Homeowners Insurance, Flood Insurance, and Earthquake Insurance — Protection for Your Home

Should you consider that homeownership is something that is crucial and it is affecting your future planning, then be ready to buy homeowners insurance. You better consider it as a protection when buying a new home also, because it is essential protection when something happen beyond your financial circumstances.

There are two protection that are covered by Homeowners insurance. First, it protects your home and its contents in the event something catastrophic happens, such as a theft or fire. One more important thing is it also extends to what is known as liability coverage. Liability coverage will protects you should something happen on your property that leads to a lawsuit. OK, let say someone breaks a leg (or even worse, his or her neck) in your property. Either the victim or the family decides to sue you for everything you’ve got. This additional protection offered by liability coverage will firmly cover for such unintended accident in your premises.

A general piece of advice about homeowners insurance is never, ever to cheap out. With other types of insurance, you can occasionally cut corners and save a few bucks, but don’t risk something that you may have worked like the devil to get by pinching pennies. This means a couple of things. First, when discussing how much you may need in “dwelling coverage” (this covers the house itself), be sure you have enough insurance in place to actually rebuild your entire house if need be. Don’t base this amount on your property tax valuation or, even worse, on what you may have actually paid for the home. There’s a good chance both those figures will fall short of the actual replacement cost. Instead, sit down and figure out how much it would cost if you had to rebuild the entire house, starting tomorrow. While you could do that by taking the square footage and multiplying that by some average per square cost, there’s a much easier waybe sure to get guaranteed replacement cost insurance, which means your insurance company guarantees it will pay whatever it costs to rebuild your home, regardless of how much that might come to. It will cost more than regular coverage but, with the spiraling cost of construction, it’s money well spent.

The ultimate and number one advice when considering buying homeowners insurance is never, ever to cheap out. It is truly another different scenario when you buy other types of insurance where you can at times cut corners and save a few dollar. But for homeowners insurance, you should never risk something that you may have worked like hell to get by pinching pennies.

So how much is needed for the right homeowners insurance premiums which still affordable for you? First, when talking about how much you may need in dwelling coverage or coverage the house itself, make sure you have sufficient insurance in place to actually rebuild your entire house if need be. Don’t base this amount on your property tax valuation or, even worse, on what you may have actually paid for the home. There is a good probability both those figures will fall short of the actual replacement cost. Rather, sit down and figure out how much it would cost if you had to reconstruct the entire house. While you could do that by taking the square footage and multiplying that by some average per square cost, there’s a much lighter way be sure to get guaranteed replacement cost insurance. In this scenario your insurance company assures it will pay whatever it costs to rebuild your home, regardless of how much that might come to. It will cost more than regular coverage but, with the spiraling cost of construction, it’s money well spent.

One caveat : Make sure you know whether your insurance company sets any maximum to its definition of guaranteed replacement. Some will pay the whole freight no matter how expensive, while others are not so generous. Some, for instance, may say that they’ll pay only a certain percentage above what you have in dwelling coverage. Thus, if you have a $100,000 home and your guaranteed replacement coverage is limited to only 25 percent more than that limit, you’ll end up making up the $10,000 difference if your house burns to the ground and it actually costs $135,000 to rebuild.

Be sure to get enough liability coverage to insure your assets; for instance, if you guess you’re worth $30,000, pay for that much coverage. In fact, if you can afford it, try to get more liability coverage than you’re actually worth; these days, with the unpredictability of the court system, this may prove valuable. To hold down the cost of liability coverage and, for that matter, the cost of dwelling coverage as well consider raising the deductibles on each type of coverage (this is the amount you have to pay out of your own pocket before your insurance kicks in). You can save some on your premiums if you take higher deductibles.

You should know, that conventional homeowners insurance does not cover flood damage and earthquake. As a rule, these two types of additional home liability insurance coverage are worth paying the extra money to get. Don’t fool yourself into thinking that an earthquake simply isn’t possible where you live they happen all over the place, and often in areas you would never assume were earthquake vulnerable (for instance, in Maine we’ve had two quakes in the time I’ve lived here.) So ask your insurance agent about adding earthquake insurance. The price will be determined by how much your home is worth as well as the earthquake risk in your area.

As a matter of fact, it pays to be proactive if you decide you need earthquake insurance. I bought quake insurance on a home only a year or so before a quake hit the area. While I’d been able to get my earthquake insurance simply by calling my insurance agent and asking that it be added on, after the earthquake hit my insurance company instructed my agent to personally inspect any home whose owner applied for quake coverage. The message was clear: Now that a quake had hit, getting insurance to protect yourself wasn’t going to be as easy as it used to be.

Similarly, unless you live on a mountain top or a place that hasn’t seen a drop of rain in years, look into getting flood insurance. By the government’s last count, there are tens of thousands of cities and towns that can be affected by floods ironically, though, basic homeowners insurance doesn’t mention floods. First of all, you need to investigate whether a flood is of genuine concern. Go to your city or town hall and ask if your community takes part in the federal government’s National Flood Insurance system. If your town is included, that means you’re at risk, so call the flood insurance program to get information on flood policies offered by private insurers. Another way to see if you’re really at risk for floods is to ask your insurance agent to show what’s known as a flood insurance rate map. This divides areas according to flood risklow, medium, and high. If you fall into the high-risk area, by all means get flood insurance. Even if you’re in the middle, the couple of hundred dollars a year extra for flood insurance may be a smart buy.

You can find the details on how to go about buying flood insurance in the Federal Emergency Management Agency website: http://www.fema.gov/home/NFIP/answe2d.htm.©