Shopping for a home insurance policy is a balancing act. Consumers don't want to pay for coverage they might not need, but they want sufficient protection -- just in case. There are ways to lower premiums, such as installing a burglar alarm and smoke detectors, without underinsuring your most precious physical assets. Here are 10 steps to take before choosing a home insurance policy.
The insurance regulators in each state provide a wealth of impartial information to consumers, such as insurance company profiles and market performance, and license status checks for specific agents. They also document complaints and formal enforcement actions against companies and agents, including accusations, notices of noncompliance, and final judgments.
Consumers should have some idea how much insurance will cost before contacting a company. Look for an assessment page on the state insurance commission's website to help determine a sample rate by entering information such as county and ZIP code, claims history, credit rating, policy type (homeowner, individual, or renter's), amount of coverage, age of the residence, and type of construction.
Different policies provide different levels of coverage. Most cover a dwelling and its outbuildings, the items inside, and costs if the policyholder has to move out while a home is being repaired. If someone is injured on the property, most policies provide reimbursement for medical expenses and liability claims. The personal property coverage should include furniture, clothes, electronics, and the like -- but expensive artwork, jewelry, and other specialty items might not be fully covered without special arrangement.
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Although there are some variations from state to state, generally those who don't qualify for homeowners insurance can get other types of coverage. Dwelling insurance covers a building but not the personal property inside, nor liability for such things as visitor injuries, nor "additional living expenses" during repairs. Condominium insurance covers a home's interior, including structural damage, appliances, fixtures, and personal property, as well as those ALE costs, and provides reimbursement for medical expenses and liability claims. It doesn't cover exterior structure damage. Renter's insurance includes personal property in a dwelling, ALE, and reimbursement for medical expenses and liability claims but doesn't cover damage to the structure, inside or out.
The Comprehensive Loss Underwriting Exchange has need-to-know information about previous claims that have been filed on a property, which can increase a new owner's insurance rates. These reports can also provide such information as whether the dwelling has sustained mold or water damage and whether there has been a fire, which can alert consumers to bigger issues with the dwelling.
While no one likes to read the fine print, failing to read and question everything in a policy can hurt the buyer. For instance, a policy may include hail coverage -- but if the roof is 10 to 15 years old, damage may not be covered, Consumer Reports notes. A policy that covers damage from frozen pipes or an overflowing tub may not cover damage caused by a sewer backup. And many companies charge a higher deductible for damage from severe weather.
Most policies don't cover floods, so homeowners need to buy that coverage separately. It's a requirement in high-risk flood areas, but the National Flood Insurance Program recommends that everyone get insured -- more than 20 percent of flood insurance claims occur in areas with a moderate to low risk of flooding. At least policies there don't cost as much as they would in high-risk areas.
Replacement cost is just that: the cost to replace damaged or stolen stuff. But many policies use the phrase "actual cash value," which considers wear and tear on the items being replaced. Take a $2,000 sofa bought the previous year. The cost to buy the same sofa now might be $2,100 -- but consumers who opted for a plan that reimburses the actual cash value might get only $1,500, because the value of the sofa has depreciated.
Consumers can be choosy about homeowners insurance, but insurers can be selective about customers, too. In most states, an insurer can cancel or refuse to renew a homeowners policy with at least 30 days' notice and an explanation of why. Coverage can be canceled for failure to make timely payments and other reasons, including an extensive claims history, or if a company spots fraud in an application.
Even after choosing a policy, always be on the lookout for a better deal. The savings could range from hundreds of dollars to more than $1,000 a year, Consumer Reports says. And don't forget the advantages of bundling insurance -- getting homeowners and auto insurance from the same company could save up to 30 percent off the cost of policies with different insurers.
