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The cost of homeowners insurance is rising in response to inflationary pressure, supply chain disruptions, and increased labor and material costs to build a home. In 2022, homeowners spend an average of $1,383 per year for $250,000 in dwelling coverage. In this blog post, we’ll answer all of your homeowners insurance questions and give you tips for saving on your policy.
What does homeowners insurance protect against?
Your homeowners insurance policy is divided into three coverage types to defend different parts of your property:
- Dwelling insurance protects your house and its individual components, such as the roof and plumbing
- Personal property insurance covers personal belongings that are stored in your home, such as furniture, clothes, jewelry, and electronics.
- Liability insurance covers your legal costs if someone sues over sustaining an injury on your property.
How do you determine the amount of homeowners insurance needed before buying a house?
To get a rough estimate of your homeowners insurance premium, you’ll want to consider the following questions:
- How much would it cost to rebuild the home in today’s market?
- Is your home exposed to any regional risks like flooding or fire damage?
- Excluding vehicles, what is the estimated value of the personal possessions of all household members?
- If you were to be sued, what is the total value of your at-risk assets?
Going over these questions will help you evaluate the coverage limits you need in your homeowners insurance policy.
What’s the difference between actual cash value and replacement cost value when selecting your policy?
Replacement Cost Value (RCV) insurance is determined by evaluating what a like-item would sell for in the current market. For example, let’s say you have a 55" LED Smart TV, and you've owned it for five years. Under an RCV policy, the payout from your insurance company would offer enough money to replace that item (for a similar item) at the current purchase price.
With an Actual Cash Value (ACV) policy, the amount an insurance company will pay to replace a certain item is the Replacement Cost Value minus depreciation.
In the example above involving the loss of a 55'' LED Smart TV, the payout using ACV would be less than the market value which would result in you paying the difference as an out-of-pocket expense if you tried to go buy a similar TV in today's market.
Will my homeowners insurance increase if I rent out the house?
If you have plans to lease your home to an individual or family for at least six months, you will probably need a landlord or rental dwelling policy. These policies typically cost about 25% more than a standard homeowners policy to account for increased risks to the property.
Is home insurance tax deductible?
No, homeowners insurance premiums are generally not tax-deductible.
How can I save money on my homeowners insurance premium?
As a homeowner, you’ve probably noticed that your homeowners insurance premiums have increased over time. This is common and to be expected, but that doesn’t mean you can’t take some steps to lower these costs. Here are some tips for saving money on your premiums:
- Ask about discounts
- Shop around, then let your policy mature to take advantage of lower rates
- Maintain or improve your credit score
- Increase your deductible
- Bundle your policies
Is a basic homeowners insurance policy enough coverage for my needs?
If you’ve enjoyed success in your career and finances in the past few years, you may have outgrown your basic homeowners insurance policy.
If any of the following situations sound familiar, you may benefit from additional insurance coverage for your home and assets:
- Your home is valued at over $500,000
- The cost to completely rebuild your home is over $500,000
- Your home is custom-built or designed
- You have high-end personal items in the home, including high-end electronics and appliances, fine art, and costly amenities such as marble countertops or imported kitchen tile.
- You need to protect sizable financial assets
If you think you may have outgrown your current homeowners insurance policy, contact your insurance agent to discuss your situation and make sure you have adequate protection.
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