04/05/21: Monopoly Mortgage Monday – Homeowners Insurance Policy Time!
Good day. It’s time to play Mortgage Monopoly again Southern Lakes Credit Union members!
This time you give the dice a roll and land on the Homeowners Insurance Policy square. When purchasing homeowners insurance, you will need to provide your insurer with information about yourself and your home. You can apply for homeowners insurance online, over the phone, or in person at the insurer’s local office and you’ll usually get a quote the same day.
To better prepare yourself for the homeowners insurance shopping experience, be sure to do the following:
- Familiarize yourself with the basics of homeowners insurance
- Gather information about the house, like its replacement cost, style of build, and other characteristics like the roof age and type of heating system
- Compare coverage and rates from multiple companies, and select a policy
- Check your eligibility for any available policy credits and discounts
- Choose a billing plan and sign
Step 1: Understand your homeowners insurance needs
Before you begin shopping for your homeowners insurance policy, you should have a general idea of how much coverage you need to ensure your home and personal possessions are fully covered. You’ll also want enough liability coverage to withstand a potentially expensive lawsuit.
The following components are in every standard homeowners insurance policy. Having an idea of how much coverage you need for each policy provision will make you a more prepared shopper.
- Dwelling coverage – Your dwelling coverage limit should be equal to your home’s replacement cost, or how much it would cost you to rebuild the home in the event it was destroyed. Insurance companies will propose a home replacement cost for you during the quoting process, based on information like its square footage, number of bathrooms, and local rebuild costs. For a more accurate estimate, consider getting a proper replacement cost appraisal of your home
- Personal property coverage – Personal property coverage limit is typically set as a percentage of your dwelling coverage limit (typically 50% or 75%). To enhance your claim payouts and increase coverage limits on expensive valuables with strict coverage limitations, consider replacement cost contents coverage or scheduled personal property coverage
- Additional living expenses – If you live in an area that experiences frequent natural disasters, consider adding more loss of use coverage to your policy to cover relocation expenses if you’re displaced from your home. Loss of use coverage is typically 20% of your dwelling coverage limit, but it may be possible to increase your coverage limits
- Liability coverage – Liability coverage protects you from expensive lawsuits in the event you’re legally responsible for someone else’s injury or property damage. Insurers generally offer anywhere from $100,000–500,000 in protection. To determine how much coverage you need, add up the value of all of your assets, including your home, vehicles, investments, future wages, and personal belongings
- Medical payments coverage – Medical payments coverage is no-fault coverage for guests’ medical expenses if they’re injured on your property. Medical payments coverage is generally anywhere from $1,000 to $5,000
Step 2: Figure out how you want to shop for homeowners insurance
The best way to shop for any type of insurance — be it homeowners or life insurance — is to compare policies across multiple companies. Independent agents don’t work for an insurance company, so they can give you unbiased advice about which policy is best for you.
Step 3: Information you’ll need when you shop
The more details you have about the home, like the interior specs, the more accurate your quote will be.
Here’s a rundown of the information you may need to provide to your agent or broker in order for them to produce accurate quote estimates when you apply.
- Address of your home – The address of the property being insured
- Insurance appraisal – To determine the full rebuild value of the home if it’s damaged or destroyed. This can be done by referencing a recent home insurance policy, hiring an appraiser, or hiring roofing companies, contractors, and builders to assess value to individual parts of your home
- Lender requirements – Let your broker know if your mortgage lender requires any additional levels of coverage like flood insurance
You’ll also need to list who will be living in the insured home, whether you’ll be renting the home out or not and if you consider the home a primary or secondary residence. For example, if you’re renting it out or use the residence as a home office, your insurance broker may offer suggestions to maximize your home insurance tax deductions that are available for rental or home office properties.
- Date of birth – This can help an agent or broker access your insurance history
- Occupation – Depending on your occupation, you may be eligible for certain discounts or group rates
- Social Security number – To access your credit history which better informs the rates you’ll be paying.
- Property history – If you haven’t lived at the home you’re seeking coverage for at least two years, you’ll be asked to provide addresses for previous residences
- Liability questions – Carriers will want to know if you have any pets, trampolines, tree forts, or pools (and whether the pool is above-ground or in-ground, specifically)
Step 4: Compare quotes and select a policy
After you’ve given your agent all the required information about your home, it’s time to get quotes and select a home insurance policy. Make sure to analyze a variety of policy options so you’re able to do a proper comparison, don’t automatically choose the cheapest policy without checking to make sure it’s got the coverage you need.
Apart from the policy itself, you’ll also want to look into the insurance company’s background. Be sure they’re a financially stable company, read reviews and check their ratings with third-parties like A.M. Best, J.D. Power, and Consumer Reports, to name a few.
Step 5: Finalize your policy details
You’ve compared quotes, gotten all your most pressing questions answered and selected a policy, now it’s time to choose a billing plan and policy deductible.
If you’re buying a home and need homeowners insurance to close on the property, there are a few details you need to finalize first:
Premiums – It’s common practice for lenders to require that premiums for the year be paid in full ahead of closing on your mortgage. Be sure to clarify with your agent if this is the case — the agent will be in contact with your lender about coverage and billing requirements for how your insurance will be paid moving forward.
- Deductible – You’ll also need to set your policy’s deductible, which is the amount you pay before your claim for damages is covered. From a cost standpoint, what you’re looking for is a low monthly or annual premium. So if you don’t plan on filing many claims, choose the higher deductible.
- Effective date – Lastly, you set the policy’s effective date, which is when your coverage begins.
Once your billing and policy dates are set and your lender approves the policy, you’re good to sign on the dotted line.
Step 6. Prepare for the insurance inspector
Your home insurance carrier will typically perform an inspection of the property to make sure everything is in order and reported as quoted. If anything is off or you forgot to mention something in your application, your adjuster will take note of the errors and omissions and you’ll see it reflected — for better or worse — in your next bill.
For example, maybe your roof is about 10 years older than you stated on your application; or on the flip side, maybe you forgot to mention that your home has certain protective features like a security system or stormproof windows that could lower your rates.
The next step after you have completed your search for a homeowners insurance policy is to get an Appraisal Order. I will discuss that topic next week. This is quite a bit of information, so I know you must have some questions. I invite you to reach out to me so I may help answer them. You can either leave them in the comment section below, message me here, or call me at (262) 723-4888 x810.
Until next week folks! I am Joe Riesterer, Mortgage Loan Officer with Southern Lakes Credit Union. NMLS #290200