Whether you’re a first-time homeowner, up for policy renewal, looking to switch insurers, or curious about your policy, there are so many home insurance questions to ask that it can be difficult to get all the critical information you need when searching for a policy.
If you’re curious about the ins and outs of your policy, consider this your own personal homeowners insurance FAQ. Here are eight commonly asked home insurance questions to get you thinking about the crucial elements of your policy.
First-time homeowners may have many home insurance coverage questions, especially if they’re new to the insurance world. It can seem daunting, but researching how your policy protects your property and liability can help make the process of finding the right policy less challenging.
All homeowners insurance policies across the nation will start with the same standard coverage, becoming subjective when homeowners opt for optional, additional coverages or when it comes to coverage limits.
Every coverage type on a standard policy will protect different elements of your home, belongings, and liability if a covered peril, such as theft, fire, or explosion, causes damage. Perils generally refer to sudden events that cause unexpected damage.
Let’s look at a brief overview of a homeowners insurance policy and how it protects your liability and property.
The biggest question to ask your insurer (and yourself) is how much coverage you’ll need to have peace of mind and be properly covered. Since insurance varies based on each homeowner’s needs, you’ll want to make sure your policy limits for each coverage type match your own needs.
Each coverage on your policy protects a larger picture of your home, property, and liability. Homeowners insurance will help you cover the structure of your home, your belongings within it, and your liability for accidents that happen at your home. Since everyone’s needs differ, maintaining coverage in the areas that could cause you the biggest headache is the best way to make your policy work for you.
For example, if you own valuable pieces of mid-century modern furniture, an expensive collection of antique jewelry from the 1930s that has cost you thousands over the years, or house your band’s musical equipment in your basement, you might opt for a high personal property coverage limit (Coverage C), as this coverage protects your belongings if a covered peril damages them.
Insurance is highly customizable based on you and your needs, which holds true regarding replacement cost or actual cash value (ACV). Each choice represents the cost of replacing your home or belongings if a covered peril damages them, but the option you choose will dictate the amount of money you receive from your insurer during the claims process to replace your property or repair damage.
Actual cash value (ACV) represents an item’s original cost, accounting for depreciation. This means that your claim payout will reflect the current value of the item that was damaged or lost, taking into account its age.
For example, let’s say the iMac computer you bought in the age of dial-up internet is stolen from your home. In that case, your insurer will take the original cost of the computer, account for the depreciated value it incurs from years of use, and pay out your claim according to that calculated value.
When you bought that computer in the late ‘90s or early 2000s, you probably spent about $1,300. However, you’d be lucky to get $100 for it on today’s market because of depreciation over the years. So, ACV may not adequately protect items that depreciate with time.
Replacement cost value (RCV) represents the cost of an item in today’s market, not accounting for depreciation. That means your claim payout will reflect the value of an equal or equivalent model in today’s market.
For example, take that same scenario of the $1,300 iMac computer from the ‘90s or early 2000s being stolen from your property, but this time you’re insured for RCV. In this case, your insurer will reimburse you what you paid when you bought it new, so $1,300, instead of its current value. RCV overlooks the depreciation your old iMac may have incurred after a few decades of use.
Essentially, RCV covers the cost to replace something at the value that you paid for it, not the value your property was worth when it was stolen or damaged. Thus, items that lose value over time are best covered with RCV, as your insurer will foot the bill for the original cost.
While ACV and RCV come into play most often with personal property coverage (Coverage C), you must also select one of these options for your dwelling coverage (Coverage A) and other structures coverage (Coverage B).
The term “peril” refers to sudden or unexpected events that cause damage to your property or belongings. For example, many HO-3 homeowners insurance policies, the most commonly purchased policy, have the same 16-or-so named perils to which your coverage may extend. However, there are some events that may cause damage to your property that are unnamed perils or events that aren’t covered by your policy.
Notably, floods aren’t a covered peril on home insurance policies. However, homeowners can bind a separate flood insurance policy to gain coverage for heavy rain or snowfall events that cause flood damage. According to the Federal Emergency Management Agency (FEMA), an inch of flood water can cause about $25,000 in damage, and that value rises staggeringly with every additional inch of water.
Homeowners can check their city’s flood risk using the FEMA flood zone map and may consider binding a flood insurance policy depending on their risk. Homeowners may bind a flood insurance policy through a private insurer or agency, like Clovered, or through the National Flood Insurance Program (NFIP).
When up for policy renewal, there are some specific insurance questions to ask, considering the state of your home during the last renewal and how it compares to your house at the time of the current renewal. Here’s what you should ask your insurer at the time of your policy renewal.
Homeowners are constantly making changes to their homes to meet the changing demands of their lifestyles. When it comes time to renew your policy, you must reflect on how your home has changed since your last renewal.
Some changes or renovations that may affect your home insurance policy are:
Similarly, changing structural elements or operating systems may also affect your policy during renewal.
Changes or renovations to your home that may affect your policy include:
Additionally, if you’ve added a particularly valuable item to your collection of personal belongings since your last policy renewal, you may consider adding an endorsement to your policy. Endorsements are an extension of the coverage provided by your policy to a specific item or items of value.
Commonly endorsed items may include:
When renewing your policy, some other home insurance coverage questions to consider may pertain to your rates. First, you’ll want to review how your insurer determines their rates. Insurers determine rates using certain factors to determine a homeowner’s risk of filing a claim. If a homeowner is at an above-average risk of filing a claim, they’ll likely pay higher premiums.
Insurers use several factors to determine your premiums, both about your city and specifically about the individual. For example, insurers will look at a city’s average home age or the possibility of severe weather events occurring. This will help insurers determine an average rate for homeowners in a city. Additionally, insurers will consider a policyholder’s unique traits, like your age, marital status, claims history, and home replacement cost, among other factors, to determine your rates.
Homeowners who filed a claim since their last policy renewal may see increased premiums. Similarly, your insurer may raise rates to account for inflation.
Another factor that may affect your rates is your deductible. Policies with high deductibles generally have lower premiums, and those with low deductibles will have higher premiums. If homeowners modify their deductible, their rates will correlate with this change during renewal.
Your agent is the best resource for home insurance questions and answers. Since insurance is highly subjective, some of the details vary by insurer. So, specific questions about additional coverages, claims, and rates are best directed to an agent or a representative at your chosen insurer.
While home insurance quietly protects homeowners in the background of their lives, when something unexpectedly causes damage to your home, property, or belongings, you may file a claim to receive a payout for the cost of repairs or replacements.
The claims process differs based on your insurer, and the details of what’s covered and what isn’t are also highly individualized. All your homeowners insurance claims questions should be directed at your agent, as they’ll know how to advise you during the claims process.
Whether you’re a new homeowner, renewing your policy, or switching insurers, one of the main things on your mind is probably how you can lower your premiums. Homeowners can cash in on excellent savings without having to sacrifice excellent coverage.
Many insurers offer discounts that policyholders can add to their premiums to reduce their rates without sacrificing coverage. In fact, many discounts are combinable, meaning policyholders can maximize their savings by getting savvy with discounts.
You may qualify for several discounts with your insurer, depending on the elements of your home and some of your personal characteristics. For example, UPCIC offers a discount for homeowners who have a central home security system that monitors for burglars and fires and a discount for those who have automated sprinkler systems on their properties.
Discounts and discount amounts vary from person to person, so it's crucial to speak with an agent directly about what discounts you may qualify for.
In fact, all your home insurance questions can be directed toward an agent, as they’re licensed professionals who dedicate their lives to learning the ins and outs of your policy. Annually reviewing your policy with your insurer is a crucial way homeowners can stay updated on how they’re protected.
The editorial content on Universal Property’s website is meant to be informational material and should not be considered legal advice.