Buying homeowners insurance is not as easy as it used to be. Superstorms and other catastrophes have been draining the coffers of many insurance companies, so many companies will deny policies in places and situations that would have easily insured years ago, and it's not just owning a pit bull that can force you out of a good policy. What is covered in a policy can vary widely by company, so you'd better know what to look for when shopping for home insurance.
1. If you have a mortgage, you have to have insurance coverage.
Any mortgage lender is going to require you to carry a quality policy, but you should have insurance even if you don't, unless you have massive cash reserves stashed away. And if you do, that means you can afford to have it, which will make your life a lot easier if disaster strikes.
2. Partial damage claims may not be fully covered if...
When most people think about buying insurance, they're usually picturing the coverage to prevent the worst possible scenario, like a total loss from a fire. In reality, most losses are partial, like a kitchen fire that is quickly extinguished but caused enough damage to warrant heavy repairs, or a neighbor's tree crashing in on the porch and part of another room. This is where you need to decide if you want to purchase insurance that covers replacement costs or actual cash value, which may not be actual at all.
Replacement cost insurance will cover what it will cost to replace whatever is damaged for similar materials at market value at the time of the claim. Actual cash value takes into account depreciation, and the claim may not cover anything close to the cost of repairs. Consider this: partial damage to your kitchen and the tile, cupboards and other fixtures in the good half can't be matched because they are 10 or more years old. Guess what? You'll be lucky to get enough to cover what they cost back then, and only for the damaged ones, so it's important to not skimp on coverage. Insure the house for at least 80% of its value to avoid a bad situation. Consider replacement cost, but you can bet that it will cost you more every year in premiums.
3. Not all companies are rated the same.
Your mortgage company is probably going to require an insurer with an "A" rating. This means that company has enough cash reserves to pay out a lot of claims at once if disaster strikes. If you live in an area that you think might be prone to storms, even if your lender doesn't require an A rating, you might want to consider it.
4. Not all policies cover the same things.
Home insurance options are somewhat like auto insurance policies in that you can choose very basic coverage, depending on what stipulations your mortgage company has assigned, which is likely to be full coverage of any property damage from acts of nature. However, that may not mean the policy will cover theft, personal liability, medical expenses, or living expenses if you need to move into a hotel for a few weeks while repairs are completed.
5. Your house must be in good shape and well-maintained.
Insurance companies are hesitant to lend to anyone whose house has problems. Simple things like a medium-sized branch hanging over a roof or even just the gutter is enough to get flagged. If you end up with water in your basement after a big storm, but have an existing crack in the foundation -- too bad -- the damage won't be covered.
6. Ask your agent about discounts.
If you upgrade things like a roof, install deadbolts, or make other improvements, call your agent. Your rate may go down.
7. If you can't get a high-quality policy, what can you get?
So let's say you own three dogs, each of breeds on nearly every company's banned list, your house is a little rough around the edges but you don't quite have the money for repairs, or other problems that will make it hard to get a policy, you may be able to get a basic fire plan which will only minimally cover property damage, belongings, from a fire. If you are in this situation, it's better than nothing.