Aaron Rosen; A Multiline Insurance Advisor
Buying Homeowners Insurance is Complicated: You Need To Know the Answers To These 10 Questions
1. Do I need both a fire policy and a homeowners policy?
Although, lenders, escrow officers, insurance agents, and REALTORS® call home insurance by different names, a fire insurance policy and a homeowners policy are one and the same thing.
2. What is “walls in” insurance?
“Walls in” is a term used by lenders when dealing with condominium insurance. Most homeowners associations (HOAs) insure the exterior of a condo, and the client who purchases the condo needs to insure the interior, meaning everything that is inside the walls—that is, the drywall, paint, fixtures, flooring, and sometimes the plumbing and electrical.
3. How much “walls in” coverage do I need?
Typically, lenders require 20 percent of the purchase price or appraised value. For example, a condo purchased for $500,000 requires $100,000 in coverage. This is usually enough to replace the walls in.
4. How much personal property coverage is required?
Most insurance carriers set a minimum limit between $15,000 and $40,000 for the amount of personal property coverage that is included in the policy. If you own personal property valued at more than this minimum, you can increase the amount of your coverage—and you should. For a homeowners policy, the typical amount of coverage is 70% of your dwelling value. For example, if your dwelling is valued at $500,000, your personal property coverage will be $350,000.
5. What is loss assessment coverage?
Loss assessment coverage is protection that condo owners can use on claims involving the exterior of their buildings or areas that are owned in common by the HOA. This coverage can help you avoid having to pay out-of-pocket expenses when a common-area loss requires a special assessment as the result of a claim.
6. What is loss-of-use coverage?
Even if your home is damaged by fire and you are unable to live in it, your mortgage company will expect to be paid regularly. While your home is being repaired or rebuilt, you will need to live elsewhere. Loss-of-use coverage provides money for this additional living expense.
7. How much jewelry coverage do I have?
Most homeowners policies include from $1,500 to $5,000 of coverage for your jewelry collection. If you own a ring, watch, necklace, or earrings that are more valuable than this limit, you should consider purchasing a jewelry rider. By doing so, you can insure a specific named item for theft, fire, or even mysterious disappearance.
8. Is mold covered by my homeowners policy?
Sometimes. Mold coverage is automatically included in some policies but not offered at all with others. Ask if the insurance company you have selected offers mold coverage. (Read more about mold coverage)
9. How much will I save if I increase my deductible?
You will save approximately 20 percent when you change your deductible from $1,000 to $2,500. But this kind of savings may not make much sense. For example, if your policy costs $1,000 annually and you raise your deductible to $2,500, you will save $200 a year. At this rate, you will need to go seven and one-half years without a claim before the money you save equals the amount you would have to pay out of pocket for a single loss.
10. How much will my rate increase if I have a claim?
Typically, if you submit a claim, your rate will increase at renewal by 20 percent for the next three years. My advice is to take into consideration the amount of the increased premium cost when you are deciding whether or not a claim is worth submitting. File claims for significant losses but not for small problems.
Aaron Rosen is multiline insurance advisor with Covenant Direct Insurance. [email protected] Note – The answers provided are generalizations that do not apply in all situations. For specific answers tailored to your personal situation, you should contact your agent or insurance company
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