It’s a great time to buy a home! I know what you’re thinking: “Jerry, you’re a REALTOR®. You always say that!” And while that may be (almost) true, right now the data is lining up right behind me. Mortgage rates are at record lows. And by buying now, you could realize your dream of moving into the perfect house for less money than you ever thought possible.
But no matter when you buy, some considerations remain constant. Finding the best mortgage rate is always an important goal. And understanding all the costs associated with homeownership is paramount when you’re trying to set a budget that’s both realistic and affordable. Which brings us to the topic of homeowner’s insurance.
If you’re taking out a mortgage, carrying homeowner’s insurance is something your lender will require you to do. No homeowner’s insurance, no mortgage. It’s that simple. But even if you’re paying cash for your home, homeowner’s insurance makes sense. It not only protects the investment you’ve made in your home but your other financial assets, too. But what kind of insurance do you need, how much insurance should you buy, and how can you make sure you’re getting the best deal on your homeowner’s insurance policy? Answering those questions will put you on the right path to finding the best homeowner’s insurance for your circumstances.
Let’s start with the first question. There are three general categories of homeowner’s insurance you should carry. Nearly any policy you purchase will include all three, but the specific protection a policy offers should be tailored to your unique needs.
Property insurance protects your home from damage arising from a wide range events, from the relatively minor to the truly catastrophic. It also covers your garage, your pool, and other adjacent features of your property. The pipe that bursts suddenly and ruins your carpet or the damage your home sustains during a windstorm are classic examples of qualifying events under property damage insurance. Damage arising from fire and smoke is another standard feature of property damage insurance. However, damage that happens gradually due to inadequate home maintenance isn’t covered by homeowner’s insurance. That falls on you. So be sure to keep up with your to-do list.
But standard policies don’t account for every type of damage or loss. If you live in one of San Antonio’s flood-prone neighborhoods, carrying optional flood insurance is something to seriously consider. A powerful hurricane in our city could leave many beautiful homes underwater but only those homeowners carrying separate flood insurance would receive the assistance needed to rebuild. If you choose to carry flood insurance, make sure that reimbursement for mold prevention is a provision of the policy. Mold damage can significantly reduce the resale value of your home. However, not every insurance carrier will offer mold coverage in Texas.
When you select property insurance coverage, you can choose between two reimbursement options. It’s important to understand the difference between them. Actual cash value coverage reimburses you the amount your home and belongings are worth in the current market. Under a cash value policy, your used electronics, for example, would be worth approximately what they’d fetch if you sold them on eBay. Similarly, if your home burns to the ground, your insurance policy would reimburse you the going rate for a home of a similar size in your particular neighborhood. It would not pay for the cost of replacing your computer with a new one or rebuilding your home to its original specifications. Only replacement value coverage will do that. Replacement value coverage may be especially important to homeowners whose homes feature the kind of old-world craftsmanship that’s both difficult and expensive to reproduce in our time. Importing a plaster artisan from Italy can be a complex and costly proposition! Needless to say, replacement value coverage is pricey, but added protection may be worth the added investment to you.
Property insurance also protects the things you keep inside your home—the flat-screen TV and prized set of golf clubs that might disappear during a burglary, for example. Insurance experts recommend that you keep a detailed inventory of your belongings to ensure that you’re reimbursed for everything you lose during a qualifying event. That’s most easily accomplished with photos. Be sure to keep those photos somewhere safe outside your home. Uploading them to your Google drive or elsewhere in the cloud is a good idea.
Standard policy limits may not be sufficient to cover the cost of some belongings should they be stolen. Jewelry and antiques fall into this category. Most insurers allow you to upgrade your coverage by purchasing “riders” for these items. Often they require you to submit appraisals for the high-value items you want to cover. You can’t buy a rider for cash, though, so be sure never to keep a lot of it at home. Most policies limit cash recovery to $200 per incident.
Up until now, we’ve been talking about protecting property. Liability insurance—the other type of coverage your mortgage lender will require you to carry—is designed to protect people. Specifically, it protects people who are injured on your property. Under some circumstances, it protects their personal property, as well.
Let’s say your babysitter is taking your twins out for a stroll. She twists her ankle while stepping on a crack in your driveway, falls down, and splits her lip. She also cracks her smartphone. If she decides to sue you, your liability insurance would pay for the plastic surgery she needs to restore her to her former loveliness. It would also restore her cell service.
But some accidents result in very serious injuries, permanent disability, or death. The lawsuits that arise out of these incidents are complicated and homeowners can find themselves liable for millions of dollars. Liability insurance will cover your legal costs and, more importantly, protect your assets from being seized to satisfy a jury verdict. The more assets you have, the more liability insurance you need. In any case, the coverage required by your lending institution can amount to inadequate protection in the event of a catastrophic event on your property, because their only interest is in protecting you up to the value of your home. So you need to look out for yourself. For the fullest possible protection, it makes sense to buy as much insurance as you can afford. Then factor that cost into your homebuying budget.
Of course the amount of coverage you purchase will be reflected in your homeowner’s insurance premiums. Higher coverage limits mean higher premiums. The value of your home and belongings and the neighborhood where you live will also have an impact on your premiums. Those factors aside, there are some ways to bring down the cost of most any policy.
The first is to choose a plan that has a high deductible. Only about one in twenty homeowners files a homeowner’s insurance claim each year. You may be one of the lucky ones who doesn’t have to. The amount you save by choosing a high deductible plan may make taking a gamble worthwhile. Bundling your home and auto insurance together with one insurance carrier can earn you a significant discount on both policies. Certain home improvements, like installing storm shutters, carbon monoxide detectors, or a home security system, can also lower your rates. But the first step in lowering your insurance costs is to shop around. The Internet makes that pretty easy. Most insurers will provide you an estimated policy cost online and we recommend doing an apples-to-apples comparison with a range of insurers. And ask our office for help. Homeowner’s insurance agents are part of a realtor’s professional network. We’d be happy to put you in touch with someone who can offer you sound, specific advice.