Homeowners' Insurance: What You Need to Know
Before finalizing a mortgage loan, lenders require homebuyers to purchase at
least a minimal level of "hazard insurance," also known as homeowners'
insurance, to cover damage or destruction by fire, smoke, wind, hail,
vandalism, or another similar event. The policy will usually be written so
that, in cases of severe damage, the coverage check will be made directly
payable to the lender. To protect your own interests, however, you'll probably
want to buy comprehensive homeowner's insurance, not just the minimum required
by the lender.
What Homeowners' Insurance Covers
In addition to covering the house, homeowners' insurance protects furnishings
and other personal items, as well as any other structures on the property, such
as a pool or separate garage (unless you use such structures for
non-residential purposes, such as for your home business).
Homeowners' insurance also covers some types of personal liability -- if the
mail carrier trips over your kid's skateboard, your policy will pay for his or
her medical expenses and other losses.
Most homeowners' policies do not cover business equipment, damage caused by
natural disasters, or loss of art or jewelry over a certain amount. You will
want to purchase additional insurance if your house is in a high-risk area for
fire, floods, earthquakes, or other natural disasters or if you have expensive
art, jewelry, or business equipment at home.
Finding Homeowners' Insurance
Finding good homeowners' insurance coverage has become surprisingly difficult
in some states, such as California and Texas, where high payouts for mold and
other disasters have made the insurance industry skittish. If either you or the
seller of the property have made claims for water damage (the usual precursor
to mold), you might actually find that you can't purchase a policy -- or at
least not a reasonably priced policy. Same thing goes if you've filed many
insurance claims in the past -- you might not be able to find a company willing
to sell you insurance.
Claiming Homeowner Losses
Guard your policy well once you've got it. Don't file claims unless you have to
-- if you file more than two or three claims, your rates will rise and your
policy may be canceled. You are best advised to get a policy with a high
deductible, so that you've got no reason to file lower-cost claims that will
raise your premiums or lead to future cancellation of your policy.
Making a Home Inventory
If your home is struck by a burglary, fire, flood, earthquake, or another
natural disaster, an up-to-date home inventory will make it easier to deal with
police and your insurance company. Without one, you'll have to create a list of
all your property from memory.
Fortunately, making a home inventory isn't onerous, and might actually prompt
you to prevent the loss itself. As you inventory your possessions, you'll
become more aware of their vulnerability, and can take steps to secure them.
Start by walking through your house with a pad of paper and a still or video
camera. Jot down a list of any items worth more than $50 or so and take
pictures of them. Go room by room, and don't forget the garage, attic, and
basement. Be sure to include jewelry, clothing, stamp or coin collections, CD
and record collections, silver, tools, and electronic equipment.
Then take a little time to formalize your inventory. Insurance companies often
supply inventory forms. Or, even easier, Nolo's
Personal RecordKeeper software
includes a complete home inventory section.
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Include in your inventory the following information about each item:
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A complete description. Record the make, model, and serial
number, if any; this will help you justify the estimated value of the item to
your insurance company. You may want to mark expensive items with an ID number
such as your driver's license number. (An electric engraving pen costs about
$20 at a hardware store.) The ID and serial numbers help police identify stolen
goods.
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Location. This will help you identify what you've lost if only
one area, such as the garage, is hit.
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Purchase price, current value, and replacement cost. For most
items, your best estimate will do. For antiques or other difficult-to-price
items, such as a stamp collection, jewelry, or art, you may need a professional
appraisal, and the items may need to be listed specifically on the insurance
policy (a "rider").
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Location of supporting materials. Write down where you can
find your ownership documents, receipts, owner's manuals, and repair bills.
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Keep your written and photographic inventory in a safe place, such as a
fire-resistant file cabinet, the freezer, or a safe deposit box. Keep at least
one copy away from home. If you take a long vacation, give a copy to a friend
or neighbor; that way, if your house is broken into while you're gone, they can
determine what's missing and report it to the police.
Web Resources
For more information on homeowners' insurance, see www.insure.com. This
informative website provides a wealth of consumer information, from choosing a
basic policy, to purchasing earthquake or flood insurance to filing a claim.
You can also check the websites of individual companies such as State Farm or
Allstate.