When should I buy home insurance?

There are several reasons you might be in the market for homeowner’s insurance. This is a policy that applies to an owner-occupied property. 

• You own your home and are shopping around for a better policy. 
• You are buying a home and you need a policy that satisfies your mortgage lender
• You are buying a vacation home

You cannot get a homeowner’s policy for investment property; that’s a different category of insurance that your agent can help you with.

If you are buying a home with a mortgage, you want to have your homeowner’s policy in place at least 30–45 days ahead of time. 

How much insurance do I need for my home?

You need enough coverage for the structural value, not the total purchase price

What is the value of the structure itself, not counting the land? In some cases as much as 50% of your value is in the property. Land value is more the concern of your real estate agent or your appraiser, not your insurance agent.

Your homeowner’s insurance policy should cover the cost of rebuilding your house as it is at the current market value. A good insurance agent will use several indices to evaluate including labor costs, materials, etc. These values will be specified not only to your state and zip code, but in some cases to your neighborhood.

Should I over-insure my home?

Many people, hoping to get their insurance premiums as low as they possibly can, end up under-insuring. They do not actually have enough coverage to rebuild their home in the event of a total loss.

For instance, if your home (not including the land) will cost $400,000 to rebuild, but you choose Bill’s Discount Insurance because of his “low, low rates” and only get $300,000 worth of insurance, you’ll have to come up with the extra $100,000 to build-back what you had. Or, you’ll be building back a smaller house.

The considerable movement in the housing market has a lot of people ill at ease. They buy a $750,000 house and immediately assume they need a policy for $750,000. And there are plenty of companies that will sell you that policy. 

But you do not need it. 

Should I get Actual Cash Value or Replacement Cost Value?

The cost of rebuilding your house minus depreciation. If you have a brand new house, built in the same year you buy your policy, it might not be a big deal because your house hasn’t depreciated yet.

But most people are not buying a new home when they buy their policy. They are buying a house that is ten, fifteen, twenty-five years old or even older. In nearly every city there are multiple neighborhoods that are many decades old.

Suppose you buy a classic ranch-style house built in 1960. (It’s older than the Brady Bunch house.) In 2022 that house is 62 years old.

If you insure that house for actual cash value, say $350,000, then lose it to a fire, depreciation will claim the majority of that value. You could receive as little as $100,000, putting you in a substantial hole when it comes to rebuilding.

Without clear and concise instructions (and a written agreement) the Egly Agency only writes RCV (Replacement Cost Value) policies. 

What does the process of buying the policy look like?

When you inquire about a homeowner’s policy, an agent will collect certain personal information like:

• Name
• Date of Birth
• Prior addresses

That is the information about you. Next, your agent will get three pieces of information about your house.

The actual house you want to buy. 

What is the house’s history?

What is its condition and location? What is its insurance claim history (water damage, vandalism, hail damage to roof)? If it has a claim history, it will cost more to insure it.

What is your history? 

Have you filed a lot of claims? The biggest predictor of a future claim is whether you have filed claims previously. If you have, you’ll find it harder (or much more expensive) to get a policy.

What is your credit history? 

A lot of people don’t like to talk about this, sometimes for obvious reasons, but your credit history affects what you pay for any insurance policy.

Research has demonstrated that people who have lower credit scores file more claims. The reason is simple: they are less able to pay for damage out-of-pocket. Filing a claim is their best option. 

Consider a scenario with two homeowners. The first has excellent credit, owns a $450,000 home, and has a homeowner’s policy with a $2,500 deductible. The second owns a $300,000 home, has a homeowner’s policy with a $1,500 deductible, but has only a fair credit score.

If both houses sustained damage just above their deductible amount, the owner with the fair score is more likely to file a return, because, statistically, they have less money to cover the damage without filing a claim. 

Simply put, insurance companies will charge you a surcharge if your credit is below average.

What kind of homeowner policy add-ons or endorsements do I need?

In addition to your base policy, you need to consider whether you need certain specialized coverages. 

Contents

If you could pick your house up, take the roof off, and turn it upside down, anything that would fall out of it is personal property. That’s what your contents add-on is designed to cover. Anything that does not fall out (part of the structure or is built in) is part of the dwelling.

Contents include appliances, furniture, clothing, kitchenware, etc. It can be a lot! As with the homeowner’s policy, you have the option to choose actual cash value (don’t forget depreciation) or replacement cost.

Separate Structures

Do you have a barn? A swimming pool? A detached garage? A he-shed, a she-shed, or a we-shed?

Each of these represents a different item than your house and should be listed as an add-on to your policy.

Personal Liability

This is coverage for someone who gets hurt on your premises. 

If the mail carrier delivers a package to your front door, slips, falls, and breaks her leg, she can sue you. If the neighbor kid is playing basketball in your driveway and runs into the pole holding up the backboard, his parents can sue for the emergency room costs for fixing his broken nose.

A personal policy follows you anywhere in the world. If you are riding your bike at the beach and accidentally run over a sunbather, they can sue you. If you have a personal liability policy attached to your homeowner’s insurance. [I’m unclear from the audio how this resolves.]

Given the jury awards in today’s litigious society, a policy of $500,000 or even $1 million is warranted. (If you want more than $1 million, you’ll need an umbrella liability policy.)

Loss of Use

If your home is damaged either by an act of God or by some hooligan who has nothing to do with God, a loss of use provision will cover the cost of you staying in an apartment, rental house, or hotel as well as your additional living expenses (ALE).

ALE includes things like additional mileage back and forth to your job and the cost of eating out (since your kitchen isn’t available).

When deciding the value of this add-on, research what it costs to rent an apartment or the cost of an extended hotel stay in your city. Double that and you will have the figure you need for your loss of use.

Others

Do you have other items like expensive jewelry, guns, musical equipment, or art? Normal replacement cost on your policy is limited to $1,500 per item so you’ll need to schedule those items separately.

What isn’t covered by a homeowner’s policy?

Damage caused by water coming down into your house is covered, but water coming up (a nearby creek overflowing, or torrential downpours that cause rivers or lakes to overflow) need a separate flood policy.

Burst water pipes are included, but—and check this on your policy—lack of maintenance is not covered. If, for instance, you leave home for holiday travel and leave your heat off, if your pipes freeze and burst, your policy will not cover it due to “lack of maintenance.”

You won’t be covered for faulty workmanship, either. If you hire Sam’s Shoddy Home Repair to fix your roof and Sam installs it improperly leading to water damage, you will not be covered. It will be up to you to get the money from the contractor in these situations; your homeowner’s policy will not pay.

The Egly Agency can help you

Wherever you are in life, our team at the Egly Agency can be trusted to help you evaluate your needs and goals, and the right insurance coverage you’ll need at every stage of your business’s growth. We’d love to have a conversation with you, so call us at 615.250.2723, or fill out this form.