If you’ve just bought a new home, congratulations! It’s a big step in anyone’s life. It’s also a key time to review your insurance needs.
After all, a home is, for most of us, our biggest investment, a huge financial commitment and the place that keeps us warm and dry. As a new homeowner, now is also a great time to take inventory of all of your insurance needs — not just homeowners insurance, but also life insurance, auto insurance and other coverage.
You can’t buy a home without homeowners insurance, assuming you have a mortgage. Homeowners insurance allows you to repair your home after damage from such perils as fire, storms and vandalism. Howeowners insurance also pays the value of stolen, damaged or destroyed possessions and covers any liability arising from your role as homeowner.
You’ll need enough coverage to allow you to replace your things and to rebuild your home, if that’s necessary. Making an inventory of your possessions will help you quantify their value and is essential if you need to make a claim. The inventory should include serial numbers, purchase dates, values, receipts and photos.
You’ll need to choose a deductible, which should be the amount you’re comfortable paying out of pocket in case of a claim. You can save money overall by accepting a higher deductible. Remember that insurance is primarily meant to protect against big losses.
You can also consider paying extra for insurance that covers the following:
- Living expenses while your home is unusable. This might make sense if you live in an area at high risk of natural disasters.
- The replacement cost of possessions, rather than their value.
- Expensive collectibles that might not be covered under your standard policy.
Homeowners insurance covers water falling from the sky and getting into your house through, say, a hole in your roof or a broken window. But water rising up from below requires flood insurance.
You are required to have flood insurance if your home is in a high-risk zone and has a mortgage from a federally regulated or insured lender, as most do. But even if you own your home free and clear, it’s smart to buy flood insurance if you live in a high-risk zone. If you live in a moderate-risk flood zone, you probably aren’t required to have flood insurance, but you might want to consider it anyway.
The federal government administers the National Flood Insurance Program and partners with about 80 companies, including the nation’s largest insurers, to sell and service policies. The government sets the rates and coverage levels, making service the only differentiator among agents and companies selling policies.
Flood insurance generally covers the home’s structure and your possessions, with important exclusions, such as finishings and furniture in basements. You can buy coverage up to $250,000 for a structure and $100,000 for possessions. Beyond that, you would need to buy excess flood insurance on the private market.
Standard homeowners policies don’t cover earthquake damage. For that you will have to buy earthquake insurance from your homeowners carrier or a separate company. In California, coverage is provided by the California Earthquake Authority, a privately funded, publicly managed not-for-profit.
Earthquake insurance is a hard sell. Not only is it expensive, but the typical policy has a 15% deductible, meaning that if a $200,000 home were completely destroyed, the policy would only pay out $170,000.
Only about 7% of American homeowners have earthquake coverage, although the number rises to 10% in the West and 12% in California, according to the Insurance Information Institute, an industry group. Balance the cost of coverage against consideration of what you would do if a quake destroyed your home.
Although you probably already have coverage, as a new homeowner now is a good time to get new car insurance quotes.
For one thing, factors that affect car insurance rates have changed, including where you live and possibly how much you drive. The company that offered you the lowest rate before may no longer be your best choice.
Also, you might be able to save money by bundling your auto and homeowners policies. Contact an agent to see whether this is possible.
If you don’t have life insurance already, you might want to consider it, particularly if you bought a home with your partner of if you live with dependents. A home is a big financial obligation, which your partner probably can’t cover alone. If you already have life insurance, you might want to revisit your coverage level. For most people, term life insurance is the best option.
Your homeowners insurance covers your liability when your dog bites someone, for instance, or when someone’s injured on your property. Your auto insurance covers medical payments and damages stemming from a car accident where you’re at fault. But the cost of those damages can easily surpass the liability limits of those policies, especially if the victim sues you and wins.
That’s where umbrella coverage comes in. Umbrella insurance provides extra liability coverage that kicks in after other policies hit their limits. It also protects against such claims as libel, slander and defamation.
Now that you know which policies to consider or review, it’s time to see which company or companies offer you the best combination of price and service for your needs. NerdWallet tools provide instant quote estimates for auto insurance and life insurance. J.D. Power and Consumer Reports are good places to turn to for insurer service ratings. You also might want to check financial strength ratings at A.M. Best. Finally, an insurance agent can help evaluate your needs and potential solutions.
Aubrey Cohen is a staff writer at NerdWallet, a personal finance website.
Image via iStock.