Buying homeowner’s insurance

If you’ve been a homeowner for a while, you’re probably already familiar with the ins and outs of buying homeowner’s insurance; however, if you’re new to the insurance game, the legalese (and insurance-ese) that go hand in hand with any homeowner’s insurance policy can send you screaming for the hills! Don’t throw in the towel just yet.

Here’s a look at the most frequently asked questions about buying homeowner’s insurance to get you started on the path to finding the protection you need at a price you can afford.

#1: Why do I need homeowner’s insurance?

The number one question asked by anyone buying homeowner’s insurance for the first time is why they need homeowner’s insurance at all. A quick glance at the devastation left by Hurricane Katrina will give you a fairly good answer for that. If a storm or a fire wipes out your home, do you have the money you need sitting around to rebuild? If a thief walks in and takes everything you own, can you afford to replace it? Or are these events going to leave you rediscovering the joys of getting back to nature–tent style?

Your homeowner’s insurance not only protects you from these events but also saves you from clumsy neighbors and careless bikers who are injured on your property and then decide to press charges for negligence–even if it was their idea to go skateboarding on your sloping driveway in the first place.

#2: Where do I go to get a good deal on my homeowner’s insurance?

When you’re looking for a homeowner’s insurance policy, you’re looking for two things: good coverage and good prices. You don’t want coverage that’s so cheap you can’t afford to rebuild your basement, much less the rest of the house, if there’s an emergency, but you don’t want to spend the rest of your life living on Ramen and Ritz crackers to do it.

You have two choices; you can call around and speak to 50 different insurance agents in person, or you can go shopping for homeowner’s insurance online. Going online lets you skip the usual sales pitches and upgrades and get to the “nitty gritty” of what each company has to offer. Remember, you’re not just looking for cheap. You’re looking for cheap and effective, and the best way to find that without acquiring a major headache is to use the free insurance quote tools offered online.

#3: How much insurance do I need?

The most significant issue you’re going to face when you’re buying homeowner’s insurance is how much homeowner’s insurance, exactly, you need to buy. There are two guidelines you need to remember when you’re setting your coverage limits. First and foremost, there’s a difference between actual cash value and cash replacement value. The actual cash value of your home is the amount you could reasonably expect to get from a buyer if you put it on the market the day you buy your insurance policy. Cash replacement value takes into account the amount of money it would take to rebuild your house using comparable materials and technology. You’re probably going to be better off with the cash replacement value since it doesn’t take depreciation into account.

Secondly, don’t insure your land. It’s easy to look at the big number on your mortgage statement and use that to determine how much your home is worth, but remember that number takes your land into account, too, (not to mention the amount of interest the bank’s tacking on). Since your land probably isn’t going to be wiped out in any way that would need to be insured by a covered event, you really don’t need to add its value onto your coverage. Calculate the difference and watch how fast your homeowner’s insurance premiums go plummeting.

Buying homeowner’s insurance can be confusing, but it doesn’t have to be. Let your insurance agent answer your questions, and it won’t be long before you’ve got the insurance coverage you need at a price you can afford.

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