Laura reviews what you should know about homeowners and renters insurance to maximize benefits and cut costs.
Laura reviews what you should know about homeowners and renters insurance to maximize benefits and cut costs.
Money Girl is hosted by Laura Adams. A transcript is available at Simplecast.
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Understanding homeowners and renters insurance is crucial for protecting your property, legal liability, and financial well-being. This post will review five things you should know about these policies to make informed decisions, maximize benefits, and cut costs.
Welcome back to episode 914 of Money Girl! I'm Laura Adams, an award-winning author, on-camera spokesperson, female money speaker, founder of The Money Stack, a Substack newsletter, and host of this podcast with over 43 million downloads.
If you enjoy the free content we love creating for you, please take a moment to rate and review the show in your podcast app! If you have a question about money, leave it on our voicemail at 302-364-0308. You can also visit LauraDAdams.com to email me and learn more about my books, courses, and the free Money Stack newsletter.
5 things you should know about home and renters insurance
Whether you own or rent your home, having insurance is an essential financial safety net that protects you from potentially devastating losses. Here are five key things you should know about homeowners and renters insurance.
1. Not every kind of damage is covered.
When you purchase a standard homeowners policy, it pays for the following types of claims up to certain limits:
If you're a renter, you also need insurance. Your landlord likely has insurance for the structure of your rental, but they usually don't insure your personal belongings or liability.
Renters insurance gives the same protections as homeowners' policy, except for dwelling coverage. You get coverage for personal belongings, liability, and additional living expenses.
Unfortunately, many renters skip insurance because they mistakenly believe their landlord would pay to repair or replace their damaged or stolen possessions. Some may think a renters policy is too expensive. The good news is that a typical renters policy is affordable, costing just $170 per year on average across the U.S.
While home and renters insurance gives you significant coverage, it doesn't extend to all natural disasters. Some disasters are expressly excluded, such as earthquakes and flooding from groundwater.
If you live in an earthquake-prone area, you can typically add earthquake coverage to a home or renters policy. However, flooding is a different category of insurance that you must purchase separately.
Flooding gets handled differently than other disasters because it's the nation's most common and expensive disaster. Floods can happen anywhere and don't have to be catastrophic to cause significant damage.
If your town or community participates in the National Flood Insurance Program, you can buy flood insurance for your rental or home through that program. And if you purchase a home in a designated flood zone, mortgage lenders typically require you to have flood insurance.
Even though the federal government backs flood insurance, it gets brokered by regular insurance companies or agents. You can learn more at floodsmart.gov. Most flood policies have a 30-day waiting period, so you can't wait until a storm is bearing down on you to sign up.
Remember that water damage from rain, high winds, or a tree falling on your roof is covered by a standard home or renters insurance policy. However, damages to your home or personal belongings due to rising groundwater are never insured, except up to the limits of a separate flood insurance policy.
Also, note that you typically need business insurance if you have a home-based business with inventory, specialized equipment, or customers who enter your property. Likewise, if you turn your home into a rental, Airbnb, or vacation property, you generally need additional coverage or a landlord insurance policy.
With home and renters insurance, your belongings are insured outside your home, known as off-premise coverage. For example, if your laptop gets stolen from your car or your vacation luggage gets lost, your homeowner or renters policy covers it up to your off-premises policy limits.
RELATED: Will renting or owning a home make you wealthier?
2. Certain belongings have low coverage limits.
Like every disaster isn't covered, not all personal belongings are protected by a home or renters policy. Some belongings, such as cash or bullion, are never covered; others come with caps.
For instance, jewelry, watches, furs, silverware, electronics, and firearms are typically limited to one or two thousand dollars. Therefore, if you have jewelry worth $10,000 and lost or stolen, you'd come up $8,000 short with just $2,000 of coverage.
If you have items worth more than insurance coverage caps, you can add an insurance rider to expand protections for that item. This addition is known as "scheduling" your personal property. It costs more but gives your most expensive items separate coverage so you can replace them.
So, pay attention to the insurance limits for possessions inside and outside your home. Consider adding a rider or property schedule to boost coverage when needed for valuable items.
3. There's a big difference between actual and replacement coverage.
Knowing how much money you'd receive from a renters or home insurance claim can be confusing. So be sure you understand the different types of policies you can buy.
One is actual cash value (ACV) coverage, which pays to repair or replace your property or possessions up to the policy limits minus a depreciation deduction. In other words, it pays a percentage of what it would cost you to go out and buy the same item.
For instance, if your couch gets destroyed in a fire and you have an ACV policy, your coverage won't pay the cost of buying a new one. Instead, your insurance provider pays the couch's depreciated value, which could be pretty low. You'd have to pay the difference yourself.
While an ACV policy costs less, it probably won't pay enough to rebuild your home or fully replace your personal belongings without paying a significant amount out-of-pocket.
If you want more coverage, you need a policy with replacement cost value (RCV). It costs more than an actual cash value policy but would pay you enough to rebuild a similar home and replace damaged belongings.
There are also guaranteed or extended replacement cost policies, which give you even more protection. They pay to replace your home as it was before a disaster, even if it costs more than your policy limit.
Remember that a home insurance policy is based on the cost to rebuild your home and any outbuildings, not the amount you paid for the property or its appraised value. You never include the value of your land in home insurance coverage. Depending on your home's age, location, and construction quality, the insured value could be much higher or lower than its market value.
4. There are special disaster deductibles.
A deductible is an amount you're responsible for paying for an insured loss. In general, the higher your deductible, the lower your premiums. So, get quotes for different deductible amounts when shopping for renters and home insurance. But also make sure you can afford to pay a higher deductible.
In some high-risk areas, you may have separate deductibles for damage caused by certain disasters. According to the Insurance Information Institute, nineteen states (Alabama, Connecticut, Delaware, Florida, Georgia, Hawaii, Louisiana, Maine, Maryland, Massachusetts, Mississippi, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Texas, and Virginia) and the District of Columbia, have hurricane deductibles.
These special deductibles are additional and separate from the regular deductible for all other types of claims, such as fire or theft. A hurricane deductible applies only to damage from hurricanes. And a windstorm or hail deductible would apply only to damage caused by those disasters.
Hurricane and wind deductibles are a percentage that may vary from 1% to 5% of a home's insured value (but they can be even higher in some coastal areas). The amount you must pay depends on your insured value and the "trigger" event.
For instance, if you have a 3% hurricane deductible and your home is insured for $200,000, you'd be responsible for the first $6,000 ($200,000 x 3%) in repair costs. That's much more expensive than paying a standard $500 or $1,000 home deductible.
In some states, the triggering event for hurricane deductibles to apply is any time a Category 1 storm causes damage, whether it made landfall or not. Other states have made Category 2 storms the threshold. In others, a hurricane deductible applies from when a hurricane watch or warning gets issued to 72 hours after it ends.
A hurricane deductible can only be applied once each hurricane season, from June to November.
5. There are ways to reduce your insurance costs.
When it comes to the price of renters and home insurance, some factors you can control and some you can't. To help you get the best price possible, here are some ways to save:
When disaster strikes, you're the victim of theft, or you get involved in a lawsuit, having a home or renters insurance policy can be a financial lifesaver. Take the time to create a detailed inventory of your possessions, including photos and receipts, to simplify the claims process if you experience a loss.
That's all for now. I'll talk to you soon. Until then, here's to living a richer life!
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