Home insurance and deductibles, what you need to know.
Buying a home is such an outstanding purchase for most of us that it will often take us up to thirty years to pay. It is strange but when you start spending that kind of money it can begin to lose it’s value. We can easily start saying, well what the heck! Spending a little more won’t make a difference. Bank managers and salespeople know this. Which is why they try to sell you all kinds of insurance products at the time of purchase. When I bought my first house the manager pretty much told me that if I didn’t take on this life insurance he was selling me he wouldn’t approve my mortgage. I was twenty one, only six months in my current job and with no credit history, so I bought the life insurance, got my mortgage approved and cancelled the insurance a month later.
Banks and finance advisers will sell you no end of insurance products, mortgage insurance, life insurance, medical insurance and of course home insurance. How can you know what to buy and how much to spend on insurance? It is a safe choice to spend a substantial amount on house insurance. It is after all your largest asset you need to protect it. The only problem is that home insurance is very expensive, how can you make substantial savings on your home insurance. A great way of reducing the premium on your home insurance is taking on well chosen deductibles on your home insurance.
What are home insurance deductibles? As you probably guessed, deductibles deduct a certain amount off any home insurance. This is how they work. When you agree to have a deductible on a certain coverage you agree to pay the firs xyz dollars of any claim. For example if your house gets burnt down and you have a thousand dollar deductible, you will pay for the first 1,000 dollars in damages. Deductibles are very popular with insurance companies for two good reasons. One, when clients have to pay the first xyz amount on a claim it is very good incentive to not bother presenting the claim to start with. Two, the insurance company has to actually spend less on you as a client than if you didn’t have the deductible. For this reason insurance companies are happy to provide savings if you agree to medium to high deductibles.
The key to smart investment in home insurance deductibles is to get them in areas of coverage that are already somewhat covered by another insurance or protection. Often we have insurances we don’t even think about, like those inclued in credit cards, auto loans and umbrella insurances. Umbrella insurances provide coverage for when the coverage of the insurance company is not sufficient. If you are already covered in a certain area of coverage you can choose a very high deductible that will bring down your house insurance premium.
How much home insurance cover is enough?
Knowing how much you should spend protecting your assets when you might never have to use the insurance is an interesting question. Obviously you should get as much insurance as you can afford, but when does it start getting ridiculous. For instance would it make sense paying a 500$ a year on the insurance of a car that is worth 1000$? Probably not. The same applies to homes, you want to have enough cover so that you don’t face insurmountable losses in the case of an accident but you don’t want it to be your main expense. This article will cover the main areas a good home insurance should include and some practical help on how to decide how much to spend.
A good home insurance should cover these four basic points:
a) The structural components of the building.
b) Your personal belongings, furniture, jewls, electronics and other hardware in the house.
c) The living expenses and miscellaneous bills that need to be paid after a serious home accident.
d) Your liability to others.
Let’s have a look at these factors seperately.
The structural components of the building. Good home insurance will allow you to at least rebuild your home in case it is destroyed by some accident or natural disaster. This part of the coverage must be substantial as the costs of rebuilding after extensive damage can be very high.
Have a good look at the cover your insurance provides under so called acts of God. This and other loopholes help insurance companies to try and wriggle out of the responsibility of honoring an insurance policy.
Your personal belongings. If you suffer an accident or natural disaster you don’t want the loss of your personal belongings to be added to the list of things you loose. Especially if you have expensive equipment, jewels or art work you must make sure you have sufficient cover for the assets you store in your home.
Living expenses in case of an accident that would not allow you to stay at home.
It is important to make sure you will have enough to pay for a hotel, good medical care and all the necessary cash and equipment to get you by after you file an insurance claim.
Your liability to others. This is probably the most important section of your home insurance. If you don’t have any insurance for damages you suffer, probably the worst thing that can happen is that you lose everything but liability to others could send you to bankruptcy faster than you could say Jack Robinson.
Be smart, before you choose your car insurance, think about your circumstances, the risks you take and the price of the goods you wish to protect. Remember that time spent planning and thinking now could save your life in the future. Knowing how much you really need will help you avoid stress and wasted time in the future.