How to Insure Your Home

By | 03.07.2006

Carrying right amount of insurance should be important to every homeowner. Being over or under insured is counter-productive. Too much insurance and you’re wasting money; too little and you could end up paying a significant amount of cash out of your own pocket. To avoid these mistakes, you should learn how to go about insuring your home. Following are a few tips that should help.

Study the Subject

There is no such thing as too much information. Before you actually buy homeowners insurance it’s a good idea to find out all you can about how the insurance business works. What is the process of buying a policy? How do you determine how much insurance to get? Is it better to shop online, or visit an insurance company in person? How do you go about filing a claim? These are all valid questions that have specific answers.

Research

Everybody is a newbie at one time or another. The first thing to remember is that there are no stupid questions. In order to determine the answers to the above questions you need to do some research. Ask your friends and relatives about their home insurance coverage. Determine how much coverage they have, and what sort of terms they went with. Did they choose a high deductible? If they did, ask them why, and what difficulties they may expect? Call a few insurance companies and tell them you’re interested in taking out homeowners insurance, but have never done it before. Most agencies will be more than happy to assist you. Read articles on the Internet, and familiarize yourself with the terms that are used within the industry. The more you know about the subject the easier it’ll be to make a decision.

Replacement Value or Actual Value

One of the most important choices you’ll have to make when getting homeowners insurance is whether or not to get an actual value or a replacement value policy. The difference is important and worth knowing. If you choose an actual value policy your property–the home itself, as well as its contents–will only be insured for what that property is worth at the time it becomes damaged. A replacement value policy will pay for items of the same value that were lost or damaged. A replacement value policy will cost more, but may be worth it in the long run. If something truly devastating happens and your home is severely damaged and most of the contents lost, you can start over much easier if your property is replaced. An actual value policy will undoubtedly fall far short of replacing what you lose.

Out-of-Pocket Expenses

Whether or not to carry a high deductible is another serious consideration for a homeowner. In most cases, carrying a high deductible means you will have significantly lower monthly premiums. The trade off is that if something does happen and you need to file a claim you could end up paying quite a chunk of change out of your own pocket. Having a low deductible will enable you to repair any damage quickly and efficiently, without a lot of cost to you, but your monthly payments will be much higher. If you don’t have to file a claim, the lower payments associated with a high deductible policy will have been the right choice.

Save the Difference

One sure way to get around the high deductible/low deductible problem is to opt for a high deductible policy, but put the difference you save in monthly payments into a savings account dedicated for emergency use. It will take a bit of will power on your part, but if you decide to put the savings into an interest-bearing account you can actually have your money making money instead of paying it to an insurance company. Another thing to consider is the potential tax advantages of a savings account earmarked for emergencies.

Professional Advice

There are a lot of decisions that must be made before actually signing a homeowner’s insurance policy. Doing your research and shopping for the right agency and policy are important considerations. It’s not something you need to do on your own. Seeking professional advice is a wise decision. An accountant, financial planner, or tax attorney will be able to provide you with information, and their expertise on matters of this sort could be invaluable. The cost of their consultation may end up saving you more than you spend for their services.


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