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Three Things Your Real Estate Agent Did Not Tell You About Home Insurance

2010-05-25

Often, one of the greatest moments in a person's life is their first home purchase. To know that a piece of land and property is theirs, exclusively, and that they can cast off the shackles of rent is a liberating feeling. While many real estate agents mention to their clients the need for an excellent home insurance policy, and in fact most banks will not even permit the sale of a home without a coverage policy in place, there are often a few details that agents neglect to mention. This is largely due to the sheer volume of clients these agents deal with, and the fact that they simply assume everyone knows as much about home insurance as they do after a career in the business. For many first time homeowners, however, the only insurance knowledge they have is of auto and rental property insurance, both of which follow very different rules from home insurance policies. Here are three things you may have been told about your home insurance policy.

First, your home needs to be insured for a certain percentage of its total value for you to receive the actual replacement cost should your dwelling be destroyed. The number to hit is typically 80%, so for a $500,000 home, $400,000 worth of coverage would be required in order for the insurance company to payout the full $500,000 in case of total destruction. If less than the minimum amount for replacement coverage is purchased, the company needs only cover up to that amount. In the above example, a homeowner with only $300,000 worth of coverage would not receive the last $200,000 from their insurance company in the case of a total loss. Increasing coverage will increase your home insurance cost, but is often worth the price.

Another added home insurance cost which can be worth the money is to upgrade from a basic to a comprehensive policy. Your real estate agent may not have mentioned that a basic policy will only cover a list of ten or eleven common "perils," and may not include coverage for damage due to fire or theft. A comprehensive policy will have a list of exclusions instead of perils, and provide more robust coverage. As well, if you have expensive items in the home, a separate or floating policy may be necessary to properly insure them. In addition, careful and detailed documentation of all expensive items in a home must be kept to prevent problems if a claim occurs.

While there are aspects to a home insurance policy that are not immediately apparent, a call to an agent or research online can help to ensure you are covered by the amount you need, when you need it.