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Wednesday, February 27, 2013

Tips for purchasing homeowners insurance

Be wary of homeowners insurance policy details and terms
Financial loss is determined by the claims process
By Timothy Lemke

For most people, buying a home ranks as the largest purchase they will ever make. Unlike a car or paying off your college loans, the money spent on buying a house helps you create a foundation for the memories you and your family will share in your new home.

An investment the size of a home purchase demands that buyers safeguard their financial interests by taking out an insurance policy that will protect them should accident occur. Unlike car or health insurance, most homebuyers have no experience shopping for homeowners insurance, and may not know what they should look for to find a policy that meets their needs. To help you find the right policy, here are a few tips to keep in mind when shopping for homeowners insurance.

You’re a statistic

While it might not sound like something you want to hear, when it comes to buying any kind of home insurance you’re just a statistic, not a person. Insurance companies will base their premiums on your specific risk factors, which include determinants as diverse as your lifestyle, occupation, what you own, where you live, how many children you have, and credit history. Using this information, insurance companies will evaluate how big a “risk” they view you as an insurer, and will set the premiums for coverage accordingly.

Know the value of your home

Before you even begin searching for coverage, you need to establish the replacement cost of your home should it be destroyed. Knowing your home’s true value will help you establish how much home insurance you need, which also determines how much you’ll pay in premiums. A local contractor can usually provide the best estimate for your home’s value.

Companies differ

Outside of their colorful mascots and spokespersons, one insurance company can seem nearly identical to another. However, like any product you buy, the price set by one company can vary greatly from another. When shopping for any kind of insurance, make sure you do your due diligence and get quotes from at least five different companies. Occasionally insurance companies offer discounts for policies that cover home and car insurance, so make sure to start with your car insurance provider when gathering quotes.

Look at more than price

The saying “You get what you pay for” can become especially haunting if you base your home insurance needs strictly by price. While getting coverage from a cut-rate insurance company may save you money in the short-term, it could have long-term consequences depending on how slowly your insurer takes to processes a claim or respond to your customer service needs. Before purchasing any policy, research the insurer’s record for claims service and its financial stability. The Better Business Bureau, Standards & Poors, A.M. Best, and Fitch are just a few of the sources you can utilize to determine an insurer’s financial strength.

Look beyond the basics

A basic homeowners policy may cover most of your needs, but extras like flood, earthquake, or even tornado insurance may not be included in your policy. A basic policy might not cover the entire replacement cost of your home either, so make sure you don’t purchase a generic policy, but rather take the time to customize your policy to your home.

Ask about discounts

As mentioned previously, insurance companies may offer discounts to customers that carry “umbrella” policies, and that’s just one example of a potential way to save money on your premiums. An insurance company may also have a number of other discounts that you qualify, but you’ll never know unless you ask. Remember, you’re just a statistic, and most insurance won’t mention discounts unless prompted. 

Insurance companies are not your friend

State Farm’s motto may be “Like a good neighbor,” but don’t get fooled into thinking an insurance company will always look out for your best interests. At the heart of any policy claim is a business transaction, and your concept of what’s fair compensation may not equal that of your insurance provider. Keep in mind that the job of your insurance provider is to compensate your financial loss, while yours is to prove your losses so you get the financial help you need. 

About the author: A freelance writer and first time homebuyer, Timothy Lemke quickly realized the value of getting proper home insurance coverage.

Image: US-PDGov

1 comment:

  1. Very nice post! Finding the right home insurance for protecting your home is very important, because your house is your biggest investment, that's why you need to protect it.

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