Homeowners Insurance: Time for an Annual Check-Up

Homeowners Insurance: Time for an Annual Check-Up

By: G. M. Filisko
Published: August 28, 2009

An annual check-up on your homeowners insurance can result in a healthier policy and a healthier pocketbook.

What type of coverage do I have?
The most effective type of coverage is known as “replacement cost,” which covers, up to your policy limits, what it would take today to rebuild your house and restore your belongings, says Jerry Oshinsky, a partner at Jenner & Block in Los Angeles who has represented homeowners in litigation against insurers.

“Extended” replacement cost coverage provides protection to your policy limit, say $500,000, and then perhaps another 20% of the cost after that. Percentages vary, but in this example you could recoup up to $600,000 on a $500,000 policy, assuming your losses reach that high. Extended coverage can compensate for any unanticipated expenses like spikes in construction costs between policy renewals. Now harder to find due to the industry shift toward extended replacement coverage, “full” or “guaranteed” replacement coverage covers an entire claim regardless of policy limits.

A less attractive alternative is “actual cash value” coverage that usually takes into account depreciation, the decrease in value due to age and wear. With this type of policy, the $2,000 flat-screen TV you bought two years ago will be worth hundreds of dollars less today in the eyes of your claims adjuster. Kevin Foley, an independent insurance broker in Milltown, N.J., favors replacement cost coverage unless you can save at least 25% on the premium for going with actual cash value coverage instead.

Even if you have replacement cost protection for your dwelling and personal property, don’t assume everything is covered. Structures other than your home on your property—such as a detached garage or swimming pool—require separate coverage. So too do luxury items like jewelry, watches, and furs if you want full replacement cost because reimbursement for those items is typically capped.

How much coverage do I really need?
OK, now that you’re clear on what type of policy you have, you need to figure out how much policy you truly require in dollar terms. Let’s say you purchased your home five years ago and insured it for $200,000. Today, it’s worth $225,000. Simply increasing your coverage to $225,000 may nonetheless leave you underinsured. Here’s why.

The key to determining how much dwelling coverage you need isn’t the value of your home but the money you’d have to pay to rebuild it from scratch, says Carlos Aguirre, an agent for Liberty Mutual Insurance in Arlington, Texas. Call your local contractors’ or homebuilders’ association and inquire about the average per-square-foot construction cost in your area. If it’s $150 and your home is 2,000 square feet, then you should be insured for $300,000.

There’s no rule of thumb for how much your homeowners insurance should cost. Insurers use numerous factors—age, education level, creditworthiness—to determine pricing, so the same policy could run you more than your neighbor. In recent years the average annual premium was $804. Oshinsky advises against scrimping on insurance because big increases in coverage probably cost less than you’d think. He recently purchased a liability policy that cost $250 for the first $1 million in coverage. Adding another $1 million increased his premiums only $12.50 more.

How can I lower my premiums?
The higher your deductible, the amount you pay out of pocket before coverage kicks in, the lower your premium. Landing on the appropriate deductible level requires remembering that insurance should cover major calamities, not minor incidents, says Foley, the independent insurance broker. Most homeowners should be able to absorb modest losses like a broken window pane or a hole in the drywall without filing claims. If you can, then you’re wasting money with a $250 deductible.

Foley’s rule: If you’re a first-time homeowner and don’t have a lot of savings, moving up to a $500 deductible will probably stretch your budget. However, if you live in a ritzy home and drive an expensive car, then you should be able to afford a $1,000 deductible. In Milltown, N.J., for example, the premium for a $200,000 home with a $500 deductible would be $736, according to Foley; moving up to a $1,000 deductible drops the annual premium to $672. That's $64 in savings.

Every major insurer offers discounts to various groups, such as university employees or firefighters. Figure about 5%. Ask which affiliations would entitle you to a discount and how much. If an AARP membership would result in a $50 savings, pay the $16 dues and pocket the $36 difference. Many insurers also offer discounts ranging from 1% to 10% or more for installing protective devices like alarms and deadbolt locks, for going claim-free for an extended period, or for insuring both your car and your home with the same carrier.

Source: REALTOR^® Content Resource - http://members.houselogic.com/articles/homeowners-insurance-time-for-annual-check-up/preview/

“Visit HouseLogic.com for more articles like this. Reprinted from HouseLogic.com with permission of the NATIONAL ASSOCIATION OF REALTORS®."

More Buyers Ready to Get Off the Sidelines?

More Buyers Ready to Get Off the Sidelines?


When you compare the cost of owning a home to renting, you’ll find that buying may soon make more sense, Paul Diggle, a housing economist at Capital Economics, told MSNBC.com.

Diggle’s analysis of the housing market showed a 33 percent drop in home prices, record-low mortgage rates (with 30-year fixed-rate mortgages available under 4 percent now), and a 15 percent rise in rents since the housing market turned sour are making more consumers take a closer look at buying.

“The median monthly mortgage payment of about $700 has fallen to about the level of a median monthly rent check,” an article at MSNBC.com notes about Diggle’s analysis. “If mortgage rates keep falling and rents keep rising, the equation will tip even further toward owning.”

Case in point: Diggle says that a buyer who purchases a median-priced home and stays there for at least seven years would likely come out ahead by about $9,000 than if they chose to rent for those seven years. Diggle’s calculations factor in rents continuing to rise 3 percent a year, and housing prices staying flat for the next two years before rising in 2014.

But while more Americans may be motivated to buy, many still can’t, Diggle notes. Home owners who lost their home to foreclosure may be forced to wait on the sidelines before owning again, other Americans may not have a 20 percent down payment that more lenders are wanting, lack a high credit score to qualify for the best financing, or have steady employment.


Source: “Home Buying Could Soon Beat Renting,” MSNBC.com

Is It Better to Buy or Rent?

Should you Rent or Buy?

Are you ready to be a homeowner? You should research to find out which path makes the most financial sense.  Here are some tools from The New York Times and Wall Street Journal that will help you determine which housing option is best for you, renting or buying.


Renting Pros
Flexibility (can relocate easily)
Can invest money elsewhere (stock market)
No upkeep fees (drippy faucets, broken dishwashers, etc.)

Renting Cons
No equity
Annual rent increase could outpace inflation

Buying Pros
Tax-break: deduct mortgage interest and property taxes
Potential tax-free capital gain
Emotional satisfaction

Buying Cons
Property tax and upkeep
Mortgage costs
Less flexibility should you want to move; in very bad housing markets, you could lose principal

Whether renting is better than buying depends on many factors, particularly how fast prices and rents rise and how long you stay in your home. Compare the costs of buying and renting a home with this calculator from The New York Times.


Sources: New York Times and Wall Street Journal
 
 

Benefits of Home Ownership

Being a home owner is more than just having a roof over your head. Home ownership instills feelings of comfort, security, stability and pride. However, in addition to these important benefits are substantial social benefits for families, communities and the country as a whole. A few of these benefits are:


1. Higher Academic Achievement
2. More Cohesive Communities
3. Better Connected Families
4. Improved Health & Safety

5. Stronger Economy
 Read the whole article here.
Source: www.realtor.org

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