Signing an insurance policy will always be one of the first steps of the home-buying process. There’s no way to avoid it: it’s a requirement for getting a mortgage. And even if your are lucky enough to not need a loan, there’s no doubt that you’ll want to get your shiny new house insured before anything happens to it. So far everything is obvious, but the issue thickens when you face yourself with the decision of choosing what insurance plan you should get.
Just as there are many types of loans, there are home insurances for each need. Everything is pretty much already invented and you’ll just need to negotiate your plan with the insurers.
Most common coverages
Basically, it involves foundations, bricks, roof and fixed appliances (kitchen, bathroom), plus attached buildings (garages, walls, gates…). It usually covers fire, water leaks, extreme weather events or vandalism damage.
One of the most important points to negotiate with these kinds of insurances is the coverage over total loss. This is not the market value, rather the rebuild costs. Since it’s difficult to estimate how much it would be, many insurance companies play with the ignorance of the buyer to their own advantage. Therefore, we advise to find yourself a good independent inspector to estimate the quantity.
Its name says it all. This insurance will cover all your furniture, appliances, art and other belongings, in case something happens. This “something” will be defined in your insurance contract so pay attention to it!. It will often include fire or flood damages and theft. Beware: usually valuables such as expensive jewels and antiquities will need extra coverage.
An interesting fact not everybody knows is that your contents insurance usually covers your personal belongings even when they are not home. So if your laptop gets stolen in your favorite café downtown and it was included in your policy, then you are likely to get money for it.
However, there are hazards that are rarely covered in the insurance policy, such as landslides, war or wear and tear. Make sure to study what is included in your potential insurance plan and negotiate add-ons if needed.
This type is all about humans. If something happens to somebody because of you, your insurance will cover it. If someone gets injured by accident at your home, the policy should assume the emergency hospital treatment. It also will protect you, your family and your pets from lawsuits, so this is especially useful if your dog likes to “hug” people too hard or your kid just keeps throwing his ball at your neighbour’s nose.
Personal liabilities are very complex and have many variations, so we won’t explain any further.
There are other types of insurances such as tenant or landlord insurance, luxury valuables insurance, holiday villa insurance… If you would like to read more about these types, check this article by Nationwide.com and you’ll be an expert by the end of it!
Most common mistakes
Having said that, there are some mistakes many people do. For example, they think that their belongings are covered, but after a fire they discover that there was a maximum of $10.000 and their stuff was worth the double. This happens for three reasons:
- They didn’t pay attention to the small print. There was just too much paperwork to read!
- They didn’t estimate properly the value of their belongings.
- They didn’t update the contract when they bought that fancy new TV.
There’s nothing left to be done after the disaster, so let’s focus on how you can prevent this. First, you have to take your time to estimate all your objects of value, room by room (take pictures of them and keep the receipts!). Then, it’s the moment to negotiate with your insurance company to include them. And finally, you really really need to remember adding any new items in the list right after buying them!
Note that jewelry will often have a maximum of coverage, and you might need extra insurance for it. Also, you should keep in mind that your stuff’s current worth won’t be the same in ten years time. If you are worried about this, there are special insurance policies that cover depreciation.
Another common mistake is thinking that your property’s insurance coverage in case of total loss will be its market value. However, it is the money it would take to build your house again: architects, materials, labour, plus your rent while you wait for it to be finished.
Make it cheaper!
There are small things that mean a lot to insurers. For example, having a fire and burglar alarms, safes or safety locks will probably decrease the overall price of the policy. So don’t be shy to install them! Proper security and fences will also have an impact in the cost of your insurance, as well as safety measures like pool covers.
Structure and materials
If you are still looking for a property, it’s important you understand that the structure and materials will affect your insurance rate. For example: purchasing a vintage home is lovely, but keep in mind that insurancers will estimate the risks of collapse as higher than newbuilds. Hence, the price of the policy will increase. Also, if the building is made of highly flammable materials such as wood, they might not even cover it in case of fire.
Another factor that will result in you paying extra will be the monthly payments. Insurances are usually paid once a year, but some companies let you do this. Be careful! It’s basically a loan, so you will be paying interests for this. In case you can’t afford the yearly fee, we recommend you to study other lending options. Keep this in mind when you are shopping around for insurances before you commit to any. The fees differ considerably.
As a general rule, if you are trying to insure your house against something that is very likely to happen in your region (or has already happened), such as floods, hurricanes, earthquakes and such, you will need to pay more if you want it covered. Sometimes it will even be difficult to find an insurer willing to.
We always hope nothing will happen to our beloved home and belongings, but it’s important to be farsighted in case it does. You’ll probably save yourself some headaches and, at the same time, living without constant fear of homelessness does sound good!