Compared to the effort you’ll put into purchasing a house, buying home insurance may seem like an afterthought. In reality, it’s anything but.
Think about it: if you buy a house, it will likely be the biggest investment in your life. Therefore, it makes sense to do all you can to protect it. That’s why most banks and mortgage lenders require homeowners insurance.
The real question is: what home insurance policy is the best fit for your needs? Here’s a step-by-step guide that will help you answer that.
Decide What to Cover
Standard home insurance coverage may not be enough to replace your possessions. That often happens if your possessions are particularly expensive or the rebuilding costs in your area are very high.
Fortunately, most insurance providers offer some sort of extra coverage for a fee. Your two main options include:
- Increasing your coverage maximum
- Buying a specific add-on
For example, most standard policies don’t cover things like valuable artwork or jewelry. Other items, such as a swimming pool, pose a liability risk that may require special coverage.
Estimate Your Coverage Needs
To estimate how much coverage you’ll need, you must determine the cost of rebuilding your home. For a rough idea of what that would cost, multiply your square footage by the average price per square foot in your area.
Next, make an inventory of your furniture and personal belongings. The more details you provide, the better. Having a comprehensive inventory makes it easier to estimate the replacement costs for anything in a new home.
Consider using video to document what you own. Some apps can walk you through this process and store your belongings remotely.
Choose an Insurance Company
Your insurance company of choice should have competitive rates and solid discounts. Ideally, they would offer 24/7 help through a website or a local agent. Check their reviews and financial strength rating as well.
You’ll also need to decide what kind of coverage you’ll need. For instance, actual cash value factors in depreciation when calculating reimbursements. Replacement cost policies, by comparison, don’t include depreciation.
Keep in mind that not all companies offer coverage in all areas. Checking their coverage types is a good way to narrow down your options.
Choose Your Policy
Once you’ve made an inventory and calculated the rebuilding costs, you should know what amount of coverage you’ll need. At that point, it’s all about shopping around and taking advantage of discounts.
As simple as this may sound, many homeowners don’t do enough research. As a result, they buy insufficient coverage for their needs. Make sure to educate yourself on types of insurance before signing anything.
Finally, most experts recommend a replacement cost policy over a cash value one. These policies cost more, but also pay out more if you file a claim.
More on Purchasing a House
As expensive as purchasing a house is, insurance isn’t the right place to cut corners. Getting a bare-bones policy saves you money in the short term but can haunt you later. Read the guide above to know what to do!
Want to make sure you’ve taken care of everything before you buy a home? Keep reading our Finance section!