To find the right home owners insurance policy at the right price, figure out the type and amount of coverage you need using these six questions from the Insurance Information Institute:
1. How much would it cost to rebuild my home in its current location in the event of a total loss?
Your home owners insurance policy should cover the cost of building a new home from scratch. In general, home owners policies cover partial or total damages caused by fire, hurricane, hail, lightning, or any other disaster listed in your policy. Flood and earthquake-related losses must be insured separately because both perils are excluded in standard home owners insurance policies.
2. How much is the personal property in my home worth in the event of a total loss?
Your home owners insurance policy should cover the cost of replacing all personal property (furniture, appliances, clothing) should it be stolen or destroyed by fire, hurricane, or another insured disaster. Most companies provide personal property coverage equal to about 50% to 70% of the amount of insurance you have on the structure of your dwelling. So if you have $100,000 worth of dwelling protection, most insurers would recommend $50,000 to $70,000 worth of personal property coverage. A home inventory will tell you if that’s enough going to be enough money to replace your stuff.
3. How much liability protection do I need?
Liability covers you against lawsuits for bodily injury or property damage that you, or your family members, cause to other people. It also pays for damage caused by your pets.
The liability portion of your policy pays for both the cost of defending you in court and any court awards — up to the limit of your policy. Liability limits generally start at about $100,000. Most insurance agents and company representatives recommend that you purchase at least $300,000 worth of liability protection. If you have significant assets and need more liability protection than is offered under the standard home owners policy limits, ask your agent about umbrella liability.
4. What level of additional living expense coverage do I need?
The Additional Living Expenses provision is found in standard home owners insurance policies. It pays for the costs of living away from home if you cannot reside there due to damage from an insured disaster. ALE covers hotel bills, meals, and other expenses over and above your customary living expenses. ALE coverage differs from company to company. Many policies provide coverage equal to about 20% of your dwelling protection. Some companies impose a time limitation, such as 12 to 24 months.
5. Should I buy a separate flood and/or earthquake insurance policy?
There were numerous flooding events and earthquakes in the U.S. in 2011 but relatively few Americans had coverage for either type of natural disaster because these perils are excluded from standard home owners insurance policies. Check with your insurance agent or insurance company representative to see whether you might need specialized coverage beyond your standard home owners insurance policy. Fire and water damage due to burst gas and water pipes following an earthquake is covered under standard home owners policies in most states.
6. Do I qualify for any discounts?
If you have smoke detectors, burglar alarms, and/or deadbolt locks in your home, you can often get a premium rate discount. Sophisticated sprinkler systems and alarms that ring at monitoring stations often reduce your home owners insurance premium, too. Ask your agent or company representative about discounts available to you. If you are at least 55 years old and retired, for instance, you may qualify for a discount of up to 10% at some companies. If you have completely modernized your plumbing or electrical system recently, a few companies may provide a price break.
Source: Insurance Information Institute