Homeowners insurance explained.

Homeowners insurance which is also known as a domestic package insurance usually covers against any damage to a residence be it internal or external. The homeowner insurance also covers the homeowner against theft of any personal possession or property and any cost of harm that may occur to anyone who visits or lives in the residence such as visitors or employees. When a person applies for a mortgage loan the company issuing the mortgage usually has a requirement that you must have a homeowners insurance and you must submit proof. For those who own or are in the process of owning a home they are required to have a home insurance but for those that are renting a house or an apartment they are supposed to take a renter’s insurance.

What a homeowners insurance covers.

Homeowners insurance

 This insurance will cover damage to your house that result due to a fire, vandalism, and hurricane or any type of event that is outlined in your policy depending on the insurance provider. In the event that one of these disasters strike the insurance company will provide the cost for repair. During a separate event such as a flood or damage to the home due to the owner’s negligence or poor upkeep then the insurance will not cover that and so you will need a separate policy for that. The insurance will also not cover any separate structure such as a garage or a tool shed.

During an event or a disaster that is clearly outlined in the policy the items covered will include your personal possessions such as clothes, kitchen equipment and furniture. Other items such as expensive jewelry that may get lost away from the residence will be covered but not 100% but only about 50% or 70%.

1.Damage or injury liability cover

 Whenever a visitor or a guest gets injured in your home or residence they sometimes decide to sue you. Well this insurance cover will cater for such incidences. It will also cover any injury that your pet may cause to others even in their homes plus if your children caused any damage at the neighbor’s house that may result to any physical or bodily harm.

2.Hotel or rental costs

 In the unlikely event that your house has been damaged under the agreed disasters stated in the policy the insurance company will cover any cost of hotel room, meals or a rental house for your family while your house is under renovation.

What is not covered by homeowners insurance.

Natural disasters

Most natural disasters such as floods are not covered  in the insurance policy and you may have to add separate policies if you live near an area prone to these “acts of god”. Other natural disasters include hurricanes or earthquakes and also you may need a cover for identity theft just in case someone gets a hold of your documents and decides to assume your identity.

War and violence.

War and violence related to war stricken areas are not covered in the policy such as the residences of the Ukrainian towns being bombed by Russian troops. Another policy that you can add on top of this is a sewer backup cover just in case the drainage blocks and reverses into your house causing unspeakable damage.

Types of homeowners insurance.

1.Actual cash value

This insurance covers the actual worth of property currently at the residence at the current cost that is after reduction on depreciation. This cover will not cater for the total cost of construction if the market changes due to inflation or depreciation and so not 100% of the house will be covered.

2.Replacement cost

This insurance covers the cost of the property plus its contents available at the premise and the cost of purchasing new ones or restoring the home to its original state after the disaster.

3.Guaranteed replacement cost

This insurance policy covers the replacement cost of the items at whatever the cost regardless of the policy limit and sometimes it may even be more than the limit but mostly it will not go more than 25% with most insurance companies. This is the best type of cover because most of the time market prices for construction materials and house furniture will fluctuate and so you will never know when the disaster will strike and the current market conditions at the time for home rebuilding costs. Other insurance companies offer an extended home insurance cover to its clients which covers the insured for more premium than they paid for which will help him cover the cost when construction prices go up.

Why you might not get homeowners insurance .

1.Rigorous process : A homeowner will have to go through a rigorous process of background checks about the home before an insurance company decides to insure it. The insurance company usually weighs the risk of the house with past homeowners experience with insurance claims and also the past damage causes to the house and the likelihood of another occurrence. The homeowner will also receive scrutiny on his past claims against insurance companies and his credit rating to determining his risk factor as a client.

2.Consideration of previous claims: The major factors that are considered are if the insured has had multiple claims in the past and the amount of the claims which will relate to the cause of the damage in the first place. If the homeowner has had previous claims against his house that were caused by the same issue such as a sewer backup then the risk factor will increase together with the insurance rate of the client. Some homeowners have had so many claims in the past that insurance companies can’t insure their houses anymore.        

3.Profitability scale: A profitability scale is usually drawn up that indicates how much of a risk factor a client can be which will affect the profits of the insurance company which is actually in the market to insure its clients while making profits in the process.

4.Location of the house: Other factors that will affect the insurance rates include the area the house is located. This will mean that if the house is built on a dangerous water terrain it will get damaged by water often due to a blocked water path or floods. Crime rates in the neighborhood will also increase the insurance rates where areas that are prone to criminal activities will be seen as too risky to insure.For those areas that lack in construction materials shops or a trained labor force the insurance rates will increase due to replacement costs going up. The material that was used to build the house will also matter plus what the client is keeping inside the house meaning if he has expensive jewelry, antiques or a fine art collection the rate will obviously be higher.

5.Age of the house: The age of the building will also matter and how well it has been preserved. If the house had an owner who knew how to maintain it then it will be in perfect condition and the company inspector may approve it for insurance. Other factors that may affect the state of a house may be a pet such as a large dog that is out of control and leaves a lot of damage around the house.

6.Other extended costs: This will also affect the rate depending on how much cover the homeowner wishes to have. These eventually will go down to the various amenities the building has such as a swimming pool, a jacuzzi bathtub, sauna, gym, water heating equipment, helicopter landing pad, indoor home cinema, tennis court, roofing material, security systems installed and also proximity to the water bodies like a beach house or a lake house. The more sophisticated the house,the more expensive it is to insure meaning the rates will be high.

How to reduce the insurance premium.

1.Set up a security system

When an insurance company comes to inspect your hour house and they don’t find a security system setup such cameras or alarm systems they calculate that in the event that a disaster strikes there will be an increased possibility of total damage due to the lack of a warning system.

Cameras will help the owner notice a fire in its initial stages and put it out entirely or isolate the room to prevent it from spreading to other areas and also save the people or any object of worth from harm. An alarm will caution everyone out to safety while also call for a fire truck to come and help put out the fire. The video footage obtained from the camera will also be used as proof in the insurance claim report for the insurance company to determine the cause of the fire.

The presence of the security system will help assure the company that the damage will be minimal in the event of a disaster and so the premium will reduce if there is proof of an approved security system installed. Other fire detection systems such as water sprinklers and smoke detectors also help. A burglar will also be scared away by presence of security cameras and a 24 hour monitoring company.

2.Ask for discounts

When you pay for an insurance policy they usually offer discounts on a single client with multiple policies in the same company. It will greatly reduce the cost of monthly or annual premiums when you apply for different policies in the same insurance company. You will receive discounts when you apply for life or health insurance at the same place that offers you home insurance thus making it cheaper than taking them separately.

3.Plan the construction

When you are deciding to build your house the materials used to construct the amount of premium charged to insure it. For example if you build the house or any structure adjoined to it using wood it will be expensive to insure it because wood catches fire very easily and so the house will be seen as a fire hazard as compared to a concrete house which is strong and quite adaptable to extreme weather conditions. Also any dangerous equipment or structure inside or near the house such as a swimming pool or a trampoline will be deemed too high risk due to increased possibility of fatal injuries when using them. To reduce the cost of insurance these dangerous objects are to be avoided near a house.

4.Pay a high deductible

Paying a high deductible will reduce the amount of premium to be paid.

5.Clear the mortgage

When an insurance company is calculating the risk factor of a house one of the key principles they check to confirm is the mortgage status. This is because they deduce that if you pay off your mortgage then the house is yours entirely and therefore you will take good care of it.

6.Check for cost cutting options

When you have paid for an insurance policy you should keep checking for cheaper options in the market for a similar policy such as competing companies that may be charging less. Other policies also offer upgrade options for customers who have improved their houses from the first day of inspection in many ways such as installing new sprinklers or security systems. If your status has also changed since the first day, such as mortgage status cleared, the premium may be reduced to match the current state of things at the house.

Sometimes the improvements might not be done by you or anyone living in the house. Some improvements such as construction of a fire station close to the location of the house by the local authority will reduce the cost of annual premiums due to the reduced risk of fire causing total damage to the house and its possessions.

7.Policy duration

Certain insurance companies offer customer loyalty programs to reward clients who have stayed for a long time with the company. The reward may be a reduced annual premium on the side of the loyal client.

“Therefore, it is wise to take note of every single piece of object that you have in your house and make an effort to keep regular checkup of current market cost of purchasing those items and compare with the total sum insured in the policy.”

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