Shop around to get right home insurance policy


What kind of homeowner's insurance will you need?

Before you can complete a home purchase, the lender will require that you take out a homeowner's insurance policy and prepay one year's premium at closing. Even if you can pay all cash for a home, you're wise to insure it against loss.

Insurance premiums can vary significantly from one company to the next, so shop around before making a choice. When making comparisons, be sure that you receive quotes for equivalent coverage. Also, talk to someone who recently made an insurance claim with a company you're considering. Consumer Reports magazine rated homeowner's insurance companies according to customer satisfaction in its October 1993 issue.

In most cases, you will want a guaranteed-replacement-cost policy, which will pay to rebuild your home even if the cost to rebuild exceeds your policy limit.

Some insurance companies won't issue a guaranteed-replacement-cost policy on an older home. But insurance companies differ greatly on how they insure older homes. Also, be aware when insuring an older home that many policies won't pay the cost to upgrade your home to meet current code requirements if you must rebuild. You may be able to buy an endorsement to cover the cost of code upgrades. An endorsement is an attachment to an insurance policy that changes the coverage.

Your insurance policy will have limitations on coverage. Most policies won't cover losses from flooding, earthquakes or slides. You may be able to buy endorsements to cover such disasters.

Most homeowner's insurance policies limit personal-property coverage to 50 percent or 75 percent of the amount of insurance on the dwelling. If this is not enough, consider upgrading your personal-property coverage.

Condominium buyers usually have insurance coverage provided through the homeowner's association. This coverage won't cover your personal possessions, liability or the interior of the dwelling. Get whatever additional coverage you'll need to protect yourself.

The amount of insurance coverage you'll need will change over time because of such factors as improvements you make to the property, inflation and changes in building costs. You may want to consider adding an "inflation guard clause" to your policy, which will automatically increase your coverage over time. Even if your policy has a built-in inflation guard, review your insurance coverage annually and upgrade when necessary.

FIRST-TIME TIP: You can save money on homeowner's insurance by increasing the deductible amount on the policy. The deductible is the amount that the homeowner will pay on a claim. It could reduce your annual premium by up to 25 percent.

For more information about homeowner's insurance, call the National Insurance Consumer Hotline (800) 942-4242.

Dian Hymer's column is syndicated through Inman News Features. Send questions and comments care of Inman News Features, 5335 College Avenue, No. 25, Oakland, Calif., 94618.

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