How to Think Rightly About Homeowner's Insurance

"Intelligence without ambition is a bird without wings." -Salvador Dali

Author: Janet Behm, Nate Hagarty, and Grammarly

Revised from the original blog published September 2021

5-minute read

• IT'S A RISKY PLACE

• WHAT TO DO?

• BY THE WAY-TAX DEADLINE REMINDER

• HOW TO THINK RIGHTLY ABOUT HOMEOWNER'S INSURANCE

• DESPITE 'GOOD HANDS,' INSURERS AREN'T YOUR BUDDIES

• WITH 'GOOD HANDS,' A LOCAL AGENT CAN BE BUDDIES

• MY BUDDY

• WATER-WATER EVERYWHERE

• DUE DILIGENCE, DUE DILIGENCE, DUE DILIGENCE...

IT'S A RISKY PLACE

Turn on the news right now, and you'll see floods and tornadoes tearing through entire states. That's not even counting the daily threats of theft and vandalism that dominate headlines. In light of all this chaos, it’s only natural to take a good look around your home and think, "So much can go wrong." And you're right—much can happen.

WHAT TO DO?

For most people, their home represents their most significant investment. It’s not just a financial asset; it is your sanctuary—a shield from the uncertainties of the outside world. So why on earth would you consider skimping on protecting it? Avoid the common trap of rushing through the homeowner's insurance shopping process—many individuals enter it without a clear understanding of what they need or the risks they face. Wasting money by taking unnecessary risks is not just unwise; it's entirely preventable. Together, we will explore how to make informed choices as you seek coverage. For renters, there are additional considerations, but many of the foundational principles apply to renters' insurance as well.

BY THE WAY

A quick reminder: If this applies to you, Monday, September 15th is the due date for third-quarter estimated taxes. If you're reading this and find that the deadline has passed, don't panic—pay now! You may incur some minor penalties, but they won’t break the bank. The goal is to avoid LARGER penalties down the road. Let’s dive into the essential topic of protecting one of your most important investments today.

HOW TO THINK RIGHTLY ABOUT HOMEOWNER'S INSURANCE

Becoming a homeowner is monumental. Your home is not only a vital asset; it is where you create memories and savor life's finest moments. Therefore, insuring that precious asset is not just sensible; it’s a necessity. The real beauty of a homeowner's insurance policy lies in its ability to help you repair or replace your home and its cherished contents—including heating and cooling systems—after events like fire, smoke, and even those tricky water damage issues, as well as theft, vandalism, storms, and a host of other potentially devastating "perils." Additionally, homeowner's insurance takes care of medical and legal costs for visitors injured on your property, providing peace of mind during unforeseen circumstances. Yet, many homeowners remain in the dark about what their policy truly covers.

Still, some homeowners are unsure exactly what's covered by their policy. A 2023 survey found that only about half (56%) of homeowners knew what to look for in their homeowner's insurance policy when buying their home, with 15% fessing up that they had no clue what to check. Nearly a third (29%) think they know what to look for but discover plenty of surprises while navigating the insurance process.

Know exactly what coverage you're buying. This awareness shields you from unpleasant surprises when it's time to file a claim. Despite the reassuring facade of being "in good hands," insurance companies aren't your friends. Don’t trust them to prioritize your interests. Be proactive—shop smart and plan ahead for the coverage you need and can afford.

For starters, take a look at this dynamite cheat sheet from the National Association of Insurance Commissioners®. It will guide you through what information your agent or insurance company needs, including coverage descriptions, essential insurance terms, and critical questions to ask.

DESPITE 'GOOD HANDS,' INSURERS AREN'T YOUR BUDDIES

Before you embark on your shopping journey, gather the information the insurance company requires: proof of date of birth, social security number, contact details, marital status, and job information. Be prepared with details of your current insurance and the home you'd like to cover. (The cheat sheet includes helpful fill-in forms to simplify this process.) They will also ask how long you’ve lived in the home, how many and what kinds of pets you have, whether anyone smokes, and what your occupation is. (This is just a taste of the questions—be ready for much more).

WITH 'GOOD HANDS,' A LOCAL AGENT CAN BE BUDDIES

Next, reach out to different agents and insurers to compare rates and coverage levels. Aim for coverage limits based on the estimated cost to rebuild your home, rather than its purchase price or current market value. Remember: generally, the cheaper the premium, the larger the deductible you will face out of pocket after a claim. The most basic policy typically covers your home and personal property against losses from fire, smoke, wind, hail, lightning, explosions, vehicles, civil unrest, theft, or vandalism. The next tier, often referred to as a broad form policy, provides coverage for your home and property only against specifically listed perils. A comprehensive policy, on the other hand, fully protects the cost of your home and personal property against all perils, except exclusions clearly stated in the policy. Make informed choices to ensure that the coverage you select effectively safeguards your home and your well-being.

Then you will want to consider the type of policy best suited for you::

• The most basic policy will usually cover your home and personal property against loss from fire, smoke, wind, hail, lightning, explosion, vehicles, civil unrest, theft, or vandalism.

• The next level of coverage (sometimes called a broad form policy) covers your home and property only from perils specifically listed in the policy.

• A comprehensive policy has your back for the cost of your home and personal property against all perils except what you specifically list as an exclusion in the policy.

Make informed choices to ensure that the coverage you select effectively safeguards your home and your well-being.

MY BUDDY

Years ago, I forgot to mail the premium check for my car insurance. The company suspended the car insurance, waiting for their money.

That was until the car caught fire in the elementary school parking lot. My agent said, "Don't worry. I will take care of this." I bought a replacement vehicle the next day, with a 'fast-track' payout. And, of course, IMMEDIATELY mailed the premium check in.

Whew!

WATER-WATER EVERYWHERE

Consider Hurricane Ida's rampage through the Northeast in 2021, when many people lacked flood insurance.

Floods are on all homeowners' minds right now, in New Mexico and Texas. Flood coverage can be another tricky point in policies. A busted pipe is generally covered unless the insurer can prove negligence or some other cause that's not strictly an accident. Flood damage from water outside your home usually isn't. Get flood insurance separately from sources like the National Flood Insurance Program, or from a private flood insurer.

Just know that the flood insurer may not pay for damage from external water, for instance, if water from up the street misses the turn in the gutter and fills your garage.

Flood coverage can be pricier in flood zones, too, just like you'll have to pay a higher deductible for wind damage in a tornado-prone area.

DUE DILIGENCE, DUE DILIGENCE, DUE DILIGENCE...

Read my lips: Thoroughly read your policy. Read it from start to finish before you sign. Better yet, have a professional advisor or third party read it too. Over the years, I have enjoyed a long-term relationship with my local agent. An agent who knows you will go to bat for you. You may already know this, but having multiple policies, including homes, businesses, cars, and recreational vehicles, with a single insurance agent usually leads to substantial discounts.

Through these regular blog posts, we support real estate wealth in all its many variations.

 

BE THE ROAR not the echo®

Warmly, Janet, The Tax Wizard