When it comes time to make an insurance purchase, you have a number of factors to consider and there are often trade-offs that need to be made due to cost or availability. When evaluating these factors, it’s smart to have a big-picture perspective of them and how they fit into your home insurance policy purchasing decision. Below, I have outlined some of the most important things in the process.
- Cost vs. CoverageProbably the toughest evaluation each homeowner goes through is how much insurance is enough and at what price. To make the process a little simpler, you should first start with how much insurance you really need. Remember, in many cases, this decision is not going to be up to you. If you have a mortgage on your home, your bank will likely require that you have enough insurance to fully replace your home in the event it is damaged or destroyed. When it comes to other coverages such as for your personal property, that’s where you have a little more leeway to decide for yourself. However, when you consider the overall benefit of home insurance and how devastating a loss can be, you really need to insure as fully as possible. Instead of evaluating your home insurance as an “either/or” item in your budget, it should be an absolute necessity. There might be other areas in your budget where you can save a bit, but your home insurance should not be negotiable.
- High Deductible vs. Lower PremiumOne area where you can actually eke out a bit of savings is by taking a higher deductible. Your deductible is a way for you to share in the risk-taking that is performed by your insurance company. The insurer likes deductibles because they feel that you will be more careful about your home when you have some skin in the game. Of course, some homeowners can also put themselves in a precarious situation when they take too high of a deductible. Remember, you should never take on a deductible that you cannot easily absorb when it comes time to pay a claim. Instead of just accepting whatever deductible is offered to you by the insurance company, you should ask for more deductible options. Sometimes the insurance company thinks you are only interested in a certain amount and will not give you too many choices. Ask for the options and do the math. You never know, this might be a great way to save a little on the premium.
- Optional CoveragesYou can think of your home insurance policy as resembling a cafeteria. While many standard coverages are available, lots of other optional coverages are also available at an additional cost. Just today, I was discussing photography equipment with a co-worker. She and her husband have a large assortment of equipment in their home and are concerned about theft. Unfortunately, they don’t have the items scheduled on a floater policy designed to cover photography equipment. If something were to happen to the equipment, they would only recover a small amount (usually around $500) of the value. I strongly suggested that she contact her insurance company and explore the cost to cover the equipment. If you have anything of a similar nature (including electronics, artwork, jewelry, furs, and collectibles, to name a few), you should definitely inquire as to how your insurance company will insure them. Remember, these valuables are generally covered only for a small limit on your home insurance policy. Of course, if the cost is too high relative to their value to you, you can always forgo the coverage. However, you will have at least asked the question and made an informed decision.
It’s important to remember that your home insurance is a purchase that requires quite a bit of evaluation and thought on your part. You will always have to make some choices to select the best blend of coverages for your needs at the right cost. While there are some off-the-shelf policies, making some tough decisions will help you purchase better coverage and, often, at a better price.