You should start looking at insurance as a loss of worry and not money. Whether you buy a policy or not, you and everything you own will always be at risk. So, if you think about it, buying insurance is an investment in something that’s guaranteed to cushion the blows of unexpected events that will cost you a fortune.

It’s most likely that you clicked on this article to gain enough understanding about homeowners insurance, so you can decide whether or not to get one. We’ll give you what you came here for, and discuss the overviews of a homeowner’s insurance’s definition, coverage and exclusions, types, and rate calculation basis. Also, we’ll tell you how you can minimize its cost.

Definition and Coverage

 

Homeowners insurance is also known as home insurance. It’s property insurance that protects your home and the rest of your possessions (in the form of financial coverage) when they get damaged or lost. It also provides coverage for legal liabilities resulting from the damages that you, your family members, and your pets cause to other people’s properties. Yes, pets; you read that right.

If you’re still paying a mortgage, getting home insurance becomes compulsory because mortgage companies require it. Your insurance policy should amount to the full or fair percentage of your house’s value, and you must secure the document to support it before a loan is given to you.

 

House Damage

 

Any interior and exterior damage to your house will be covered by your insurance if the cause of the said damages is within your policy. The rule that applies to your car insurance applies to your home insurance as well. The insurer will not pay for damages caused by natural disasters unless you pay for riders that cover Acts of God or Acts of Nature (riders are additional provisions to the basic insurance benefits to expand your coverage).

Aside from your house, you can also insure other nearby structures such as your work shed or garage (if it’s separate from the house). You can also have your clothes, accessories, electronics, and appliances covered in case they get damaged or stolen.

If you insure portable items (e.g. cellphones and tablets), you’ll be reimbursed no matter where you lost them; this coverage is worldwide.  However, the reimbursement will only compensate for around 70% of the item’s value, as declared by the Insurance Information Institute.

The same percentage applies to your home. So, for instance, if your house insurance is worth $400,000, your maximum coverage is $280,000. In other words, the more possessions you have and the more expensive they are, the more you should pay to ensure sufficient coverage.

 

Liabilities

This insurance will cover any damage caused by your family to other people and their properties. For instance, if your son accidentally kicks his ball straight to your neighbor’s window or your cat scratched their daughter, the insurer will pay for the window repair and medical expenses. The insurer will also cover for your liabilities when people sustain injuries within your property.

 Types

The type of coverage you’ll have depends on how much money you can spare for the insurance. A higher payment will give you a higher level of coverage. These levels are:

1. Actual Value

At this level, you can only cover the present value of your property and possessions and not their [original] value upon purchase. In other words, your insurer will only pay for their depreciated value. For example, if you bought a bag for $200 and it got stolen by the time its value has already depreciated by 20%, then your reimbursement will only be $160.

2. Replacement Value

            At this level, the original value of the property or possession will be reimbursed, but this will also require you to pay more.

3. Guaranteed Value

Inflation creates changes in the price of goods. Your house that was built years ago could have used materials that are more expensive now. With this coverage, the insurer will pay for the amount you need to restore your house, even if its higher than when the house was initially built. However, they cap off their expense at 25% beyond the limit of your coverage.

 

Exclusions

The exclusions of home insurance are similar to those of your car insurance. Any damage caused by the acts of God or nature and irregular maintenance will not be insurance-covered. You must identify your home’s level of risk against tornadoes and floods, so you can decide whether or not you should pay for additional coverage.

 

Factors in calculating insurance rates

The basis of your home insurance rate is the same as the basis of your car insurance rate: risk level as determined by the insurer. This is determined by your history of filed claims and how serious the property damage was at that time. They will perceive your level of risk as high if you always file for claims, especially on repetitive concerns. Insurers are apprehensive of policy owners who tend to cost them a lot of money. When you have previous claims, insurers will think that they will most likely spend for you again, so they charge you higher.

 

It follows, therefore, that when you are within environments that are filled with threats to the safety of your family and your property, your premium will cost higher. Even the structure of your home matters. If your house is old and/or in bad shape, it will be prone to damages and leaks, which will cost the insurer money for repair and restorations.

 

Tips on minimizing insurance costs

With all that being said, the solution to minimizing your insurance cost is minimizing your risk level. A piece of good advice would be to think carefully about the kind of neighborhood you should move into. But, you probably already have your house by now, so let’s proceed to the insurance-cost-cutting measure:

1. Secure your home

Just as your car insurance cost lessens when you install safety features on it, you can reduce your home insurance cost by at least 5% if you install a security system in your house. Include fire alarms and provide proof that your house is approved by your local building safety authority.

2. Increase your deductible amount

 Another way to minimize your insurance cost is by increasing our deductible. A deductible is an amount you have to pay, from your own pocket, before your insurer takes over the expenses. There will be damages and losses that won’t cost you so much. Paying for them will make filing for claims unnecessary which keeps your record clean.

3. Free your house from harm

 Remove dangerous things in your house; anything that may cause accidents or any type of harm. This includes your swimming pool. If you’re planning to have one dug up, kindly reconsider. Pools can put kids at risk of drowning, so this will increase your insurance costs. Trampolines are also considered as a potential cause for accidents. Also, you must do regular maintenance checks, so you can address potential damages before they turn into actual problems.

4. Consider making home improvements

Renovate all areas of your home that are already rusty, old, or unstable. When you choose renovation materials, try to avoid wood. They’re flammable, vulnerable to extreme weather fluctuations, and they rot over time. Use something steel-based or synthetic instead.

 

In Summary

All you’ve read so far should be enough to give you an idea of how important getting a homeowner’s insurance is. By this time, you should have already realized that you can influence your insurance cost if you follow these rules of thumb to minimize your level of risk.