What You Need to Know to Navigate Homeowners Insurance

Some major insurance companies are pulling up roots in several states, due in part to wildfires, earthquakes, hurricanes and flooding. Scripps News reports that in 2022, natural disasters caused global economic loss of $275 billion, with insurance covering almost 45% of that. Scores of insurance providers in California, Florida, Louisiana, New Mexico and other states have determined that the cost of payouts after catastrophic weather events has become untenable. With fewer insurance choices and higher coverage premiums, you need to know how to navigate homeowners insurance.

Homeowners insurance helps protect valuable assets including your home and possessions. Before purchasing a policy, it's essential to understand what homeowners insurance covers.

Here are five main types of homeowners insurance:

• Dwelling coverage will cover your home’s structure. This includes walls, floors, roofs, appliances, fixtures and other structures attached to the main house, such as decks, porches or a garage.
• Additional structures coverage applies to structures on your property not directly attached to the primary home, such as a detached garage, gazebo, pool house and fences. This coverage generally doesn’t exceed 10% of the dwelling coverage limit.
• Personal property coverage will handle the contents of your place if they’re damaged, stolen or destroyed in an insurable event. Electronics, some tools, clothing and furniture are personal property.
• Medical payments coverage will take care of medical expenses for those injured on your property, including transport to the hospital if needed.
• Loss of use coverage will pay for temporary living expenses if your home becomes uninhabitable. It may also cover hotels or short-term rental property, groceries and other living expenses.

Now that you know the different types of coverage, you can get started finding the homeowners insurance that works for you. Follow these three steps:

1. Decide how much coverage you need. What will it cost to rebuild your home if disaster strikes? Your insurance company will help you determine that amount since it knows the current labor and materials costs. The insurance company will set the minimum starting point for the dollar amount of coverage. This is called replacement cost coverage.
   
   How much personal property coverage you need will vary from person to person. Take a home inventory and photograph the contents of your home. Contents are usually about 60% of the dwelling coverage limit. You could add guaranteed replacement cost coverage for an additional premium. Valuable art, jewelry, hobby collections and rare antiques are generally not covered in a typical policy. They will require an appraisal and riders added to the insurance contract.
   
   If you are in an area prone to floods or earthquakes, consider additional coverage. Most standard homeowners insurance policies don’t cover these natural disasters. Other add-ons like water and sewer back-up riders, home business endorsements or coverage for equipment breakdowns that may cause ancillary damage to your dwelling or personal belongings can also be part of the additional coverage.
2. Call several companies for quotes. The insurers will want a boatload of information about you, including past claims and the age, condition and construction of your home.
   
   You will have a choice as to your deductibles. A deductible is an initial cost that you are responsible for if you file a claim for your property. For example, if you need a new roof because of hail damage, the insurance company will pay the amount above and beyond the deductible. It may be $500 or $2,000. How much are you willing to pay if you file a claim? The higher the deductible, the lower the insurance premium. Premiums may also be a bit lower if you have recently replaced your roof and windows with durable high-quality, low-maintenance materials.
3. Read the entire policy carefully. If you have questions, have the insurer’s agent answer to your satisfaction. If you have a mortgage on the property, make sure you send the insurance coverage documents to the lender. Your premiums may be paid through your mortgage company, which needs to know the policy information.

You may be tempted to sit back and relax once you’re settled in your well-insured home. But premium rates will change periodically, and it could save you money if you compare your policy to others every year or so. Get quotes from other companies to ensure that your policy is in line with other competing insurance companies.

A CFP® professional can help you navigate the many homeowners insurance options out there. Find your CFP® professional today.