Your mortgage lender will require that you buy a specified amount of homeowners insurance before letting you close on your home. When looking into homeowners insurance companies, you’ll want to consider the company’s financial stability, how they handle claims, how much coverage they offer, their limited liability amounts when covering personal property, customer service and policy cost.
7 things to consider when comparing insurance companies
There’s a lot to think about as you look to find the right homeowners insurance company for you. To help, we’ve broken down the seven essential things to think about.
1. Consumer ratings
Ratings can tell you a lot about a company and how it treats its customers. Here are two to look at.
- A.M. Best ratings indicate an insurer’s overall financial health: A++ and A+ are considered superior, while A and A- are excellent. There are five other designations for insurers: good (B++, B+), fair (B, B-), marginal (C++, C+), weak (C, C-) and poor (D).
- J.D. Power measures customer satisfaction and results are listed by designation: among the best; better than most; about average; and the rest. There’s also an overall winner. Overall performance is calculated on a 1,000-point scale that accounts for policy offering, price, billing, interaction and claims.
Certain companies, like State Farm, have such low rates because they offer high deductible policy options. If price is your main concern and an insurance company offers a high deductible, it may keep your monthly and annual costs down. Here’s the ultimate guide to getting the most affordable homeowners insurance policy.
3. Customer service
You can find out how good or bad an insurer’s customer service is by simply googling their grades with the different ratings agencies, but you should consider doing a little more digging.
One way to do this is to call the insurance company and see what the hold time is and what the service is like when you wait to speak to a representative about a general inquiry. If the hold time is three hours and they don’t seem like an accommodating group, you’re probably not going to want to deal with them after you just lost your house and file a claim.
You should also look into how the company handles the claims process, as the single biggest indicator of home insurance customer satisfaction is the company’s damage estimates. If they have a reputation for not covering the agreed-upon replacement costs of property or dropping customers from their policy for filing a single claim, you should probably avoid that company.
The best companies will also have supplemental coverage options, or endorsements, to add onto your standard homeowners policy. Endorsements can vary, as some provide added coverage to certain types of personal property like jewelry or fine furs only covered up to a certain amount, or they can come in the form of coverage for certain perils like floods and earthquakes that aren’t covered in a standard policy.
One particular advantage of adding endorsements rather than going to separate, specialized insurers is that it keeps everything under one coverage umbrella, limiting both paperwork and the number of insurance companies you have to deal with. Some endorsements that are indicative of a good homeowners insurance company are:
- Earthquake insurance
- Flood insurance
- Inflation guard: Increases your coverage amount every year to keep up with inflation.
- Sewer backup coverage: Covers your home and personal property when the sewer backs up and causes water damage.
- Scheduled personal property: Provides full replacement value for valuables like jewelry, fine furs and art.
5. Equipment breakdown coverage
Equipment breakdown coverage is similar to a home warranty insurance policy in that it’s designed to cover certain appliances and property types not covered by your homeowners insurance policy.
If an appliance breaks down, equipment breakdown coverage will pay to have it replaced with an Energy Star-rated appliance of similar quality, saving you from having to pay out of pocket or purchase a separate home warranty insurance policy.
If you’re looking for another way to save money and limit the paperwork and confusion of having policies with multiple insurers, you should look for companies that can bundle your home and auto policies.
A good home insurance company offer bundles, loyalty discounts and will even reward you if you file infrequent claims, but you can also lower your monthly home insurance premium costs by increasing the number of safety and security features in your residence, such as smoke detectors, security alarms, sprinkler systems, deadbolts on doors, fire extinguishers and wind protection.
What to consider when shopping for a policy
Once you’ve settled on a company, there are still questions you’ll want answered about specific policies offered. Three questions you’ll definitely want answered are:
- Does the policy cover the rebuild cost of your home?
- Does the policy cover all of your personal property?
- Does the policy have adequate liability coverage?
5 parts of a policy to consider
There’s a lot that goes into a homeowners insurance policy. Here are five key elements you should consider as you figure out what coverage is right for you.
- Rebuild cost: Also known as your policy’s dwelling coverage and other structures coverage, this is the amount it would cost for a full rebuild of your home and other structures like a garage or gardening shed on your property. A good home insurance company will have high dwelling coverage limits.
- Personal property coverage: To figure out a policy limit for your personal property, you may want to take an inventory of all of your personal belongings inside the home, value it, and calculate what it would cost to repair or replace your stuff if they’re damaged, destroyed, or stolen by a covered loss. Most of the top home insurance companies will provide checklists, calculators, apps, and other resources to help you keep track of and protect your belongings.
- Loss-of-use coverage: Loss of use coverage is typically a fixed amount – 20% of your dwelling coverage, and policy limits for loss of use are set accordingly.
- Liability insurance: Liability coverage protects your assets if someone is injured in your home and takes legal action against you. It also provides coverage for you if you cause damage to someone else’s personal property. How much coverage you need depends on your assets, the size of your home, and if you own liability concerns like a pool or treehouse, but most liability limits are anywhere from $100,000 to $500,000.
- Medical payments coverage: Should be enough to cover guests’ hospital bills if they’re injured in your home. Medical payments coverage is generally anywhere from $1,000 to $5,000. (Hospital bills are confusing — here’s a guide that explains how to read a hospital bill.)
The two basic types of homeowners insurance policies that indicate whether your home and personal belongings are covered or not, or whether you’re entitled to liability or loss-of-use coverage or not are named peril or HO1 and HO2 policies (these only cover disasters that are named in the policy) and open peril or HO3 policies (these cover everything except perils not explicitly named in the policy).
Just about every HO1, HO2 and HO3 policy will cover fire, smoke, windstorms, lightning strikes, hail, explosions, vandalism, theft and vehicle collisions. It depends on the company and state where the policy is effective, but the most comprehensive policies are open peril HO3 policies and will also cover accidental water damage, weight of snow or ice, freezing of plumbing and falling objects.
Now that you have an understanding about finding a homeowners insurance provider and policy, make sure your budget is ready for this new expense. You can get started with this easy budgeting spreadsheet.
This article originally appeared on Policygenius and was syndicated by MediaFeed.org.
Featured Image Credit: izusek.