3 Critical Insurance Priorities When Jumping Into Home Ownership

If you are making the move from renting to home ownership -congratulations.  Studies show over and over that average cost of ownership versus renting is anywhere from 20% to 40% less, depending on the part of the country you are in.  Of course there is the added benefits associated with potential equity build and the feeling you get once all of the docs are signed and the loan is funded, nothing quite like it.

1990 was the year we purchased our 1st home in Colorado Springs, Colorado.  It was a 4 bedroom 2500 square foot 2 story home – with 2 family rooms and 2 fireplaces.  We paid $82,000 and put 10% down, our payments were about $800 per month.  The evening of our closing we ordered in pizza and sat on the floor of our new kitchen looking around in awe at the awesome piece of the American Dream we had just secured.
In thinking back on that experience and all of the things we had racing through our minds, one very important thing was missing – making sure we had the right insurance coverage to protect our new investment.  Sure, we had gone through the motions based on lender requirements, secured a binder so the loan could be closed, etc…
Thankfully, we had previously secured the services of a seasoned and reputable Farmers agent that took care of everything for us, allowing us to focus on moving through the complicated process and getting settled in.
Now I am that seasoned Farmers agent and I work hard at assuring my clients understand the vital coverages, as well as the facts associated with what is and what is not covered under their home insurance policy.  

3 Critical  Insurance Priorities When Jumping into Home Ownership  

Insuring to value – having enough coverage to rebuild your home just like was prior to a large or total loss is the #1 objective.  Don’t let anyone tell you that the sales price or taxable value is what you should set the dwelling coverage limit at, that is an apples to oranges comparison.
Rebuild costs include many factors that are not included in other valuation like purchase price.  Purchase price and appraised value represents only what the market will bear – which is driven by many things other than the cost of labor and materials required to complete a single site re-construction project.
Key Take Away – Make sure your insurance representative is using a reputable replacement cost calculation tool.
–>> Verify he/she has entered all of the dwelling characteristics accurately and entirely – right down to the interior features, such as floor coverings, fireplaces, room types and counts, etc.. Require them to provide a copy of input details and the resulting replacement cost estimate.
Replacement cost protection – do you want to receive complete reimbursement for the replacement of lost property, or would you prefer to receive a check for what the cost new (replacement) is minus a big chunk of money lost to depreciation?
This is the plain and simple difference between having a replacement cost coverage, or the actual cash value (“ACV”) loss settlement provision.
–>> You will pay a little more for replacement cost coverage – but it’s worth it hands down…unless of course you want to replace your stuff with property from garage sales and thrift stores.

Key Take Away – Make sure your agent/rep establishes replacement cost coverage on both the dwelling and your personal property.  Also verify the loss settlement provisions for your roof surfacing materials.

–>> Don’t purchase a policy with excluded or reduced coverage to save a few dollars – it’s only a matter of time before the next storm – it’s just not worth it.

Deductibles and Exclusions – One of the most important parts of an insurance policy is the exclusion section.
Before purchasing coverage ask your insurer to provide a specimen copy of their policy and carefully review the coverage exclusions. You should also request your rep/agent to review them with you.
We typically spend more time assuring customers understand what is NOT covered than what is.  This ties directly into the conversation about what deductibles to choose.
Start by understanding which types of loss (perils) are included in each deductible.  Remember, a deductible is just that – money deducted from what the insurer will pay you for any given loss.  It’s your out of pocket contribution, so choose wisely.

–>> At the end of the day it is ultimately your responsibility to understand the basics of the policy you are purchasing.

It’s important to select reasonable levels of coverage and deductibles that meet your objectives and won’t place you into undo financial hardship.

However, doing business with seasoned, trained and professional representation will greatly aid your efforts in securing the right type of policy for your unique set of risks and concerns.