 2006 11:29 AM #1
Kelli & Michael Sheppe & Fournier
Helen Adams Realty - Charlotte, NC
well done Michelle.  May I have permission to cut and paste this into an email for my buyer clients?
Aug 02, 2006 01:08 PM #2
Ben Kakimoto
Keller Williams Greater Seattle - Seattle, WA
Seattle Condo Specialist

Thanks for giving some ink to this.  In a former life I was a personal insurance (auto/home) underwriter and one of the big failures of the insurance industry was educating the public about insurance. 

Number 3 is not necessarily correct.  It will depend on the type of policy and insurer.  Most companies will cap the replacement cost limit, but they're commonly above the policy limit.

Number 5 - For people with significant assets, a homeowners policy may not be sufficient. They should consider a Personal Umbrella policy for upper liability limits.

Aug 02, 2006 01:17 PM #3
Michelle Sotelo
Athome Realty, WA - Everett, WA

Thanks for the feedback everyone!


Ken, you are right about Number 3 & 5. When creating this, I was trying to offer general information encompassing common options for most companies. I know that there could be more said on Number 5 about the specific riders and umbrella policies, but I am just hoping that this bit of information is enough to encourage people to go out and ask questions from the insurance companies/agents that they are soliciting quotes from.

We all know that knowledge is power. Hopefully, there will be some good questions asked because of this post.

Thanks for the feedback!!!


Aug 03, 2006 11:04 AM #4
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