If you have a home, then you need home insurance. That’s just a given. I’ve known many people who’ve had their homes damaged or who’ve had dog bites happen on their property or any number of other mishaps who were only saved from financial hardship by their home owners insurance. Even if you never need to use the policy, you’ve bought yourself priceless piece of mind. Of course, you also need to make sure you have plenty of coverage and don’t end up paying too much for what you need.
Home Insurance – the Basics of a Policy
Your policy should include four main parts. First, it should cover damage to your home from the most common types of disasters (you’ll have to buy extra policies for flood and earthquake insurance, however). That’s great, but most homeowner’s don’t purchase enough insurance to actually rebuild their home. Not only do you need to ask for recommendations about the costs for rebuilding from your agent, but you need to update your coverage regularly since building costs do go up.
Second, your policy should cover your possessions. If you have a fire, then your policy should cover the replacement value of your furniture, clothing, etc. Make sure to keep receipts for everything you buy and keep them in a box which won’t be easily destroyed. Third, your policy will kick in to cover your costs in case someone is injured on your property. For example, if your dog bites someone then your insurance will reimburse that person for their medical bills and possibly pain and suffering so you don’t have to.
Finally, your policy should also provide coverage for alternative housing in case you are unable to live in your home. For example, if a tornado flattens your house to the ground, you’ll probably end up staying at a hotel and eating out until your home is rebuilt. All of those costs will be covered by your home insurance.
Home Insurance – Monthly or Yearly Payments
Once you find an agent and a policy you want, then you’ll have another decision to make: when should I pay my premiums. Compared to car insurance, home insurance is pretty reasonable but not everyone can afford to pay several hundred dollars in premiums once a year. The good news is you do have options.
I know some people who prefer to pay monthly. The payments are easier to handle because they are broken down into 12 installments instead of one, and it’s easier to remember because the bills come more often. However, most insurance companies will charge you more for taking the monthly option because it costs them more to send out the bills and because they have to worry about your missing twelve payments instead of just one. A few dollars extra to each of those payments can really add up at the end of a year.
Here’s what I recommend instead: choose the yearly option, but set aside a certain amount of money each month towards that premium. In this way, you’re essentially making monthly payments but you don’t end up paying an extra $3 to $5 per month for that privilege.