Home Insurance 101: Insuring Your CaveSubmitted by SharpMan Editorial Team on Wednesday 13th October 2010
- Understanding home insurance and home office insurance.
- Understanding renter’s insurance.
- Understanding commercial insurance for income property.
After a long day of barge toting and bail lifting, it’s every SharpMan’s dream to crawl into his cave, order a pizza and watch Sports Center every hour on the hour until blissfully passing out under a blanket of empty beer cans and stray pepperoni (OK, maybe not every SharpMan, but stick with us on this one).
Unfortunately, coming home to the cave usually seems to involve more bill paying and responsibility than relaxing and pork products; and of all the albatross-like responsibilities that dangle around the average SharpMan’s neck, there is nothing more annoying and yet less gratifying than choosing home insurance.
Not only is home insurance expensive and confusing, in the event of an emergency, many seemingly "affordable" policies leave you no better off than having no insurance at all. Here’s a quick SharpMan lesson on the ins and outs of home insurance for anyone who owns, rents, or has rental property:
Let’s start with homeowners’ insurance. It may be frustrating to spend money on something you hope to never use, but the fact remains that a good insurance policy may be all you have to turn to in your worst of times. Consider it an investment in your family’s future. It seems simple enough to pay a company to insure your home and possessions against fire, natural disasters, theft, lawsuits, etc. The trouble is, there are different kinds of coverage, and the type you choose can be as important as having insurance in the first place.
Guaranteed replacement-cost policies are the best and most expensive. They generally pay the cost to rebuild your home as it was before the fire or other catastrophe, regardless of price gouging contractors or a recent increase in the cost of your bathroom fixtures. Be aware, however, that guaranteed replacement-cost policies normally do not cover any upgrades or building code changes that may apply since your home was originally built. If you own an older home that involves older materials (fine wood floors, real plaster moldings, etc.) or significant hand craftsmanship, it may not be possible to obtain a guaranteed replacement-cost policy. Instead, you are left with two choices:
Replacement-cost policies pay to repair or replace property with materials of similar quality. If a storm blows over the 150 year-old oak in your backyard and takes out your five-year-old deck, a replacement-cost policy will pay for a new deck.
Cash-value polices, on the other hand, are less expensive, but will pay only the cash value of the deck at the time of the claim, which may not cover the actual replacement cost of a new deck.
You should also check your disaster protection (hurricanes, earthquake, floods, etc.) closely to make sure you are adequately protected, since most companies provide only limited coverage. Check on things like whether you are covered if you need to move out of your home for any length of time. Do you get money to rent a new place? Moving expenses? Asking these questions up front will save you a lot of hassle if you ever need those answers to be "yes."
Liability coverage protects you if a visitor trips on a broken step or your kid throws a ball through the neighbor’s window. You should take into account your various risk factors (swimming pool, large dogs, etc.) when deciding how much coverage you need.
Home warranties cover repair costs on major appliances, like refrigerators or generators. Everything will have to be in good working order before purchasing a policy. Not all insurers sell them, and it is important to remember that they only cover appliance repairs, not theft, leaks, crime, etc.
Homeowner’ policies can also provide surprise benefits, like off-premises theft protection, protection against credit card fraud, and protection for your valuables while you’re on vacation (e.g., hotel room theft). You should always check with your insurer about any hidden "bonuses" in your policy. Otherwise, you may not think to file a claim when the need arises.
Getting great insurance at great prices.
The best way to decide on the type and amount of coverage you need is to speak to a professional. There is a wide range in policy pricing from company to company. Depending on the carrier, various factors (including the age of your home, dead-bolt locks, smoke detectors and burglar alarms) you can knock off anywhere from 5-10 percent a year.
Also, consider increasing your deductible (the amount you will cover on any claim) or combining your auto and home policies under an "umbrella" coverage to lower your overall premiums. Unlike auto insurance, which is fairly straightforward, homeowners’ insurance is rather complex and a good insurance broker can save you a lot of time and money.
There are also a number of online insurance companies and brokers ready to give you fast and competitive quotes over the Internet and by e-mail. Try checking out NetQuote and InsuranceCompany as a start. We suggest getting a quote, regardless of whether you are already covered, because, as with car insurance prices do vary.
Home office coverage protects your assets by adding an additional incidental business option to your homeowner’s policy, which generally only covers business equipment up to $2,500. A basic policy should cost you about $150 per year and will insure up to $20,000 worth of business property and a half million dollars worth of liability insurance. Check out services like NetQuote to figure out what you should be paying for coverage in your area.
Renter’s insurance is one of the least used, yet most cost-effective forms of home insurance available. In the case of theft, damage or personal liability, your landlord’s policy will most likely protect their property, but not yours.
For example, if a water line breaks and floods your apartment, your landlord’s policy will cover the repairs to the plumbing, walls and floors, but you will be stuck replacing your $2,000 couch and that "perfect" $1,500 rug you spent eight months searching for.
Renter’s insurance is also a good back-up plan if you are a pet owner. One SharpWoman we know had to fork over $800 of her security deposit when she realized her pet rabbit had eaten a 6’x4’ hole in the carpeting under her bed. Liability insurance also protects you in the event your pet rabbit injures a guest or visitor. Also, consider that large apartment buildings or complexes are often targeted by thieves because they are easy to get into and predominantly empty during working hours. It is not uncommon for specific buildings to be targeted and repeatedly robbed.
Getting it fast and easy. If you’re a renter, you’re unlikely to have been initiated into the confusing world of home insurance, so consider stepping in slowing by visiting one of the easy online broker mentioned above (NetQuote or InsuranceCompany, etc.) for a quote.
Insuring Rental Property
If you own a rental property, you will want to make sure your property and liability coverages protect you in case any disaster or accident for which you are liable occurs on the premises. If you count on the rent you collect as passive income, you may want to make sure you are protected for not only the cost of the property repair, but also the lost income while the property is unrentable.
Ideally, you should also require your tenants to carry renter’s insurance (see above). In the event of any damage done by pets, smoke, vandalism, etc., a security deposit may not cover all the damages and your tenant may not by able to afford the additional repair costs. Having them insure themselves can avoid costly lawsuits down the road.
Not sure if you’re getting the best deal from your broker? Visit one of the many online insurance quote services to get a better idea of what you could be paying.
Even though it’s a simple fact of life, insurance always seems like the biggest rip-off in the world — until you actually need it. Ask anyone who has ever tried to get through a disaster without it. So what if you never use it? Consider yourself lucky. As a wise SharpMan once said: "It’s better to spend the dough and complain about covering your butt, than to have to pay to replace it somewhere down the road." OK, we made that up, but you get the point.This article last updated on Wednesday 13th October 2010