With the housing market as hot as it is in Lafayette, and everywhere in the nation, more and more people are buying their first homes. With that comes the need for homeowners insurance. Homeowners insurance isn’t a luxury; it’s a necessity. Practically all mortgage companies require borrowers to have insurance coverage for the full or fair value of a property, which is usually the purchase price, and won’t make a loan or finance a residential real estate transaction without proof of it.
To alleviate some of the stress of being a new homebuyer, we’ve compiled some homeowner insurance basics.
What a Homeowner’s Policy Provides
Homeowners Insurance coverage protects your home and your possessions against damage or loss from events like fire, theft, storm damage, frozen pipes, and more. It also provides liability coverage for personal injuries sustained by others on your property.
Levels of coverage
Actual cash value
Actual cash value covers the house’s cost plus your belongings’ value after deducting depreciation, which is how much the items are currently worth. An item’s worth is not always the cash value of what you purchased the item for.
Replacement value policies cover the actual cash value of your home and possessions without the depreciation deduction. If your home were damaged, you would be able to repair or rebuild your home up to the original value.
Guaranteed replacement cost/value
The most comprehensive, this inflation-buffer policy pays for whatever it costs to repair or rebuild your home—even if it’s more than your policy limit. Certain insurers offer a guaranteed replacement, meaning it provides more coverage than you purchased, but there is a maximum- typically, it is 20% to 25% higher than the limit.
Know what isn’t covered by homeowners insurance.
Most scenarios where a loss could occur are covered by homeowners insurance. Still, some events are typically excluded from policies, such as natural disasters or other “acts of God” and acts of war. It is important to note that floods and hurricanes are considered “acts of God.” In the Lafayette area, where both are common, you will need to consider purchasing flood insurance and asking a TSL insurance advisor what they recommend for your property.
Determining rates and cutting cost
Policy rates are mainly determined by the insurer’s risk that you’ll file a claim; they assess this risk based on past claim history associated with the home, the neighborhood, and the home’s condition.
While you should never skimp on coverage, here are a few cost-cutting tips:
Maintain a security system
A security system monitored by a central station or tied directly to a local police station will lower the homeowner’s annual premiums, perhaps by 5% or more. The homeowner must typically provide proof of central monitoring in the form of a bill or a contract to the insurance company to obtain the discount.
Smoke alarms, CO detectors, dead-bolt locks, sprinkler systems, and weatherproofing can also help.
Raise your deductible
Like health insurance or car insurance, the higher the deductible the homeowner chooses, the lower the annual premiums. Keep in mind that until your high detectable is met, the more minor claims, such as broken windows or damaged sheetrock from a leaky pipe, will most likely be absorbed by the homeowner.
Plan ahead for renovation
Consider the materials that you will use if you plan to build an additional structure to your home. Typically, wood-framed designs will cost more to insure because they are highly flammable. Otherwise, cement- or steel-framed structures will cost less because they are less likely to succumb to fire or adverse weather conditions.
Consider the insurance costs associated with building a swimming pool. Items such as pools, trampolines, or other potentially dangerous devices can drive the annual insurance costs up by 10% or more.
Pay off your mortgage.
While this is a tough one, homeowners who own their residences outright will most likely see their premiums drop. The reasoning behind it is that the insurance company assumes that if the home is wholly yours, you’ll take better care of it.
TSL is here to protect the things that matter most to you, including your first home. Call an insurance agent today to talk about your Louisiana homeowners insurance.