For those of you buying a new home in this down market, one of the things you will definitely need before you can close escrow is a home insurance policy. Many people find insurance very complex because it can be. Most insurance contracts are written by attorneys and use big words that most people never heard of like "dwelling protection" or "loss of use". They sound nice but what do they mean? Well they are both standard coverage’s that come in a home insurance policy.
Before you purchase a policy it is recommended to ask questions. Get referrals from friends and family that have purchased a home before and do your own research. Make sure the companies are strong financially and they have a good reputation with the A.M. Best Rating. Also, understand that not all carriers follow the same standards if they are not admitted with your state’s Department of Insurance.
Lastly, you can talk to your insurance agent and make sure you get a variety of homeowners insurance quotes. Each carrier can offer different options and some may even offer discounts if you have multiple policies such as your auto insurance.
What to Look For
The first thing to look for is your Dwelling Coverage which simply means the structure of the house itself. However, the coverage is not based on property value but rather the possible reconstruction cost. In other words, if the home was damaged in a fire or otherwise and needed to be rebuilt, what would it cost to rebuild based on square footage, materials, labor, permits etc.? Whatever that dollar amount is – that is how much coverage you should have. Another standard coverage would be separate structures such as a detached garage or a shed. This coverage in California is typically 10% of your Dwelling coverage.
Secondly, you want to know your coverage will be for Loss of Use. If your home is damaged and becomes uninhabitable you will incur additional living expenses that should be covered. In addition, you will need to decide if your contents or Personal Property will be covered as this is not a standard coverage. This means your clothes, furniture, jewelry, electronics are not covered unless your home insurance policy specifically states so.
Lastly, you will need to consider a lot of the optional coverage such as Personal Liability, Earthquake, Flood, Hurricanes, Tornadoes or Theft. Of course by adding these coverage options will drive up your premiums but they may cost you more in the long run if you should have a loss due to one of these disasters. Again all of the carriers offer different options and prices depending on your needs so it is very important to shop around and compare your homeowners insurance quotes that you have collected.