Risk management and insurance is an important part of financial planning, although surprisingly often overlooked. Many feel insurance is boring, complicated or not needed and years of careful financial planning amounts to nothing if a small oversight on your side leads to a financial disaster for you or your family.
Choosing which types of insurance you need, which ones you do not and making sure that the ones you have are still up-to-date and applicable to your current situation can be a bit of challenge though, which is exactly why it is our challenge for today!
If you own a home, you really can’t do without having a home insurance or homeowner insurance. Apart from the financial protection of probably your greatest asset, it is often also a requirement for getting a mortgage. If you don’t own a home but rent, getting a renter’s insurance is often worth considering as it includes the liability as well as the belongings protection in the same way as a home insurance does. In that case the insurance of the property would be the responsibility of the home owner however, not the renter.
Why Home Insurance
Home Insurance covers you against such things as theft or damage, so that if anything happened, you get financial compensation in order to replace or repair what is needed.
What is included?
What is and isn’t included in your home insurance obviously depends on the company and your specific policy, but usually three main things are generally included in a homeowners insurance:
Damage to your house, such as the structure of your house as well as the functioning of or damage to parts of your house or equipment.
Theft of your belongings, both inside the house as well as outside of the house such as when you are on holiday or if something was taken from your car. Bear in mind that for off-site loss of or damage to your belongings the payment might be substantially lower however.
Liability – many policies include liability insurance which is any damage you or other family members might inflict on others or on their property or house.
What isn’t included
In general the following items or situations are often not included, although many can be added to your insurance as an extra against a higher premium:
Damage to your house or belongings due to poor or deferred home maintenance, i.e. issues you have neglected.
Certain natural disasters such as earthquakes and land flooding are often not included, though many policies do include hurricanes and storms.
Normally the liability insurance includes all members of your household, and this means that even your pets might be insured. Not all dog breeds are insured however when it comes to dog bites as some are considered to be very aggressive and are therefore excluded from the standard policy.
Some of your valuables such as jewelry, silverware and electronics might have a limit in terms of what is covered, meaning that the insurance will only pay out up to a fixed amount if any of it gets stolen or damaged.
Types of cover
You can often chose from the following types of cover:
Cash value coverage – this is the cheapest option and stipulates that you will be covered for the current value of your property or your belongings, instead of what you originally paid. This takes into consideration that your belongings experience a certain degree of depreciation, i.e. value loss with time.
Replacement cost coverage – more expensive than the cash value coverage option, this coverage pays the original price you paid for your belongings or property without deducting depreciation. It covers you up to the original price you paid as long as that is within the policy limits so you can replace it completely for the same price as you paid.
Guaranteed or extended replacement cost coverage – the most expensive option of them all, this coverage gives you even more protection so you can replace your belongings or rebuilt your home even if it goes above the policy limit, although this will be capped at a certain percentage, usually at around 25% above the limit. This means that you are protected against inflation as well an any increases in your property value for example.
Step 59 – Home Insurance – in detail
Pull out your insurance policy with its details and payments.
If you are a renter and haven’t got a renter’s insurance request policies from various insurance companies to compare.
If you are a home owner and have a home insurance, or if you haven’t got one anymore because you have paid off your mortgage, you are also going to request policies to compare them and see if a change in insurance or insurance provider is worth considering.
Compare the quotes you receive on the following:
Inclusion of cover of belongings, both in your house and outside of the premises (e.g. on holiday).
Whether there is a deductible (i.e. amount you need to pay first before your insurance comes in) and how high this is. Note this might be different for different belongings.
How much the limit of coverage is for belongings (check the various categories) as well as for your house.
What circumstances are excluded from your insurance (earthquakes, sewage problems etc).
Whether you dog is covered.
Check how much extra you would need to pay in order to get extra coverage for items or situations you deem essential.
Customer satisfaction with the insurance company and / or specific policy.
Once you’ve decided on the insurance to take out or change to, do so as soon as possible.
Make an inventory of your possessions, keep receipts of valuable possessions and consider taking photos or a video with your camera or phone of your different rooms, so you have an overview of your possessions. This will be required for a claim, so doing this at the same time as contracting, changing or simply checking your insurance makes sense!
As with any insurance, one hopes never to need to use their home insurance as damage can not only be expensive, it is also a hassle to deal with. Yet not having a home insurance for your house, your belongings, as well as the liability coverage might mean that your financial planning turns completely useless and irrelevant if you can’t pay to replace or rebuilt your home or belongings or if you are faced with a bill for damage you have inflicted on others. So be sensible and sort out your home or renter’s insurance now!