Congratulations! You’ve just purchased your first home; finally, a place to call your own! This is cause for celebration, and yet you can’t help but think of the thousands of details and responsibilities that come with home ownership. The next step is the daunting and cumbersome task of sourcing home insurance. The hunt for the right homeowner’s insurance doesn’t have to be scary, in fact, armed with the basics, you’ll feel like a pro when shopping for the best coverage for your newest and most important asset.
What Coverage Do I Need?
The biggest question to ask when shopping for insurance is, ‘what coverage do I need’, followed by, ‘how much coverage do I need?’. When dealing with insurance for your home, there are two types of insurance coverage:
- Actual Cash Value
- Replacement Cost Insurance
If you’re looking for coverage that will fully protect you and put you in the same position you were in prior to experiencing a loss, replacement cost insurance coverage is what you’ll need.
What is Replacement Cost Coverage?
A common question asked when reviewing home insurance options is, ‘what is replacement cost?’. Replacement cost coverage is the most important coverage you can purchase for your home; it’s the coverage that pays to put you back in the same position you were in prior to experiencing a loss. In short, replacement cost coverage pays to have your house repaired or replaced in the event of a loss. Speaking with your agent about replacement cost coverage is important. Some insurance companies do not offer replacement cost coverage for homes over a certain age. If you have an older home, you’ll want to make sure the companies you approach for quotes offer replacement cost insurance for older homes.
How Do I Know How Much It Costs to Replace My Home?
When discussing replacement cost coverage, this is the biggest concern. Determining how much it would cost to rebuild your home from the ground up seems like an impossible feat. Luckily, insurance companies do not expect you to know the replacement cost of your home; they have special systems/ programs/ tools that will estimate the dollar figure for you. Of course, every company is different, and every system is different.
How do you know which one to choose, how do you know if their estimates are correct? This is where Douglas Residential Cost Guide can help.
The Douglas Residential Cost Guide Can Help
Douglas Residential Cost Guide has been developed by industry experts to help homeowners and insurance industry professionals estimate the replacement cost of your new residence. The residential cost guide is an easy-to-use tool that walks you through a list of questions about your home. All the information gathered is used to estimate the replacement cost of your home. Utilizing the Douglas Residential Cost Guide is an excellent way to assist with acquiring the proper coverage when shopping for a new insurance policy. Check out the Douglas Residential Cost Guide today to estimate the replacement cost of your home.
Once you’ve estimated your home’s replacement cost, you now have a baseline for your insurance policy. When shopping, you can compare the insurance companies’ calculations to yours to ensure you select the right amount of coverage.
What Other Coverages Will I Need?
The estimated replacement cost coverage covers your actual home, but what about your carefully curated belongings? How do you know how much coverage you’ll need for all your stuff? This is another overwhelming thought to ponder. Again, fear not! Coverage for personal belongings, or contents, is called content coverage. Content coverage is calculated as a percentage of your home’s replacement cost. For example, if your home’s replacement cost is $500,000, contents coverage may be calculated using 75 percent of the reconstruction cost, making your contents coverage $375,000.
Will Contents Coverage Cover all My Things?
Insurance policies are contracts between yourself and your insurance provider; as with all contracts, there is fine print to contend with in insurance policies as well. Most policies have specific items listed to state that coverage is available up to a set limit. For example, jewelry may be covered, but only up to $5,000. There may be exclusions for specialty collections or fine arts, or furs may have a limit that will not cover your prized Andy Warhol you plan to hang in the foyer.
Once you know what your contents coverage amount will be, you’ll have to ask what limits are included with the content’s coverage. If you have an extensive jewelry collection, or are a fine art collection, you may need a personal articles policy to cover items over and above the limits stipulated. Personal articles policies will cover your higher-valued items such as jewelry, furs, musical instruments, art, collectibles, tools, home office, specialized computer equipment, et al. You’ll want to ask for a quote on a personal articles policy as well if your collections require coverage over and above the limits.
What About Coverage for My Shed and Garage?
Ensuring your actual house is properly covered is the biggest and most important step, but there are additional things to consider as well. If you have a detached garage, or a storage shed on your new property, you’ll want to ensure these buildings are covered as well. The insurance industry refers to these buildings as detached structures. Coverage for detached structures is also calculated as a percentage of your replacement cost. For example, a company may calculate the cost of any detached structures as 10 percent of your home’s reconstruction cost; therefore, your $500,000 replacement cost allows for $50,000 for detached structures. This might seem a bit excessive for a small storage shed but may not be enough for your detached three-car garage with loft space.
Be sure to provide the insurance companies with all the details of your detached structures as well. If your detached structures include barns, silos, or other farm buildings, utilizing the Douglas Agricultural Cost Guide to calculate the replacement cost of each of your farm buildings is advisable.
Other Points to Consider When Shopping for Homeowners Insurance
Of course, each insurance policy will be as unique as the home you purchased. Here are a few other points to consider:
If You Have a Basement
If you have a basement, you’ll want to ask about sewer back-up coverage for your basement. Sewer back-up coverage will cover damage relating to a sump-pump malfunction, or a drain overflowing, among other things. Each company’s sewer back-up coverage is structured differently. You’ll want to inquire about coverage options available to determine which one is right for you.
One final thing to consider is liability coverage. How much liability coverage will you need? There is no easy answer to this question. Liability coverage is very important and will protect you from lawsuits in the event an accident transpires on your property. If you carry a mortgage on your new home, most financial institutions require a minimum of $1 million in liability coverage. It’s best to speak with your mortgage provider and your insurance company to determine what liability coverage is best/ required.
Insurance can seem overwhelming, but is really designed to protect you, your family, and your home. The key to success is to complete your research before you start making calls for quotes. Your starting point should be calculating your home’s replacement cost. As you can see, replacement cost is used to calculate a number of different coverages; as such, it’s important to ensure its calculated effectively.
Visit Douglas Residential Cost Guide to calculate your replacement cost; once you’re armed with your replacement cost figure, everything else will fall into place. Happy shopping!