Best Homeowners Insurance for First Time Buyers

I’m going to discuss with you today about your first-time home buyers and the first time you’re going to be buying home insurance. I’m going to give you the best practices so that you can know how to buy the best home insurance for you when you’re a first-time homebuyer.

BUYING HOMEOWNERS INSURANCE

All about buying homeowners insurance – whenever it is the first time you’re ever buying homeowner insurance. Now, if you already have a home and you already have home insurance, this video could probably apply to you too, because what I’m going to do is I’m going to break down all the different things that you need to know about your homeowner insurance, so you can make a good informed decision about the homeowner insurance you buy.

Insurance is expensive, it’s complicated and it doesn’t need to be. I’m going to help break it down so you can understand better what you’re buying and make a good informed decision. I’m going to try to break it down into bite-sized pieces to help you understand and show you the different parts to it. So, there’s a couple different things we’re going to talk about. Some of it is going to be the different parts of the policies, the different things that are covered, and the different sections of the policy. So, hang with me since this one’s going to be a little bit longer than the usual video, but hang with me and we’re going to get through it.

6 BASIC COVERAGES WITHIN YOUR INSURANCE POLICY

Let’s talk about breaking it down first. In the policy, there are six basic things. There are six basic things that are covered underneath your policy when we’re talking about property coverage types, or maybe I should say coverage types or coverage things. 

Those Coverage Items are as follows:

• Dwelling
• Contents (personal property)
• Adjacent Structures (Outbuildings)
• Additional Living Expense
• Liability
• Medical Payments

# 1 – Dwelling

That’s the house itself, right?

So you’re buying the home, you’re buying it for X amount of dollars. Now, this is going to be the number that’s going to represent, in that ballpark, what that number is. Now, what we actually use is the replacement cost. We figure out inside the agency, any good agent, that’s going to basically figure out what it’s going to cost to rebuild or replace that home, and that’s the number we’re going to use to ensure it. It’s not going to be market value. It’s going to be the replacement costs of it. So, we’ll talk about that just a little bit more in a minute. But anyway, the dwelling or coverage A, sometimes they’ll say. That is how much we’re actually insuring the house for.

# 2 – Contents

The contents or they may refer to it as personal property. This is going to be all the stuff that’s inside of your house. But not only the stuff inside the house, like your furniture, your appliances, your television, your food, all your clothes, all the other stuff that you have that’s inside of there; it’s not only that stuff, but it’s also the stuff that’s outside the house. Anything that’s movable. Think about the things that are movable that belong to you. That’s what’s going to be included in this.

So, whenever you’re thinking about inside the house, think about things like your clothes, your television, furniture and other things like that. Whenever you’re thinking outside the house, think about things maybe outside toys that maybe your children have or outside furniture, patio furniture. Maybe think about your lawnmower or other tools that you would have outside. All these different things are still going to fall under any contents or your personal property, depending on how your policy is labeled, or also how the conversation goes with the agent that you’re talking with.

# 3 – Outbuilding

Your outbuildings or other structures sometimes they’re referred to as this is the stuff that’s not attached to you. Think about fences, decks that are not attached to the house, or think about outbuildings such as a shed, or a she-shed, or whatever that may be. Those different things like a trellis or arbor or all these other things, that are going to fall under any coverage called other structures.

# 4 – Loss of Use

The loss of use is something that is misunderstood by a lot of people: they don’t really understand how big of coverage this is and how important it is to have this in your homeowner policy. That coverage is a coverage that gives you additional expenses or provides you with money to provide additional living expenses for you or pay for them, that you have because you’re displaced from your home.

Now, that’s a lot that I just said. Let me break it down like this. Let’s say that you have a claim at your house. Let’s say that a tree falls on your house, falls in your living room, does massive damage to the roof. The structural integrity of the roof has been compromised and there’s a lot of work that’s got to be done. You’ve got to, for the next three months, because it’s going to take you three months to fix it, you’ve got to figure out somewhere else to live. Well, what do you do? What are you going to do with yourself and your family? Where are you going to bring them? What about the additional costs to live? Now you’ve got to eat out more. You’ve got to travel further, go back and forth to work or to school or whatever else. What are you going to do?

You don’t want to just take that money out of your savings and start using it for that. You don’t want to go and just stay in a hotel, that’s expensive. You don’t really want to stay with your family because weekends are fine, but for three months, do you really want to live with your family for three months? I don’t think you do. Well, this coverage will provide you with all the additional expenses that you have during this time your home is being repaired. Because look, face it. You’re going to have costs for wherever you’re going to stay. Additional food costs, additional fuel costs, all these different things. While at the same time, you still have your regular living expenses that are already going on because you already own a house, right? You already have utilities there, right? You have taxes, all the other, this stuff. You already have that. You also have insurance on that, right? You still have those expenses going on. They don’t stop just because you can’t live there for three months and it’s being fixed.

You’ve got those expenses, plus these new expenses because you’re displaced since it’s a covered claim. It’s got to be a covered claim and it’s going to pay for all those additional living expenses. Just make sure you talk with your adjuster at the time, and as long as it’s reasonable, they’ll take care of those things for you. Excellent coverage to have in there. Each one of these first different coverages that I’ve talked about, they’re a ratio or percentage based on whatever your home coverage is. Whatever the dwelling limit is. So, it’s either 50%, 20%, or 10% based on whatever that Coverage A-amount is. Coverage A is just the technical term in the policy. That’s not very technical, right? But anyway, it is the technical terms that we use to refer to the dwelling limit.

So, the dwelling limit is X amount of money. Everything else is going to be some percentage of that to determine what they are, but you can increase them. You can’t really decrease them, it doesn’t save you any money, but you can increase them for an additional charge and you may possibly need those.

Let’s go on to the other two different pieces of coverage that are inside of the policy: medical payments and liability. Liability is one of the most important parts of this policy. Liability is that thing that’s going to help protect your assets.

# 5 – MEDICAL PAYMENTS

Medical Payments

The next thing is going to be medical payments. Medical payments is no-fault coverage. So, if someone got hurt at your home that didn’t have another option to take care of the medical bills, then you can choose this to apply towards that. It is no-fault coverage, meaning you don’t have to be at fault. And usually, these limits are going to be much less. I’ve seen anywhere from $500 to $10,000, maybe even $20,000 or $50,000 on this limit. These are going to be much smaller limits than your liability limit will be.

# 6 – LIABILITY

If someone brings some sort of a claim against you – a lawsuit, and they sue you. They say that you did something or you hurt them, or you did some sort of thing to them; that’s going to come underneath the liability insurance. That’s going to apply to you, whether you’re at your home or somewhere else. If you’re going on a vacation, that liability follows you wherever it is that you go inside of the United States. That is the thing that’s going to provide for you legal counsel if you get sued.

Here’s the scenario. Let’s say that you get sued by somebody. They say that you did something to them. Whether you actually did or didn’t, isn’t the point. The point is because they have brought a lawsuit against you and have hired an attorney, you have to then defend yourself. Now, you can go and defend yourself if you’d like to, but it’s probably not going to work out too well for you. The person that this other person has hired is an attorney and they are well trained in law; they’re trained to argue and to win. They’re very good at doing that. You may be good at arguing with your friends and even your family, but you don’t do it for a living – they do. You need to have an attorney to offend you against these allegations this person is going to bring against you. So, you need liability insurance so that they can get you an attorney that can then defend you in that situation. Excellent coverage to have, you don’t want to have lower limits than you need to there.

PERILS

Let’s talk about the next thing, which is perils. Now, perils are the things that are covered against or the things that act as a trigger to make your policy respond. It’s a long list of those different things. And depending on the type of policy you have, it’s going to be either something called basic, broad, or special. Special is the best, basic is the worst, and broad is right there in the middle. But what you really want is special.

The other two are going to exclude different things such as falling objects, like the tree falling on your house in the example I gave earlier. It’s also going to exclude accidental discharge of water. Well, guess what the number one and number two claim scenarios are? Discharge of water and falling objects like trees falling on your house. Those are the two main things other than hail damage. You want to make sure your home is covered for those two things. So, make sure that you have that. Go ahead and opt for special if you don’t have it in your policy now.

DEDUCTIBLES

The next part of it is going to be deductive. A deductible is a thing that you’re responsible for. This is going to be on the property section, not on the liability. Liability typically does not have a deductible on a standard homeowner policy, it does not have a deductible, unless that’s something that you opted for, maybe either on a high net worth client policy or an E and S (Excess and Surplus)  market. I’m not going to get into what E and S (Excess and Surplus) markets mean, but if you’re not a high net worth and you see a deductible on your liability, you really need to shop for another policy.

So, the deductible is going to have a couple things: it’s going to help lower the premium that you have to pay for your policy – the cost of the policy and it’s going to eliminate those really small claims that you might have that you would want to file. You don’t need to file claims that are $500 or $1000 dollars, you need to just pay those out of your pocket. It’s going to pay off in the long run for you to just take care of those things yourself. Sometimes you will see a dollar deductible, sometimes you’ll see a percentage deductible. Depending on where you live, those deductibles may be one or the other. Understand that in most places, you can have a dollar deductible, and also have just an all perils deductible, and you don’t have to have a separate deductible.

The separate deductibles I’m talking about are, it may be either wind or hail, earthquake, tropical storm, named storm, or hurricane. Those are different deductibles that you may see on your policy, depending on where you live. Now, you may be able to get a more attractive deductible, but just understand there may be a cost associated with that. What those different deductibles mean is that’s a separate deductible that applies for those specific things, such as wind or hail, versus an all perils deductible, which is going to apply to everything else, such as water discharge, falling objects, fire, or whatever else. So just know that those may be there. Make sure that you have checked your policy to see if you have one of those or not. If you need any assistance with that, please let us know. and we’d be glad to look at that with you.

Also, ask your insurance agent. They should have made you well aware of these different deductibles, because sometimes they can be rather large. Sometimes, 2%, 3%, 4%, or 5% of whatever dwelling amount A is. When I say 5%, I’m meaning for instance, if your home is insured for $100,000 for the dwelling, make this math simple that would mean you would have a, if you have a 5% deduct, that would mean you have a $5,000 deductible for that specific peril. You probably have other options, so make sure that you do look at those other options.

EVALUATION – How you will get paid!

The next thing is going to be the evaluation. That’s a word that just basically means, this is how they’re going to pay you. They’re going to pay you based on one or two ways. Either one is going to be a replacement cost. That’s the best. Replacement cost is the best. That means they are going to pay you for brand new stuff for your used stuff. Yes, you heard that right. Whatever used stuff you have that gets damaged, they will replace it with brand new stuff.

So you have a TV, let’s say that it’s five years old. Okay, well that’s depreciated, right? You can’t sell that for whatever you paid for it. If the policy has not endorsed the show replacement cost, they’re going to take what it would cost to buy a brand new one minus depreciation. And they give you that amount which is not going to be enough to buy you a brand new one. Replacement cost is the better option, ACV or actual cash value means they depreciate. Now, the thing you didn’t hear me say was market value. We do not ensure property for market value. Why? Because market values change. Replacement cost does too, but market values change and those are going to maybe not match up with what it would cost to build that house in that area. Examples are if you’re in a prime location, maybe waterfront or something like that, or a really preferred location, the market value is going to be driven higher because of the demand, right? It may cost you two times or maybe a time and a half, or even just 25% more, to buy that same home there as it be inside of the city limits somewhere else, just in a regular neighborhood.

It’s going to cost the same thing to build that house whichever location it is that you build, it’s just going to cost more to buy the one in the preferred location. So keep that in mind. That’s why we ensure it for what the replacement costs are and what it would cost to rebuild that home. Also remember, if you have damage to that home, you need to know you’ve got enough insurance to fix it and not have to come out of pocket with any of that. The example I gave was about a home in a preferred location. Well, what if the property values in your area decline? I mean, that could happen. Maybe you have a factory in your town and all of a sudden they close and the market value of your home goes down. It’s still going to cost the same thing to rebuild it as it did before. So, even though the market value is what you would pay for your house, maybe less than it cost to rebuild it, you still need to make sure that you ensure it for what it would cost to rebuild it. Because if something happens, you need to fix it or rebuild it.

EXCLUSIONS

Let’s talk a little bit about exclusions and then we’ll talk a little bit about cost. So, there’s some really big exclusions in the policy that you may not be aware of, that you really need to be aware of. I’m going to tell you about them and tell you how you can address them. 

Flooding

Almost everywhere in the United States, there’s a potential for flood, either by just excessive rain or ice dams or damming up a river or all kinds of different things can happen or just low lying areas also. Flooding can happen almost anywhere. It is absolutely not covered by your homeowner insurance policy. That is something you buy as a separate policy, either through the National Flood Insurance program or through one of the private markets that also offers a policy. Depending on where you’re buying your home, you may be required by your mortgage company to buy flood insurance.

If you are, just make sure you talk to your insurance agent about it. There’s some different options that you can do. Also, some different things you can do to maybe lower the on that somewhat by getting, such as an elevation certificate. So just talk to your agent, they’ll give you some direction.

Earthquake Coverage

That’s excluded underneath your homeowner policy. Sometimes you can buy it as an endorsement to your policy, sometimes it has to be bought separately, sometimes it has to be bought through the federal government or the state government in your area.

Sewer Backup

Earlier I said something about water damage, accidental discharge of water being covered. That completely is. But what we’re talking about here is where water backs up from your drains or from your sewer. That is not typically covered automatically underneath the homeowner policy. Depending on the carrier, they may include some degree of coverage, but this is an endorsement or an addition to your policy. Make sure you have that conversation with your agent that you want sewer backup coverage included in your policy.

Maintenance

Your policy is not a maintenance policy. There are those types of policies you can buy that are not truly insurance, they’re really a maintenance of the product. An example would be, you have damage to the interior house because your roof is leaking. The adjuster’s going to come take a look at it, and they determine that the roof is just old. They’re not going to cover that because that was a maintenance issue. Now, if you have hail damage to it or wind damage to it that damages that roof and then causes leaking from the rain, they’re going to give you coverage for that. But if it’s a maintenance issue, none of the policies are going to give you coverage for that. That’s something that you’re going to be responsible for.

COSTS

So, let’s talk about costs. I know that’s the big question, right? How much is this going to cost me? You’ve already gone through the process of you’ve talked to your mortgage lender, they up the different parameters. They may have given you a ballpark of what the premium’s going to be, but you really need to know what that cost is going to be so that way you can know what your budget’s going to look like, right? Well, the cost is going to be really all over the place. I mean, it could be anywhere from a few hundred dollars to several thousands of dollars, and that’s going to depend on a lot of different things, but here’s the three biggest things you need to know about that are going to affect what the cost of your insurance is. 

Coverage

First things are going to be just, how much house are you buying? The more the coverage is on your dwelling, the larger that amount, the more it’s going to take to rebuild your home; the more you’re going to pay for premium. You’re going to pay more for a house that’s $1 million versus a house that’s $300,000. You just are.

Location

Depending on where your house is located, it’s going to be more or less. Typically inside the city limits, if it’s a good action class rating or they have a really good fire department and police department, typically you’re going to pay less for that insurance there than you are going to be in a more rural area where they don’t have the protection like you do inside the city limits.

Credit

The fact is that insurance companies use credit. That’s one of the things that they look at to determine how much you’re going to pay for your insurance. The thought is that if you are taking care of your credit and your money, that if you’re being watchful with it and taking care of it, that’s going to translate to other areas in your life. And one of those areas is going to be how well you take care of your property to make sure that you don’t have some sort of issue. So, like it or not, credit is one of those things that they look at. The better the credit, the lower your premium is going to be. It’s just one of those facts. Like it or not, that’s one of those things.

There are some other things that you can do, but that’s really the primary three things that are going to affect your costs for your insurance. Some other things that are going to be how much you choose for your deductible and liability limits. Also, if you have any sort of security system, if you have a sprinkler system, and then there’s just a few other random things that you can do, but also your claim history’s going to have some degree of effect on that too.

But those are the different things that are going to affect it. Look, I hope this talk has helped you to know what you need to know whenever you’re buying your homeowner insurance and understand the different parts and what you need to be watching for. One of the things I want to touch back on is your liability limit and your dwelling limit. Keep in mind that the number one job for your insurance is to protect your assets.

You want the insurance to protect you so that if something happens, you don’t have to pay out of pocket for a claim, or you don’t have to pay out of pocket because you didn’t have enough insurance. Because all insurance policies have limits. Once those limits are done, the insurance company is also done and then who picks up the check after that is going to be you. So, you need to make sure either you’ve got a lot of money to take care of that or you’ve got adequate liability limits. It’s cheaper to do the adequate liability limits than to worry about coming with that out of your pocket. So, just take that route.

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Beaux Pilgrim, CEO

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Beaux Pilgrim
Reed Insurance