From Renters to Homeowners: Insurance 101

Written by Posted On Wednesday, 27 August 2014 06:15

You're a first-time home buyer. You've calculated the mortgage payments and put an offer on a house, and you've tried to learn everything you can about home ownership. Now it's time for one more lesson: This one's about home insurance – what it covers and how to get the most insurance bang for your bucks. Before you go shopping for home insurance quotes, read on...

If you were one of the 37% of renters in the United States who purchased renters insurance, that's great. But homeowners insurance is a different beast.

The biggest difference about owning a home versus renting is that you now have the responsibility for your home's structure and property. When you no longer have a landlord to help out, small repairs and damages can quickly become large tasks. Here's how home insurance differs:

Types of coverage

Renters insurance: Your renters insurance has three main types of coverage:

·         Contents: This protects your possessions from damage by named perils such as fire and theft.

·         Additional living expenses:  If your apartment or rental house becomes damaged in such an event, your renters policy also can help pay for your housing somewhere else while your landlord completes repairs.

·         Liability or medical payments: This coverage protects you from lawsuits from people injured in your apartment, and it helps pay their medical bills if they don't take you to court.

Homeowners insurance: A homeowners insurance expands the protection types above and adds two other coverages to the mix: dwelling and other structures. Your dwelling coverage protects the structure of your home and everything attached to it – such as garages or sunrooms. Other structures protection safeguards any additional buildings or fences you have on your property detached from your home, such as a detached garage, shed, or gazebo.

Cost and how it's determined

Renters insurance: The average renters insurance premium cost $187 per year in 2011, according to the Insurance Information Institute (III). That's only around $15 a month. The cost for renters insurance is based on the total value of your stuff. You also have a choice of the type of coverage you pay for:

·         Actual cash value. The cheaper of the two, this type will help pay for stolen or damaged items, minus depreciation, after you pay the deductible for a claim.

·         Full replacement cost. This type of coverage pays the full value of an item without regard to depreciation, after you pay the deductible.

Homeowners insurance: The average home insurance premium added up to $978 in 2011, according to the III. Homeowners insurance carriers use different criteria to determine coverage and cost. For example, carriers set your dwelling coverage at the amount it would take to fully replace your home in a total loss. This figure factors in the construction and materials costs in your area, the square footage of your home, and the risks involved with its location.

Your dwelling coverage, in turn, determines your coverage limits for contents, other structures, and additional living expenses, which usually are set at 50% to 70%, 10%, and 20% of your dwelling coverage, respectively. Your liability and medical payments limits are set differently.

What's not included

Homeowners insurance, like renters insurance, excludes certain perils. Damage caused by floods, and earthquakes doesn't receive coverage from standard policies. The good news? You still can protect against these damage types. To protect from floods, purchase a separate policy through the National Flood Insurance Program. For earthquakes, you can buy an earthquake endorsement (an add-on to your home insurance) or a separate earthquake policy.

What to do next

What can you do to determine how much home insurance coverage you need? First, talk to a licensed agent, then complete a home inventory. An inventory is a detailed list of your possessions, their current and purchase values, ages, and descriptions. It can help if you need to file a claim.

How to save on home insurance

The first way to save comes right at the start. Namely, don't open your wallet for the first policy you see. Instead, comparison shop for home insurance, just as you would for a television. While most providers use the same information to determine premiums, they evaluate it differently. Premiums can vary widely by provider, so compare quotes carefully, always making sure that the protection is equivalent.

Providers also differ widely in the discounts they offer. Most home insurance providers also sell car insurance, and you can get discounts for bundling those coverages. You also can receive price breaks for having deadbolt locks or security systems, so be sure to consider these when making your comparisons.

Finally, you can lower your premiums by raising your deductible. The more you're willing to pay out-of-pocket when you file a claim, the less you'll pay for a policy. Be sure, however, to set your deductible at an amount you'll be able to raise if you need to file a claim.



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