Homeowners Guide to Simply Understanding Home Insurance

This policy covers a personal property or a house in case it is destroyed or damaged by an occurrence or event covered by the policy. The replacement or repair costs required in the private property are usually paid by this kind of insurance. The occurrences or events are termed as “covered losses.”

Note: Before buying home insurance Houston TX, you should know that it is a contract between you and the insurance company. 

You should carefully go through it and understand what exactly is covered and how much the limit of the coverage is. Since the renters and homeowners in Texas fall under the Consumer Bill of Rights, you should also be aware of your rights. Moreover, while buying or renewing a home insurance, you should get a bill of rights from your insurance company.

Can I Get Insurance on A Home I Do Not Own?

This is a common question often asked and the answer to it is, no. You can’t get homeowners insurance on a home you do not own. To get it, the home should be named after the individual living in it. Homeowners insurance policies specifically mention that the person under whose name the policy is issued should be the real owner of the house and they should be living there. Another factor to be considered is that the home should not be left vacant for 30 consecutive days, otherwise the policy will be considered invalid.

General Questions to Ask

When it comes to homeowners insurance, there are some questions whose answers should definitely be known. 5 such questions along with the answers are mentioned below:

1.      What factors can affect the premiums?

Some of the important factors are the characteristics and features of the house (e.g. the structure type, the age of the house, wiring, garage, roof, etc.), its location, protective devices (if installed, premium cost will come down), personal factors, and claims history.

2.      Why should a home inventory be completed?

When you buy a home and a Homeowners insurance policy, you should maintain a complete home inventory. If any claims occur in the future, it will be settled quickly. A complete home inventory allows the insurance companies to easily verify the property. This, in turn, quickens the claim settlement.  

3.      How can a home inventory be completed?

You can start with making a list of all your possessions. In that list, describe each item along with the make, model and the place from which it was purchased. Besides noting down the details, you should keep the sales receipts and purchase contracts as a proof.  

You can make a few especial lists or include different sections in the same list. You should also note down the valuables you own, such as jewelry, artwork or paintings in one list and other less-valuable things in another list. Moreover, you can take pictures of the individual items and rooms. Or you can go a step further and videotape your house and in that videotape, make all the contents of your home properly visible.

When it is done, save the inventory list on your PC and on a separate disk. All the photos, videotapes and documents describing inventory should be stored securely in a safe deposit box.

4.      What is the difference between non-renewing and canceling?

The non-renewing of a policy means that a policy is not continued after completing a predefined term. It can be your or the insurance company’s decision to discontinue the policy at the end of the policy tenure. If it is the company’s decision, you will be provided clarification and asked to raise any doubt within a specific time.

Usually, it is not seen that an active policy is canceled by the insurance companies. These cancellations occur because of premium payment failure, or the owner commits fraud or has made some serious misrepresentations on the application.

5.      Which parts make up a policy?

The HO policies vary from company to company. But there are certain basic components that are common in all the policies, including the very first page (part) of an insurance policy that contains a summary of the homeowner.

In other parts of the policies, definitions of complex terms used in the document, information about coverage and exclusions, terms and conditions, and endorsements are mentioned.

How to Find the Best Insurance Agent near Me? 

As mentioned above, the coverage and rates may vary depending on the insurance company. So, it is always suggested that you do a proper research about all the options available on the market. After all, it is your money and you should put it in the right place.

The first thing you can do is identify your requirements (coverage and coverage amount). Then you should research different insurance companies and agents in your area, and get quotes from them. While comparing, make sure that the comparison is between two policies of different companies but the coverage is same.

After that, discuss the details with your insurance agent. Be truthful while answering any question, as any lie will have its consequences which will hurt at the time of claim. Ask your agent whether or not you are eligible to get discounts. At this time, one more thing you should consider is the “high deductibles.” 

An important point to note here is that higher deductibles will lower the premium amount but during the time of claim, you won’t get any higher claim amount. So choose sensibly.

Before finalizing a dwelling policy, you should also consider investigating the complaint index, financial rating, and license status of the insurance company. This will provide you with information about the company’s strength, financial stability, and customer service.

Do I Need a Homeowners Insurance If I Own My Home?

It is not mandatory for the owner to get homeowners insurance but if your house is financed, your lender will want your house to be insured because it will protect it from damages caused by unforeseen situations, like fire or natural disasters.

If your home is in an area where flooding is common, your lender will probably require you to buy a separate flood insurance policy. After the mortgage is over, it will be completely up to you to decide whether you will stop or continue the homeowners insurance.

What Is a Peril and What Perils Are Included in a Home Policy?

The mishaps against which the insurance companies give the protection are called “perils.” This term is an industry term and is very common in the insurance sector. There are some common perils that are usually covered by most home insurance policies. The common ones are fire and smoke; lightning strikes; hail and windstorm; explosion; vandalism and malicious mischief; damage caused by a car, airplane or vehicle; theft, falling of objects; the weight of snow and sleet; and water damage.

All the above-mentioned causes are commonly covered in a normal home policy, as stated earlier. The insurance company pays for the repairs required by damages. In cases like fire and storm, the homeowners are forced to live at another place and the insurance company pays for those expenses as well. However, if you live in a flood-prone area where serious damage is more likely to be caused by flooding, you will need to buy a separate flood policy.

You should note that a HO policy covers the damage caused by many incidents, but there are some scenarios that it does not cover. You can get further information by going through your policy’s terms or discussing your requirements with your agent.

Homeowners Insurance: The Difference between Actual Cash Value, Replacement Cost & Market Value.

Homeowners insurance helps to protect you as a homeowner, and it covers various aspects of your home. This includes the building, your personal property inside the home and medical expenses for injuries sustained by anyone on your property. 

Policies vary, but most of them include a standard policy coverage which provides a general protection of the home and property. There are also optional policies which you may select to protect specific items that are important to you.

Although most homeowners have the right insurance, they do not fully understand how it works or what to expect in the event of a claim. The first thing to understand is that home insurance companies have different ways of calculating the value of something, and hence, the amount to be paid out.

Generally speaking, homeowner’s insurance is designed to help replace damaged, stolen, or destroyed personal property but different coverages and methods of calculations means amounts paid for the same items will vary. Here are the most frequently used methods:

Actual cash value vs. replacement cost 

Actual cash value is the amount you would pay for a similar item at today’s cost minus depreciation. Depreciation refers to a decrease in value of an item due to age or wear and tear. Replacement cost on the other hand, is the amount you would pay for the same item at today’s cost. Here’s an example to of how it works:

Two years ago, you bought a piano worth $3,000. Unfortunately, your home and some property, including your piano, were damaged by a wild fire last week. You file a claim with your insurance company with the intention of replacing the damaged items, especially your piano, which you found out now costs $3100. So the insurance company ought to cut you a check for $3100, right? Well no, not really. The amount of money you will receive will depend on the type of coverage you have.

   If your coverage is for actual cash value:  the company will pay you $ 2500. The actual cash value of the piano today is $3,100 but the insurance company will pay you less because a depreciation of $600 is subtracted from today’s cash value of the item.

    If your coverage is for replacement cost: the company will pay you $ 3100 because that is what it would cost you to buy a similar piano today. Replacement cost coverage replaces the item at exactly the current cost without factoring in depreciation.

Most insurance companies prefer to give a down payment equivalent to the actual cash value of item and require you to submit the receipt for the bought item before paying you the balance. From the above example of the piano, the insurance company will pay you $2500, which is the actual cash value of the item. 

However, with replacement cost coverage, you will be paid $ 2500 first, which is the actual cash value of the item today, and when you submit the receipt showing the actual amount you paid, you will be paid the difference of $600.

Market value

Yet another method homeowners should know about is the market value. This is refers to the prevailing price that buyers are willing to pay to own your house, regardless of how much it cost to build it. The market value of an item is largely affected by external factors such as state of the economy, demand and location, among others. 

The replacement cost of your house on the other hand, is what it would cost to rebuild a house of the same size, on the same spot and with same quality of construction at today’s prices. Again, both of these methods can give two different numbers. 

For example, a home located in a depressed city suburb may have a market value of $130,000. The same house, located in an upmarket part of the city, may have a market price of $310,000, even though it would cost the same to rebuild the house after a loss in either location.

In doing their valuation, insurance companies generally use replacement cost, not market value.