by Jeffrey Lee
When purchasing a new home, a buyer is required to get proper homeowner’s insurance to protect their valuable new asset. Homeowner’s insurance policies are complicated, but they protect the owner in the event of a disaster such as a fire or a flood. Because of the complexity of the policies, a buyer would do best to work with a local insurance agency, who will help the buyer understand the insurance. Talking with a local agent almost always provides a higher level of personal assistance than talking with agents at a call center or connecting to an agent found online. The following primary coverages of a homeowner’s policy should be priorities for new buyers to discuss with a local insurance agent:
• Dwelling – This protects the home itself. A home should be insured for its full replacement cost so that it can be completely rebuilt – to the same size and quality – in a worst-case scenario. The full replacement cost will not necessarily be exactly the same as the purchase price of the home because insurance does not cover the value of land, location, or fluctuations in the real estate market. But these three things cannot be damaged and cannot require repair, so they are not compensated.
• Separate Structures – This covers other structures on the property not connected to the home itself. These commonly include detached garages, sheds, and barns. The part of the coverage may not protect another structure that is used as a residence on the same lot. So if the property has a second dwelling, review this provision with the insurance agent.
• Personal Property – This protects the homeowner’s belongings. Common items of personal property include appliances, clothing, furniture, and electronics. A good rule of thumb is to imagine turning the home upside down. Anything that would fall out of it in that case is considered personal property. Vehicles are not included because they are insured separately. Homeowner’s insurance has limitations on the amounts of certain types of personal property that can be covered. For jewelry, firearms, fine art, or other expensive items, the owner should consult the insurance agent about the value and coverage of such items.
• Personal Liability – This protects the homeowner’s assets in the event of a lawsuit. This includes incidents off the property, though not while driving a vehicle because the vehicle insurance covers that. The current minimum recommended limit for liability is $300,000, and should be higher in many cases. A licensed agent should review the buyer’s needs and provide a liability limit to cover all assets in a worst-case scenario.
• Guest Medical – This covers injuries to guests while on the homeowner’s property. It is a convenience coverage, which means that a friend or family member does not have to file a lawsuit in order for the liability coverage outlined above to take care of expenses related to injuries.
• Additional Living Expense – This covers lodging, food, and other expenses that may arise if a homeowner is displaced during a claim, which means the period of time that a damaged home is being repaired or rebuilt.
A home insurance policy also has a deductible; that is the amount that the insurance company will not pay during a claim. For example, a home is damaged by a fire and will cost $30,000 to repair. If a client has a $1,500 deductible, the insurance company will give the client $28,500 to pay for the repair and the homeowner is responsible for the remaining $1,500. Carrying a higher deductible decreases the annual premium of a home policy, but a homeowner should never carry a higher deductible than they can comfortably pay at any time.
Jeffrey Lee has over a decade of experience in the insurance industry, and is currently the Sales Director of the Amy Alward Agency, the largest Allstate agency in Maine.