Too many Americans are underinsured, and arguably it’s due to a lack of knowledge on why insurance is worth it. There are many different policies and types of coverage and demystifying which insurances are required is not all that well communicated.
Another reason for wavering home insurances is the cost of the cover. The monthly premiums push cash strapped homeowners into debt or force them to choose between insurance and life necessities like food and clothing.
In this article, we look at what you can do to get the right home insurance cover for your home yet reduce the premiums.
Did you know you can own a home and not have insurance?
In America it is your right to choose to insure your home, therefore legally you’re not required to have insurance.
However, what you need to weigh up is – is the risk of not having insurance cover worth it?
For some types of property cover, the risk of not having a policy is too high, i.e. the first question to ask yourself is, could you afford to replace the property if it was destroyed?
The cost to repair or replace your home would be in the tens of thousands, and if you like the majority of people, you don’t have that amount of money on hand.
Destruction, Repair or Replacement
Even the most basic homeowners’ insurance policies will protect your property against various hazards, such as vandalism, fire, harsh weather [tornadoes, hail, high wind, and hurricane], etc. Regardless of the level of destruction or damage, your insurance policy will help cover the repair or replacement costs.
If your home is deemed unfit to live in following a catastrophic event, a comprehensive cover will pay for temporary living costs. Some policies also offer compensation or defrayed replacement cost of personal belongings, such as appliances, furniture, clothing, etc.
It’s essential to have basic home insurance cover, and you can elect to add more benefits which increase the premiums. Therefore you can also remove the ‘luxury benefits’ to reduce your premiums so your home is insured for damage. Thus you won’t lose your most significant asset to an unforeseen event, i.e. a natural disaster including a weather event or an act of vandalism.
If you’ve got a premium property you may want to increase the insurance cover, so everything is included, not just your main building. The deck, garage, shed, etc. can all be part of a home insurance plan and once again how you can reduce your premiums is through increasing your excess.
Increase Excess To Reduce Premiums
The excess is the amount you will pay before the insurance kicks in. For example, if your excess is $500, for all insurance claims you will pay the first $500 and the insurance payout covers the rest. The higher the excess the lower the premiums. So consider increasing your excess and make sure you have that money in a savings account to use if required.
Home Loan Requirements
While it’s not compulsory to have home insurance, most top tier lenders insist you have it before they agree to forward the home loan.
What home cover is required by Mortgage Lenders?
Typically to secure a home loan, your property needs full replacement cover insurance. When you take out a home loan, the amount is less than the total sales price, and usually, the difference between the initial sales price and the loan is 20%. For example, you provide 20% as a deposit, and your mortgage is 80% of the sales price.
The cost to replace the home will be less than the minimum amount required by your home loan lender. However, you may wish to improve it at an additional cost to you. As far as the mortgagee is concerned, they just need a property that will if sold, cover the principal, i.e. the loan amount.
Avoid Mortgage Insurance
If you’re borrowing more than eighty per cent of the property sales price then additional insurance is required by some lenders and it’s called mortgage insurance. This insurance does not protect your home; it protects the lender should allow your home to sell for less than the loan amount.
The way to avoid mortgage insurance is to have the twenty per cent deposit and therefore not need to borrow more than eighty per cent of the sales price.
In addition to dwelling coverage, as mentioned above, there is also contents or personal property insurance. Your home is more than just it’s structure. Everything in your home including heating, cooling, appliances, fittings and fixtures, e.g. flooring, cabinetry if lost through a burglary or a disastrous event like a flood would cost a fortune to replace so this type of insurance while optional should be considered a necessity.
Do your research and calculate a fair value on full replacement of items in your home, i.e. chattels and personal belongings including furniture, and electronic equipment, and take out an insurance policy. Once again to reduce your premiums – increase your excess and save the excess amount in a savings account.
Not all home insurances are equal, and neither are the policies. Insurance providers differ in their assessment and policies so be informed, select and regularly review your plans to make sure you have the home insurance for your requirements.
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