Guidelines for Buying Renters or Homeowners Insurance

Charity Delich

1-30-2010

Sally moved into a newly-renovated apartment in Manhattan. She felt like a queen. It was her first home – without roommates. She painted, purchased new furniture, and set up the place of her dreams. And then, disaster struck! Sally’s radiator leaked while she was out of town. Her apartment flooded, destroying all of her new furniture, jewelry, clothing, and electronic equipment. The building owner covered structural damages, but Sally was out of luck for her personal possessions.

Sound unlikely? It isn’t! This scenario describes just one of the things that can happen to you, whether you’re a homeowner or a renter. Break-ins, fires, earthquakes, and smoke damage are some of the other risks your home faces. Getting a good insurance policy that covers your apartment, condo, or house should be a top priority. Here are ten tips to consider when purchasing your renters or homeowners insurance policy:

1. Take inventory of your personal property

Your first task is to create an inventory of your personal property, which is a room-by-room assessment of everything in your house. Account for your furniture, electronics, clothing, dishes, artwork, jewelry, and any other personal items. Homeinsurance.com and the National Association of Insurance Commissioners each offer a checklist that you can use as a guideline when documenting your goods. Videotaping your inventory of possessions is another option. Be sure to store the video at a location outside your home in a water and fire proof safe.

2. Determine how much insurance coverage you need

After taking inventory of your personal property, you should estimate the value of your possessions before securing a quote. Try an online calculator such as Geico’s property calculator to estimate the value of your total inventory.. Keep in mind that insurance policies usually come in increments of $5,000 or $10,000 so you’ll want to round up to the next coverage level. For example, if you have $32,000 worth of personal property in your apartment, you’ll want a policy that covers $35,000 in personal property damages.

Renter’s insurance just needs to cover the value of your personal property, as you won’t be liable for any structural damages. If you own a home, your coverage amount will need to include your personal property as well as the value of your actual house. Square footage, building costs in the area, and the type of construction materials used on the house are some of the factors that will impact this figure. You will also need to estimate the value of any structures on the property, such as a detached garage or storage shed. Homeinsurance.com’s home insurance calculator helps you estimate insurance requirements based on the location and square footage of your home.

3. Know the difference between policy types

Some insurance policies only protect the actual cash value (ACV) of your goods. Avoid these policies because they typically only pay you what your goods would be worth if you sold them at a garage sale. Instead, look for policies that cover the complete replacement cost of your goods. These policies usually have higher premiums or deductibles, but they will cover the entire replacement cost of your possessions.

Homeowners should select a policy that covers the replacement cost of personal possessions as well as the cost of rebuilding or repairing their homes. A guaranteed replacement cost policy usually pays out enough to cover the cost of rebuilding a house as it existed before the damage occurred. An extended replacement cost policy, on the other hand, pays a certain percentage over the policy limit.

For example, suppose that your house valued at $200,000 burns down. A guaranteed replacement cost policy would pay you $200,000 to rebuild it. You’d receive $240,000 to rebuild your house if you have an extended replacement cost policy that pays you twenty percent over the actual value.

4. Evaluate your policy needs

Decide which potential disasters or liabilities you may need coverage for before getting a renters or homeowners insurance quote. Ideally, your policy should cover you against fire, lightening, smoke, and accidental water leaks or flooding damage. Your policy should also cover damages from theft, vandalism, and windstorms. You may also need earthquake or hurricane coverage, depending on where you live.

Some policies offer liability protection, which generally covers medical expenses for third parties who are injured while at your home. For example, suppose that your dog bites a delivery man, and the delivery man sues you for damages. Liability coverage would kick-in and help off-set or eliminate your costs. This type of coverage is particularly important if you operate a business out of your home.

5. Research insurance companies

Thoroughly assess at least four insurance companies when looking for the best insurance policy quote. Look for a company that is established and financially solid. Price is simply one factor. Compare each company’s customer service record, claims payout policies, insurance policy offerings, billing methods, and satisfaction ratings. J.D. Power and A.M. Best both offer detailed rating information on a host of insurance companies.

A multitude of websites let you compare insurance companies by price. Some of the best comparison sites to check out are insure.com, InsureMe, and insurance.com.

Keep in mind that online quotes are not final until your credit score, home location, and insurance claims history are factored in. Contact an insurance representative after you receive your online quote, as they will be able to give you a more precise calculation of your premiums.

6. Consider increasing your insurance deductible

The term deductible refers to the amount of cash you’ll need to contribute toward your loss before the insurance company pays out. Carefully review deductible requirements when comparing homeowners and renters insurance information. Many companies will lower your homeowners or renters insurance payments (also called premiums) if you raise your deductible.

For instance, suppose that a deductible starts at $250. Some companies will offer you a ten percent or greater discount on your premiums if you raise that deductible to $500. Increasing it to $1,000 could help you save as much as 25 percent, and a $5,000 deductible could mean up to 40 percent in savings. Regardless of which deductible level you select, make sure that you can afford to pay this amount if something were to happen to your home or personal property.

7. Look for package deals

Many companies offer deeper discounts for insurance policy holders who want to package their home or renters policies with other types of insurance. For example, a company may give you an additional discount if you insure both your car and your apartment with them. Keep this in mind when you shop around for the best deal.

8. Remember that safety counts

What do security systems, smoke detectors, and fire extinguishers have in common? Savings! These features make your home less of an insurance policy risk, and most companies offer additional discounts for these safety features. Other features that you should note include fire walls, indoor sprinkler systems, and dead bolt locks.

The type of security system that you have can make a difference. As a general rule, better systems mean better discounts. You could save an additional 15 to 20 percent simply by installing a top-rated security system.

9. Pay your premiums the smart way

Some companies offer you a discount if you pay your entire six or twelve month premium upfront instead of making monthly payments. A company may also reduce your bill if you sign up for automatic electronic payments. Some insurance providers charge as much as $5.00 for a payment that is mailed or phoned in.

10. Make the most of other discounts

Mention your college, company, professional association, or other memberships when asking for a quote, as insurance providers often give greater discounts to association or group members. It may help you shave a few extra percentage points off your bill. You may also receive a discount through your credit union, bank, or credit card company.

Loyalty also counts. Many insurance companies give you a break after you’ve been with them for a few years. For example, some providers will lower your premium by five percent if you’ve been with them for three to five years. Other companies offer you up to a ten percent discount after you’ve hit the six year mark. It never hurts to ask what discounts you qualify for!

Shopping for homeowners or renters can be tedious, but the end result is worth the hassle. Your property will be protected, and you will have greater piece of mind once you become an insurance policy owner.