There’s an old saying directed at penny pinchers: They’d step over a dollar to pick up a dime. Bear this criticism in mind when you buy or review your homeowner’s insurance. Saving a penny on your premium could result in a loss of more than just a few dollars. In fact, the best advice is to first decide what kind of coverage you need, then decide what you can afford.
“If you start with a premium figure in mind, your agent may to try to meet that figure instead of proposing the kind of protection he thinks you should have,” explains Kurt V. Hopkin, an agent in Cody, Wyoming, for Mountain West Farm Bureau. “The first question should be, ‘what do you need to have to be adequately protected?’”
With that advice in mind, here are the essential facts on important coverages you should consider:
Covers your house and everything attached to it, including decks, built-in appliances, attached garages and the like. You want 100% replacement cost coverage at least, though some agents recommend extended coverage so you’ll be able to replace the hand carved banister or high-end appliances without digging into your pocketbook. “Extended coverage gives you a fudge factor to replace things beyond normal construction costs,” Hopkin says, “so you don’t end up with a painted banister instead of the fancy one you had before.”
Applies to sheds, detached garages and other structures on your property but apart from the house. “They’re typically covered at 10% of your dwelling coverage,” says Chuck Muenzen, vice president of underwriting and product development at California Casualty. “But you can buy additional coverage.”
Flood and earthquake endorsements
Floods—generally, but not always, defined as water that seeps up underneath or emanates off of your property—and earthquakes are generally not covered by the basic policy. If you need it or want it, you must buy what is referred to as an endorsement on your homeowner’s policy or purchase it through the National Flood Insurance Program. You can also buy an endorsement for water backup and sump discharge or overflow to cover damage in those cases.
Includes virtually anything you own that is not attached to your home, not including your car or other motorized vehicles. Coverage for certain types of property—boats, trailers, business property and such—is limited, though you can purchase endorsements to increase the coverage on those items. “I recommend people buy the personal property replacement cost endorsement,” Muenzen says. “So if the price of your MacBook Pro, for example, increases to $3,000, that’s what you get instead of the $2,500 you originally paid for it.” Coverage for loss or theft of valuables—rings, furs, paintings, etc.—is also limited, so look for an endorsement if necessary. Such property will also need to be appraised.
Loss of use
Your house burns down or blows away? You need a place to stay until you can move back. “Loss of use pays expenses over and above your normal living expenses, things like staying at the local hotel and the cost of meals,” Muenzen says.
Home-based business endorsement
You have only limited coverage under most homeowners policies, so if you operate a home-based business, consider purchasing an endorsement to cover business property. “Such endorsements also typically cover liability for people who get injured when they come on premises for business,” Muenzen explains.
“People often overlook this coverage,” Hopkin warns. “And it’s probably some of the most important protection they have in the policy.” Though the coverage is included in the basic policy, make sure it’s equal to or exceeds your net worth. Most agents recommend at least $500,000 in coverage. Also, make sure that “cost of defense” is included in the protection. “Personal liability coverage goes with you wherever you go in the world,” Hopkin says. “And it’s inexpensive.”
Covers trips to the doctor’s office, emergency room and the like for people who break their arm on your trampoline or hurt their back slipping on your sidewalk. Coverage in most policies starts in the $2,500 to $5,000 range, generally inadequate for an emergency room visit. “Look for at least $5,000 or even $10,000 if it’s offered,” Hopkin says.Other tips
- Your deductible is the best way to control the cost of your homeowners insurance. The higher the deductible, the lower the premium. “Going from a $500 to a $1,000 deductible is very cost effective,” Hopkin claims.
- Document your personal property before you lose it. “This doesn’t have to be an arduous task,” Muenzen says. “Just walk through the house slowly with a video camera, filming everything in the house, including in the closets and drawers.”
- Finally, review your coverage. Circumstances change, and so do property values. “Too many people buy their insurance and never look at it again until they have a catastrophe,” Hopkin warns. “It’s a good idea to review it annually with your agent, when you receive your premium notice.”