If you are in the market for homeowners insurance, you are probably wondering what questions you need to be asking - especially if this is your first time buying a home. You may not know what constitutes the right type or amount of coverage you need for your home - and that’s okay. Experts in the field are there to help you, and these are some of the basic questions you should ask:
1. How much would it cost to rebuild my home in its current location in the event of a total loss?
Your homeowners insurance policy should cover the cost of building a new home completely from scratch. Your agent will have knowledge to accurately calculate this cost. Generally, homeowners policies cover partial or total damages caused by fire, hurricane, hail, lightning or any other disaster listed in your policy. Keep in mind that flood and other natural disaster-related losses must be insured separately, since both are excluded in standard homeowners insurance policies.
2. How much is the personal property in my home worth in the event of a total loss?
Your homeowners insurance policy should also cover the cost of replacing all personal property should it be stolen or destroyed by fire, flood or another disaster covered by your insurance. Typically, personal property coverage is equal to about 50-70% 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. The best way to determine if this recommendation is appropriate for your specific situation is to conduct a home inventory.
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. You are also covered not just in your home, but anywhere in the world. 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 homeowners policy limits, ask your agent about umbrella liability.
4. What level of additional living expense coverage do I need?
The Additional Living Expenses (ALE) provision is found in standard homeowners 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 percent of your dwelling protection. For example, if the structure of your home is insured for $100,000, you would have $20,000 of ALE coverage. Some companies impose a time limitation, such as 12 to 24 months.
5. Should I buy a separate flood and/or other natural disaster insurance policy?
There were numerous flooding events and natural disasters in 2020 but relatively few homeowners had coverage because often these perils are excluded from standard homeowners insurance policies. Check with your insurance agent or insurance company representative to see whether you might need specialized coverage beyond your standard homeowners insurance policy.
6. Do I qualify for any discounts?
If you have smoke detectors, burglar alarms and/or dead-bolt 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 homeowners 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 percent at some companies. If you have completely modernized your plumbing or electrical system recently, a few companies may provide a price break.