9 key things to think about before insuring your home
How to get home insurance right
5 May 2021
There’s nothing quite like the feeling of happiness when you pick up the keys to a new home and get ready to move in. You have endless lists of jobs you need to do, from picking out paint shades for the kitchen and bathroom, to unpacking your belongings, buying new ones, and inviting over your friends and family to toast a new chapter.
“Home insurance is non-negotiable for peace of mind, so you don’t have to worry about the unexpected while you get on with the important business of being happy and enjoying your life,” says SmartCitti’s Happiness Architect Dr Al-Husban.
Here’s SmartCitti’s comprehensive guide to what you should consider before insuring your home.
Home insurance is often non-negotiable and a legal requirement
If you’re planning to get a mortgage to finance a residential real estate purchase, mortgage companies are unlikely to make a loan without proof of insurance coverage for the full value of the property (most often the purchase price).
When renting a property, landlords are likely to require proof of renter’s insurance before you move in.
“Whether you’re renting or buying, taking out comprehensive home insurance is always a wise option. The cost of not having protection for you and your loved ones when disaster strikes could be huge, both financially and emotionally,” says Dr Al-Husban. “Remember, happiness is always priceless.”
What to consider when buying home insurance?
“Before taking out home insurance, it’s worth sitting down and working out the worst-case scenarios and how much not having the right insurance coverage might cost you financially further down the road,” says Mark Chappell, President of SmartCitti U.S.
“If there was a natural disaster such as a hurricane, earthquake, flood, or fire, your entire home might need rebuilding from the foundations up and taking out the right insurance would cover the full cost.”
This would likely end up costing far more than the price of your mortgage, or the current market value of your property, because the cost of buying building materials and hiring construction workers would be billable at today’s prices, rather than what they cost when your home was originally built.
You would also need to buy new furniture, fittings, and electrical items, as well as decorating the inside of your rebuilt home, and buying replacement items such as new clothing for you and your family.
If you need to move out of your home and rent somewhere for a few months or more, you’ll be grateful if you were also covered for the cost of that, which can run into tens of thousands of dollars.
The right home insurance would also pay your legal costs and full liability coverage if a visitor to your home was injured and then sued you.
As well as weather-related disasters, there’s also home break ins to consider. Will your coverage pay back the cost of buying new items if you were burglarized? If so, which ones?
How to make a full inventory of your home
When you’re considering your home insurance coverage needs, it’s crucial to make a full inventory of your goods, including things like electrical items, valuable jewelry, artwork, designer handbags and clothes, plus sporting goods and musical instruments.
“You’d be surprised at how easy it is to forget what you once owned after a house fire, or flood, for example, or when trying to report a home invasion to the police,” says Mark Chappell. “But also, it ensures you’re fully covered for the correct amount if you ever need to make a claim.”
The best way to do this is using an Excel spreadsheet which you store in an online Dropbox or similar that you can access from any computer or your cell phone. Don’t forget to make a note of the password so you can easily access it if you ever need to. You could also keep a hard copy printed out, but keep it with a trusted relative, neighbor, or friend.
Go from room to room in your home and write down everything you own. Include antiques, clothes, furniture such as beds and sofas, sporting goods, electrical items such as washing machines, computers, laptops, and televisions and upload any copies of receipts you have kept for the cost of purchasing these items. Keep the hard copies of these receipts in a safe place also.
Remember to make a new home inventory every year
“Even if you made a full inventory of your household items a few years ago, it’s always a good idea to make a new one each year or you could end up underinsured,” advises Mark Chappell.
The right insurance policy will cover the cost of replacing these items if they were stolen by thieves or destroyed by fire or flood. This type of home insurance is different from the cover you’d have from a home warranty which covers the cost of replacing such items when they wear out or break down.
Consider whether you need extra coverage for floods and earthquakes
With a good idea of what you would like to be covered for, you’ll be fully prepared to look at exactly what any policy you’re considering buying covers, and you’ll know what you’d have to pay out for yourself in the event of a theft, electrical fire, or natural disaster.
“Keep in mind that sometimes insurance companies might cover you in the event of a fire, or storm damage, but if you live in an area of the US that’s prone to flooding, or earthquakes, you might need to take out extra home insurance,” Mark Chappell advises.
You may be moving to a new area of the country or a US state you’re not fully familiar with, so look online and search to check if you’ll be moving to a fault line where you might need to take out extra earthquake insurance, or somewhere where there’s a high risk of flooding, or perhaps you might need to check you’re fully covered in the event of forest fires in summer.
Should you take out auto insurance with your home insurance coverage?
While you’re considering your home insurance needs, why not check your auto insurance policies are up to date too? Perhaps you have teenagers in the family who will be learning to drive soon, or maybe you’d like to double check that your family vehicles are also covered in the event of a natural disaster, along with your home?
Do you need to buy renter’s insurance for teens at college or seniors in your family?
It’s a good idea to consider whether you have a senior relative who’s perhaps retiring and planning to move to a new home soon, or a teenager who’s going off to college and if so, it could be a good idea to take out multiple home insurance policies to cover them with one sole insurance provider.
You might want to help family members switch their existing policies over to your insurance provider, so you know you and your loved ones are all covered and what for.
“Being informed and prepared is always best when it comes to insuring your home,” says Mark Chappell. “Future-proofing you and your loved ones and feeling secure is one of the keys to feeling happy and well-protected as you build memories to cherish in your new home.”
Once you have taken the time to come up with a really good idea of what you want to be covered for, you’ll be ready to start shopping for coverage to suit your specific needs.
What are the different types of homeowner’s insurance?
In the US, home insurance is designated from HO-1 through HO-5 which provide varying levels of cover from basic to premium.
You can usually customize your policy to suit any specific needs, but there’s three different levels of coverage to keep in mind when selecting your home insurance policy.
These are: Guaranteed (or extended) replacement cost/value, actual cash value, and replacement cost.
Guaranteed (or extended) replacement cost/value
This level offers the most extensive coverage, and should the worst happen you’d be fully covered. For most insurance providers this is the recommended option for home insurance because you’re covered for the entire cost of rebuilding your home if necessary.
It is crucial to factor in that you would need to rebuild your home at current market prices, rather than how much your home cost to build or purchase which may work out at less than it would cost to do now.
Whilst it might be tempting to think you only need insurance that covers the value of your mortgage, that usually works out at around 90% of the current value of your home.
Replacement cost insurance pays out the original value of your home and possessions that they cost back when you purchased them. This means that if you bought your home for say, $400,000, and your goods such as all your furniture and electrical items cost you $100,000 to purchase, then you’d be covered for $500,000 in total. But keep in mind if you need to rebuild your home and the price of building labor and materials has gone up by $100,000 since you purchased the property, then you wouldn’t be covered for that extra cost.
Actual cash value
This level of coverage would pay out the total value of your home and items as they are today, considering the cost of depreciation. Put simply, if your television cost $1000 to buy but is now worth $200 because it has devalued over time, this type of insurance policy would pay out $200 to replace your television, rather than the $1000 it originally cost you to purchase. The same logic would also apply to the cost of rebuilding your home. If you paid $400,000 for your home five years ago but the property market has since dipped and it’s currently valued at $250,000, then that’s the amount your insurance provider would pay out to you.
How to easily compare costs and home insurance coverage
The days of driving along to your town’s local insurance broker and having them phone around insurance carriers on your behalf to get a quote are long gone. Nowadays you can easily shop for home insurance coverage from your cell and compare policies and costs at the touch of a button.
An app like SmartCitti allows you to shop for the best home insurance and renter’s insurance coverage from a selection of well-known carriers, all at the touch of a button. You can also take out auto insurance if ever you need to.
“Once you’re covered, you can add a new property to be insured or take out auto insurance in your Home Hub,” says Mark Chappell. “It’s simple to track all your warranties, insure new items, make claims, leave feedback, and interact with other members of the community, including your friends and family, all from one simple-to-use app.”
You can download a digital twin of your real world and have fun while making sure that you and your loved ones are happy, safe, and well-protected. Why not download SmartCitti's app and try it today?