Low Cost Home Insurance: Savings Versus Coverage

It’s only natural to want to buy low cost home insurance; no savvy shopper overlooks ways to save.

But remember the old saying “penny wise, pound foolish.” The bottom line: knowing what you may encounter in the future while you’re saving a few dollars today.

What’s Covered by Your Home Insurance Policy and What’s Not
It’s true that mortgage lenders require only the minimum amount of homeowners insurance, which enables you to take advantage of the low cost home insurance rates that are available. But if you decide to go that route, it’s important that you understand the risks you may be taking with your home.  Risks that could cause you financial hardship down the road should you need to rebuild you home from top to bottom.

Almost any standard homeowners insurance policy provides coverage for damage to your home (and many of the items in your home) caused by theft, fire, lightning, smoke, frozen pipes, ice and snow. It also covers liability claims, medical payments to third parties and legal costs if a lawsuit is brought against you.

Most policies exclude damages caused by an act of war, nuclear accident, flood, earthquake and terrorism.

If you live in an area of the country where floods or earthquakes occur and you do not have these covered in your policy, you’ll want to talk to your insurance agent when getting quotes from other insurance companies. You may find that switching to a different insurance provider will cover you for floods or earthquakes for just a bit more than you’re paying now.

Take Inventory of Your Property
Standard policies also limit coverage on high-priced items like engagement rings, watches, furs, antiques and other valuables. Rather than making a guess or settling for low cost home insurance that doesn’t cover such items, make a complete home inventory.

Take pictures or video of your:

• Furniture
• Jewelry
• Artwork
• Antiques
• Appliances
• Computer equipment and other electronics
• Other items of value.

Keep this information and any other identification materials somewhere safe. Now you can make an informed decision as to how much insurance you should carry for these items. What’s more, you’ll have an accurate record of your possessions on hand in the event of a disaster.

Cash Value vs. Replacement
Low cost home insurance can potentially shortchange you when it comes to valuing property.

Insurers generally use one of two methods for reimbursement when you submit a claim:

1. Actual Cash Value (ACV) pays you an amount equal to the replacement value of the property minus depreciation for the years you have owned the item.
2. Replacement cost is more expensive, but it pays you the full value of the item today so that you can replace the old item with a new one.

Rather than taking long term risks with your home and your belongings by going with the lowest possible insurance policy, shop around for the best policy that also fits your budget. It’s very likely that you’ll find that you can be safely covered without breaking the bank.