For all that I like to talk about what it means to be a millennial in the current housing market, the reality of the situation is even if Michael and I did scrounge up enough cash to buy something for ourselves, I wouldn’t even know where to start. Actually, between you and me, sometimes I use the fact that we can’t afford to buy a house as a cover for the fact that I feel woefully uninformed about the entire home buying process. I hear people throwing around terms like closing costs and property taxes, and my brain sort of seizes up and goes, You can think about that later when you have savings. Remind me again why they don’t teach us this at liberal arts colleges? So today we partnered up with TrustedChoice.com, a company that represents independent insurance agents, to shed some light on some of the insurance-related things you should know before you buy a home:
1. The cost of homeowners insurance is calculated differently than renters insurance. If you have renters insurance (and you really, really should get some), then the amount you pay is based mostly on the value of property inside your home. (Which may be something like $150 for the whole year.) Homeowners insurance, on the other hand, covers what’s inside your house plus the value of the structure itself. But a lot of other factors can come into play too. According to Paul Martin, a Trusted Choice agent and nationally recognized insurance expert with twenty-nine years of industry experience under his belt, all homes are classified on a numerical system, with one being the best. Most of us expect things like geographic location or proximity to natural disasters to impact a premium, but even something like the distribution of fire departments and quality of water pressure in your neighborhood can impact your premium (because the chance of damage or loss is greater if it’s going to take a long time for first responders to get to you). In general, renter’s policies cost about ten to twenty percent of what a homeowners policy will cost.
2. iT COSTS MORE TO REBUILd A HOME THAN YOU MIGHT THINK. When it comes to your coverage amount, homeowners insurance doesn’t care what you paid for your home. Instead, your coverage amount is based on what it would cost to repair or replace your home in the event of damage or loss. So let’s say you bought your home for $180,000 in a downmarket. Your insurance company may tell you that you need to insure it for $300,000. They’re not just doing that to get a higher premium out of you. Instead, the $300,000 is what they’ve calculated as the replacement cost for your home, after you factor in things like building materials, labor, etc. Bottom line: your coverage amount is all about how much it costs to rebuild, and how much you paid for your house is irrelevant to that number. Ultimately, these estimates are there to prevent you from ending up homeless if something happens to your house.
3. A little bit of water can do a lot of damage. There are a number of perils that aren’t covered under normal homeowners insurance policies, like earthquakes and floods. So if you live in an area susceptible to this kind of activity, you’ll want to get an extra policy that includes add-on coverage for that kind of damage. But here’s a fun fact from Paul: thirty percent of the flood losses in this country happen to homes that aren’t in flood zones. Which isn’t meant to scare you into getting flood insurance. But rather, to serve as a reminder that a little bit of weather can cause many thousands of dollars worth of damage to a home. The good news is that your insurance policy might also have unexpected benefits as well, such as loss of use coverage, which pays for you to live somewhere else while your house is being rebuilt. In any case, Paul’s advice is not to lowball the estimates on your home on an insurance policy. Most of what you’re paying for in a premium isn’t actually for the out of ordinary type damage like losing your whole home in a flood. It’s the everyday smaller stuff like roof replacements. So be realistic, but maybe also be a little unrealistic, about your risks.
4. Not all replacement values are created equal. There are two different kinds of coverage options with homeowners insurance: the kind that, should the worst happen, will cover the replacement value of your possessions. That is to say, if you had a bunch of kitchen appliances, and some of them suffered electrical damage in a storm, your insurance will cover brand new appliances for whatever was lost (assuming you buy a new one. Unfortunately you can’t just pocket the value of a fridge and go buy a nice TV). Then there’s the other kind, which covers the actual value of your possessions. Actual value means that if you had those same appliances and you bought them for $700 three years ago, due to depreciation, you might only get $30 in replacement coverage in the event that it gets destroyed (because that’s all they are worth now). Replacement value coverage is obviously more expensive, but usually with good reason: because in the event that the worst happens, you want to make sure you’re not stuck footing half of the bill to replace your own valuables. So when you’re doing your research, make sure talk to your agent and stay informed about exactly what kind of coverage you’re getting, and how it will be reimbursed in the event of damage or loss (and make sure to ask about exclusions too. Some things, like jewelry, may only be covered up to a certain amount). Because you don’t want to find out the hard way that you’re only getting covered for half of what you were expecting.
5. Google can’t do everything for you. One of the millennial habits I’m most guilty of is that I want to do everything online. But I’ve learned more about mortgages, homeowners insurance, and various other house-buying related things from two twenty-minute phone calls this month than I have from hours of Googling. So even though it goes against all of my Gen Y instincts, if you find yourself confused by the home-buying process at any point, picking up the phone is probably the fastest way to get answers. (In this case, that means getting yourself hooked up with a Trusted Choice insurance agent.) For advice on how to find someone you can trust (without getting swindled), head over here.
apwers who own homes: where did you learn all the adulting that goes into that process? And for everyone else like me, what else is confounding you about starting this process?
This post was sponsored by Trusted Choice. Every Trusted Choice agent has signed the Trusted Choice Performance Pledge, which is based in the philosophy that you’re a person, not a policy. Trusted Choice independent agents can offer almost any kind of insurance you can think of—home, life, auto, hair salon, RV, motorcycle, valuable collectibles, helicopter, Internet business, and the list goes on. Click here to get in touch with a Trusted Choice insurance agent today, and find the right policy for your needs!
The information provided in this post is intended by Trusted Choice and APW to serve as general advice and guidance for all readers. The advice herein does not constitute legal or financial advice, and Trusted Choice and quoted professionals do not take legal or financial responsibility for this information. This article does not take the place of a consultation with a legal or financial advisor.
