We Answer the Most Commonly Asked Insurance Questions

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The home of your dreams is within reach – the only thing left is securing homeowners’ insurance! Can you think of a more exciting way to spend your day?! Because we can’t. 

Getting the right coverage is all about asking the right questions and getting the right answers. Let’s tackle 15 of the most frequently-asked home insurance questions so you can answer the question “What kind of insurance do I need?”

What are the most important insurance terms to know?

Deductible

The deductible is the amount of money, loss, or damages you are responsible for before your insurance company pays the balance of a claim. In other words, it’s the portion of the damages that comes out of your pocket, not the insurance provider’s pocket.

Premium

The premium is the amount of money an insurance company charges to provide coverage, usually a monthly or annual payment. Your insurer gets to keep that money, even if you never file a claim and never get a big check to cover damages. It’s the price you pay to pass the risk of loss or damages on to the insurer rather than bearing it yourself.

Claim

 

A claim or insurance claim is your official request for an insurance company to fulfill their covenants when you experience a loss or damage. If your claim is validated, the insurance company will pay you a determined amount to offset the cost of the loss or damage, based on the terms of the policy.

Lapse

A lapse occurs when a policy ends because you did not pay the premium amount, or if the policy end date elapses with no agreement to renew. If you let your insurance policy lapse, you are no longer protected by the insurer and may be fully liable for losses and damages. This is why most mortgage companies require that you escrow your insurance premiums — to make sure you don’t miss a payment and cause your policy to lapse!

Underinsurance

Underinsurance exists when the limits of a property policy are less than would be needed to rebuild your home in the event of a total loss. In other words, if the house was completely destroyed, your maximum coverage amount would not be enough to replace the house as it was.

Escrow

 

A claim or insurance claim is your official request for an insurance company to fulfill their covenants when you experience a loss or damage. If your claim is validated, the insurance company will pay you a determined amount to offset the cost of the loss or damage, based on the terms of the policy.

How are home insurance rates calculated?

Home insurance rates are calculated with a variety of factors in mind. Believe it or not, a Ouija Board and chicken entrails are not involved. For the most part.

Insurance companies earn their revenue by assuming risk on behalf of their customers. The bigger the risk, the higher the premium. What would make a homeowner policy more risky than another homeowner policy, leading the insurer to charge a higher premium? 

Insurance companies usually take the following into consideration:

 

  • Location: The location of your dwelling affects your premium. For example, if your home is in a high-crime area, your home insurance is going to cost more. If your home sits in a FEMA-designated flood zone, your lender may require an additional flood insurance policy. If the cost per square foot of construction is higher in your zip code, you’ll need more insurance – and a higher premium, as a result.

  • Lifestyle: “Don’t judge me!” Like it or not, your lifestyle may affect how much you pay for insurance. Say for instance you’re a smoker. You are therefore considered at greater risk of your house burning down, and insurers raise their prices accordingly. If you needed another reason to quit, there you go. And if you have filed a lot of claims in the past, expect higher rates in the present. Also, though it may seem unfair, married people pay a little lower rates than their single friends. Good news is, some companies honor domestic partnerships and civil unions the same as marriage. So no need to put a ring on it just to lower your premium.

  • Property: If your house is completely destroyed, the insurer may be on the hook to cover the cost of rebuilding it from the ground up. Different properties are more costly to replace. For example, older houses are harder to rebuild, and therefore incur higher insurance premiums. Additionally, if the home has a history of claims – even if they were from a prior owner – you can expect to be charge a higher rate as a result.

  • Payment Method: Are you paying annually or monthly? Just like most everything else, paying monthly is going to be more expensive in the long run. If you can afford the larger chunk of change up front, you will probably save money by paying annually instead. Good news, though: if your mortgage company escrows the annual premium, you get the benefit of a lower rate for paying in full!

Is my coverage adequate? 

So, how do you know if your coverage is adequate? Gut instinct? Computer algorithms? The word of an insurance salesman, who gets paid when you buy more insurance?

At minimum, you must have dwelling coverage in the amount of your loan. But that is the minimum. You NEED coverage in the amount of what it would take to rebuild your home in the same quality at the same location. Good insurance agents will use their expertise, a Replacement Cost Estimator, and a conversation with you to help arrive at the right number. Excellent insurance agents might even have this conversation with you over a cup of coffee.

At the end of the day, it’s a personal call. How sensitive are you to risk? Can you sleep at night without knowing you are fully covered? Modest premium payments pale in comparison to the out-of-pocket expenses you could face if disaster strikes and you are not covered for it. 

That said, you also don’t want to be paying for coverage you don’t need. It’s important that you talk with an insurance agent that you trust and weigh the pros and cons of each coverage type and bundle. They will best assist you in finding coverage that is adequate for YOU. Just like your health, every person’s personal situation is unique. 

 

Also, make sure to familiarize yourself with insurance terminology so you understand what your insurance is telling you, and make sure to ask great questions.

Does my credit score affect my premium?

Your credit score does have a direct impact on your home insurance premium. Insurance companies, similar to other industries, provide better rates to customers with a history of making on-time payments. This kind of history is reflected in your credit score. 

 

The idea is that if you have paid bills on-time in the past, you are more likely to pay your insurance premiums on-time. This means less risk for the insurance company, and less risk for them means lower premiums for you.

How do I know I have the right coverages? 

While you can do research on your own, once you have a basic understanding of insurance mechanics, your next step is to find an insurance agency you trust. 

You don’t need to quit your job and become an expert to get insurance right. That’s what insurance agents are for. Educating yourself in the basics will help you spot an untrustworthy insurance agent whose numbers don’t add up. When you find that agent who is a straight shooter and has the best interest of the customer at heart, buying insurance becomes a lot easier, 

There’s no such thing as the “right” coverage. The “right” coverage depends on your specific situation.  

For example, an older house may be more costly to rebuild than it would be to just buy a new house and move. As such, it might not be worth the extra premium to insure an older home to its full replacement value. 

 

On the other hand, if that older house has been in the family for years and is rich with history, it might be worth it to you to insure it to the max for the sake of heritage and posterity.

What kind of home damage does standard home insurance cover? 

Standard home insurance policies cover the following: 

  • Wind
  • Hail
  • Fire
  • Theft

Standard home insurance most often does not cover the following:

  • Flood Damage
  • Earth Movement
  • Some Dog/Pet Attacks
  • High-value Jewelry
  • Sewer Backup 
  • Damage from Pests
 

Each of the above can be added as a separate policy, as another policy attached to your home policy, or as an endorsement to your home policy.

Do I need flood insurance?

As mentioned above, standard home insurance policies do not cover flood damage. This covers any water that might enter your house at ground level rather than from above — runoff, river overflow, improper drainage, tsunamis, etc. 

So, do you need it? If your house sits on a FEMA flood plain, your lender may require you to get flood insurance before they agree to the loan. But even if your lender doesn’t require it, even if you are buying all-cash, consider this — dollar-for-dollar, flooding is the most expensive natural disaster. It’s also one of the most widespread occurring in 98% of all counties in the US. In addition, there is a 26% chance that you will experience a flood at some point during a 30-year mortgage. 

Despite this fact, only 15% of homeowners have flood insurance coverage. So even if you don’t need flood insurance, consider whether you can eat the cost of flood damage.Remember, just one inch of flood water can run you $25,000 in damage. Even if you don’t live on a FEMA flood plain, strongly consider flood insurance.

Download Now: The Ultimate Guide to Flood Insurance in Middle Tennessee

How do claims affect my coverage?

In short — if you make a claim, your premium is going to go up. The bigger the claim, the bigger the premium increase. For example, if your house burned down, and your insurance covered the rebuild, you’re going to have to pay higher premiums for the new house.

There’s no nice way to put it — insurance companies would rather not pay claims. They would rather just keep your money and not have to pay out any of their money. Put yourself in their shoes for a minute — can you blame them? Would you rather collect checks, or write them? Which is a better way to spend a day? 

 

Remember, insurance companies earn revenue by assuming risk. The riskier the policy, the more they will charge for it. One of the best indicators of whether or not they will have to write checks on a policy in the future is if they have had to write checks on the policy in the past. 

Is tornado damage covered by my home policy?

Tornado damage is included in the dwelling portion of standard home insurance policies. It is considered wind damage. However, there are some things to keep in mind. 

If you live in a tornado alley, your insurer may require you to carry a higher deductible  for wind and hail damage. If a tornado causes flooding, you won’t be covered unless you have flood insurance. 

You will probably be covered for debris and falling trees, but if a fallen tree on your property is assessed to have been damaged or rotting prior to the tornado, the damage from and removal of the tree may not be covered. The rationale is that you should have had the tree removed before the tornado.

Do I need an umbrella policy?

An umbrella policy is an additional liability insurance policy that offers limits over and above your homeowners and auto policies. Umbrella insurance covers both policyholders and other members of the household. 

For example, a homeowner’s policy sets limits on liability claims  the insurance company will cover if someone gets injured on your property. It’s usually  anywhere from $100,000 to $500,000. $300,000 is what most companies consider standard.. 

Of course, the sky’s the limit when it comes to medical bills and lawsuits resulting from negligence. If an unfortunate guest gets seriously injured on your property, racks up $350,000 in medical bills, and sues you to pay them, your umbrella policy could cover the shortfall.

Most insurers cap homeowner policies at $500,000 in liability. Past these coverage limits, it may be more cost-effective to buy an umbrella policy if you want additional coverage.

 

So do you need one? Again, it depends on your risk tolerance. How much do you have to lose, and how comfortable are you with the idea of losing it? Talk to an agent you trust.

Am I covered if my dog bites my neighbor?

Within standard home insurance policies, your liability coverage should protect you if your dog bites your neighbor. 

However, there is an exception. Some insurance companies do not cover attacks by breeds they deem “aggressive.” These breeds can include: Pit Bulls and Staffordshire Terriers, Chows, Doberman Pinschers, Rottweilers, German Shepherds, and Akitas. Other insurance companies do not discriminate against breeds, but will ask you if your pet has ever attacked or bitten someone before. If your answer is “yes,” they will most likely exclude that animal from coverage.

Does homeowners insurance cover theft?

 

Standard homeowners insurance does cover theft, but in most cases only up to $1,000. If you have high-value personal belongings and you want insurance to cover them, you should look into increasing your blanket theft limits, and possibly adding personal articles policies, also known as “floaters,” for individual high-value items such as jewelry, artwork, sports memorabilia, etc.

Does homeowners insurance cover mold?

 

Mold is only covered if it is related to a covered peril or sudden and accidental occurrence. Otherwise, homeowners insurance will not cover mold without a special endorsement added to your policy – and an extra premium. For example, if mold grows on moisture caused by flood damage and you don’t have flood insurance, homeowner’s insurance will not cover it.

Do I need to take photographs and inventory of all my belongings?

You absolutely should. Better yet — consider walking around your home and making a digital video of all of your belongings. 

 

Suppose a tornado causes severe damage and you are forced to rebuild your house. If you don’t have documentation of the $3,000 door you once owned, your insurance company is most likely going to replace it with a standard door.

When should I think about increasing my home insurance coverage?

When you decide that you no longer like money, and would rather spend your hard-earned income on insurance premiums rather than on dinners out. 

In all seriousness, you should consider increasing your home insurance coverage on a few specific occasions. 

 

First, if you make renovations to your house, you should increase your home insurance coverage. Second, if the rebuild value of your home increases, then again, you should increase your home insurance coverage. (Do you live in a real estate hot zone? Talk to an agent you trust to see if your insurance is still adequate.)

Insurance can be confusing, and confusion can lead to spending more on your home insurance than you need to. It’s important to become conversant on the basics of insurance so you can ask good questions and fully understand everything you need to know about your policy options. 

If you’re feeling confident in your understanding of home insurance, use our calculator to get a better idea of the coverage you will need. 

 

Have any additional questions we didn’t cover here? Send us a message through our online chat portal or call us at 615-250-2723.

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