Your home is likely the most expensive thing you’ll ever buy, so you have to choose your homeowners insurance very carefully! The best way to do that is to ask these 5 questions before you sign on the dotted line:
1. “Is this enough money to cover the worst-case scenario?”
If the worst happens and your home is completely destroyed, how much will it cost to rebuild it AND replace everything inside of it? And whatever you do, don’t forget to figure appreciation into the mix! While California’s home values are climbing slowly, they’re still going up — meaning that your homeowner’s coverage limits need to climb along with them.
Also, remember that there may have been new building codes established since your home was first built. In order to rebuild it, you’ll have to adhere to these new codes, and that can get expensive. So, make sure you factor EVERYTHING into your coverage decision!
A good insurance agent can help you select coverage limits that are high enough to pay for everything, without having you pay for more coverage than you actually need. If you want to calculate things on your own — or simply want an easy way to keep an inventory of all your belongings in case the worst happens — the Insurance Information Institute has created a website to help you do it.
Also, don’t forget to take a close look at your Additional Living Expenses (ALE) coverage. That’s the money your insurance company will give you to live elsewhere if you can’t live in your own home while it’s being repaired or rebuilt. Here in California, your insurance company is required to let you spend this ALE money over the course of 24 months, so make sure you have enough coverage to actually take advantage of it!
2. “Is every type of natural disaster covered?”
Every California homeowner’s policy will leave out two very important things — flood coverage and earthquake coverage. Your mortgage lender may require you to buy flood insurance, especially if you live in a high-risk area. However, buying earthquake insurance is completely up to you.
3. “How many discounts can I get?”
This is a great question for an independent insurance agent, because he can compare all of the different discount options from a variety of insurance companies. Everything from living in a gated community, to updating your home’s wiring, to making specific renovations can entitle you to cheaper homeowner’s insurance premiums.
4. “Do I need to add other types of coverage?”
The average homeowner’s policy is going to come with standard coverage, which may not be enough to repair or replace expensive things you have — like your jewelry, your coin collection, or your fine artwork. In order to make sure these things are covered for their full worth, you may need to add a personal articles floater onto your policy. This floater will spell out exactly which items are covered and for how much.
5. “Am I OK with these exclusions?”
Both your property and liability coverage will come with a list of exclusions — or, things that are specifically not covered by your policy. For example, you already know that earthquake damage is excluded on your policy, but did you know that ALL “earth movement” is excluded? For example, if you live on a cliff and your home is destroyed by a landslide, your insurance company will consider the damage caused by “earth movement”, and you won’t have any coverage.
The last thing you need is a surprise, so be sure to look at your list of exclusions carefully. If you’re not comfortable with them, ask your agent what you can do to solve the problem.
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