Homeowners Insurance 101
Information that homeowners would want to know that your insurer may fail to tell you.
My grandmother and her husband reached out to me with a super kind offer; after decades in the insurance industry, they worked together on a quick guide to the pitfalls you may encounter when buying homeowners insurance. Read on for more!
An informed insurance buyer is one who has the best protection for the dollars they spend. Sometimes cheapest is just that – cheap.
This is a one semester course jammed into two pages!
When we purchase insurance, we tend to rely on what the insurance agent or insurance company recommends or tells us we need. First, we should only work with an insurance company or insurance agent that we trust. Second, the cheapest insurance is what we all tend to purchase but it may not be the best for us.
Remember, you are purchasing the most important and most valuable asset that you will ever purchase. Do you want to have the cheapest premium? Most of the time, no, not really. Why?
All insurance companies are not created equal
Check consumer organizations like Consumer Reports, JD Power, etc. to find out how reliable the insurance company of your choice ranks.
Be careful that some ‘consumer rating’ websites are sponsored.
Make sure your insurance agent or insurance company tells you the AM Best rating of your insurance company. This is an independent organization that ranks each insurer A-F in terms of their financial ability to pay a claim. A is the best; B is OK but could be showing stress and should be watched. Often insurers that are financially lower rated offer the best rates and premium and may not be a good idea.
All insurance policies are not created equal
Your lender is predominately interested in making sure that you are insured for the ‘big’ events: damages due to fire, lightning, wind, smoke, hail, vandalism, theft, and others. These are almost always included in insurance policies as long as you choose the broadest available standard insurance industry policy – often called HO 3 or HO 5 and insurance companies may call them ‘Special’ or ‘Deluxe’.
Virtually none of these polices insure you against Flood damage and Earthquake damage.
The Carolinas are considered to be active earthquake areas. The mountains and Piedmont area of NC and in SC there is a line that runs from Kentucky through Tennessee to Charleston (impact to a large percentage of the state).
Earthquake insurance can be as low as $10 more per month.
Flood insurance does not involve flooding caused by plumbing but is MOSTLY a result of water that is ‘outside the natural boundaries’ like a creek, river, or ocean.
‘Back up of sewers or drains’ in many insurance policies is either excluded or limited. If your home is in a low-lying area not near a body of water but may be subject to water backing up from a street or ditch (that may not be considered flood) you may want to add or increase this insurance.
Flood insurance is usually purchased from the National Flood Insurance Plan (part of FEMA) through your insurance agent. Your community (usually the city or county planning counsel is responsible) must do certain things to maintain federal eligibility to participate in this federal program. If they do and you are at risk or think you could be at risk, this insurance can be as low as $150 per year.
Special hazards that you should be aware of
“Insurance companies giveth and insurance companies taketh away”. Insurance policies are contracts that provide you with certain protection in consideration for your payment of premium. In your policy (contract) the insurer usually provides broad protection. But it always has clauses that either limit or exclude certain risks of damage. These are just a few items to watch for:
Flood damage and earthquake damage are excluded.
Water or sewer back up that damages your home or property inside is usually excluded but may be covered for an additional premium if you think you are at risk.
Some insurance companies limit the amount of money you can recover for damages to your roof. Be sure to have full replacement value insurance or be aware of the limitations that are imposed (older roofs are susceptible to damage and the insurer is unwilling to assume responsibility for all damage.)
Insurers may use higher deductibles for roof damage, wind damage. Be aware of these hidden deductibles.
Insurers rarely protect you if your home is damaged and a local ordinance requires you to upgrade building materials. For instance, if you home is damaged by a fire or fallen tree, your home’s wiring may need significant repairs. It will cost perhaps $5,000 to replace that damaged wiring but with a local ordinance that you are not aware of, the city, county, or fire marshal may require a higher quality wiring that costs $8,000. The insurance company is required to only replace it, not to the level the ordinance requires. Add ordinance or law coverage to your policy.
Personal property in your home is usually covered up to a certain percentage of the value of your home. If you have a $100,000 home, you will likely receive up to $70,000 in protection for what is inside (furniture, appliances, clothing, etc). However, specially valued property like jewelry, firearms, money, coin, stamp, or collections, fine artwork, antiques will NOT be insured for what they are worth. These should be specially listed and insured and may require a professional appraisal.
Your homeowners insurance will likely have an extension that will cover utility buildings or sheds. Make sure these other structures on your property, near your home, are covered adequately.
Remember that the homeowners insurance is intended to cover your HOME. It will not likely extend to cover a ruptured water or sewer line in your yard. It will not insure trees or shrubbery. It covers damages to your HOME caused by those risks named in the policy.
The laws vary somewhat by state but generally, if your neighbor has an otherwise healthy tree that falls on your home, it is NOT their fault; your insurance will pay for the damages done. If the tree from your neighbor’s yard is dead or dying and they should have done something with it, damage that it does to your home will be covered by your insurance policy BUT your insurer will go to your neighbor for reimbursement for damages caused by their liability. Same goes for you if the situation is reversed.
And on that note, liability. Do not scrimp on liability protection. A neighbor’s child or an elderly person falls in a hole in your yard and they are seriously injured and in the hospital. There is a loose brick that you should have fixed in the sidewalk or steps or porch and injury occurs. It’s expensive. $500,000 liability insurance is not too much.
Know what your policy does in terms of using ATVs, golf carts, boats, jet skis, and any other motorized recreational or utility equipment. Most policies EXCLUDE liability for using these. Special insurance may be needed. And know the local laws and ordinances for using these on streets and roads.
Thanks to my grandmother and her husband for sharing this super helpful information! Questions? Contact me here and we’ll talk it out.