What It Really Costs to Protect Your Home Against Natural Disasters
The insurance industry has very precise parameters for what defines a natural disaster, and how much they cost. According to the Insurance Information Institute, the term “catastrophe” in the property insurance industry means a single or series of incidents caused by natural or man-made disasters that are unusually severe.
The insurance industry says a catastrophe has occurred when claims are expected to reach a certain financial limit, and more than a specified number of policyholders and insurance companies are affected. Although the insurance industry’s definition of catastrophe applies to all disasters, not all disasters cost the same amount of money; and depending on the disaster, it might be covered by standard insurance policies.
How much you’ll pay for insurance varies depending on your location and the age of your home. That can feel like a big expense, but knowing you’ll be reimbursed if something happens to your most valuable investment can be priceless. Plus, your mortgage company may require that you keep a certain level of homeowners insurance.
The first step is knowing what type of coverage you need. Standard home insurance typically includes four parts:
Dwelling coverage: This covers damage to the house itself.
You should have enough insurance to cover the cost of rebuilding your home, from the foundation up, in case of a fire or other disaster that make it impossible to salvage. That may be more coverage than you think.Sometimes it’s cheaper to just get a policy that covers you for a dollar number that covers your mortgage, but you want to be sure that you can replace what you have if something happens.
Other structures: This part of the policy covers external structures on your property, such as fences, detached garages and sheds. Loss-of-use coverage: This is typically a smaller amount of coverage that you’d be able to access to pay for alternative accommodations if you were unable to live in your home while it’s being rebuilt or repaired after an event like a natural disaster or a fire.
The standard homeowners policy has loss-of-use coverage worth 20% to 30% of the home value, you may need more if rentals are very expensive in your area, or less if you have access to other shelter in the case of an emergency, such as a second home or nearby relatives who would take you in.
Personal property coverage: This would cover lost or damaged things inside your home. You can use an app such to document your things and estimate their cost. Follow these additional steps to make sure you’re getting the best policy for a reasonable price:
While your mortgage lender can require that you get home insurance (and may recommend a preferred insurers) they can’t force you to use a specific insurer, and you should shop around for a policy. Be sure to get quotes from at least three insurers.
Gathering quotes is easy via online portals, like InsuranceQuotes.com for US and Confused.com for UK .
You may also have access to discounted rates via your employer, credit union, or other association. Look for a company with a strong rating from agencies. Insurance commissioner may also have a “complaint index,” which can give you a sense of whether the agency gets a lot of complaints relative to its size.
Before you start looking at ways to cut your insurance costs, it’s important to understand what your current policy covers. Even though insurers have tried to make their contracts easier to digest, those thick renewal documents can still be confusing. Start with the declarations page, which is essentially the summary of your coverage. Then take a look at the exclusions page to see what your policy specifically doesn’t cover. You can’t just blindly trust that your insurer has sold you the right policy.
Insurers offer a variety of discounts to homeowners for everything from paying your annual premium in full up front to keeping your policy for more than three years. The biggest discount — more than 35% — goes to new construction owners, but you may be able to shave off more than 19% by bundling your home and auto policies with the same insurer. Make sure you’re getting all the discounts for which you qualify.
There are a lot of different discounts out there offered by different insurance companies.If you’ve upgraded your roof or windows in the past year, installed smoke d etectors and fire extinguishers, or made energy-efficient upgrades, you may be entitled to additional money off.
When choosing your premium amount, consider the cost of repairs or other issues that would prompt you to file a claim. Avoiding small claims can also help keep your premiums from increasing.
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