Homeowners insurance. You know you should probably have it, and if you have a mortgage, you’re required to have it. But how much do you know about it beyond that – what it covers (and does not cover), the types of policies, how much coverage you need? What happens in case of minor damage from a storm, or even something as rare as fire damage? If you’re not familiar with these things, you may very well be overpaying and/or be underinsured. To help you out, we’ve put together this homeowners insurance guide for homebuyers in Washington.
Homeowners Insurance Overview
Homeowner’s insurance is a safety net. It will “compensate you if an event covered under your policy damages or destroys your home or personal items. It will also cover you in certain instances if you injure someone else or cause property damage.”
The three main functions of this insurance are to…
- “Repair your house, yard and other structures.
- Repair or replace your personal belongings.
- Cover personal liability if you’re held legally responsible for damage or injury to someone else.”
There are three basic levels of coverage with homeowner’s insurance – actual cash value, replacement cost, and extended replacement cost/value. In addition, “[p]olicy rates are largely determined by the insurer’s risk that you’ll file a claim.” This risk is assessed on the basis of “past claim history associated with the home, the neighborhood, and the home’s condition.”
Types of Policies
There are several types of homeowner’s insurance (also called “policy forms”), with some providing more coverage than others. The most common policy types are . . .
HO-1 AND HO-2
The least popular policies, provide the least amount of coverage and “payout only for damage caused by issues listed in the policy. Together these two types account for about 8% of homeowners coverage. HO-2insurance, the more common of the two, typically covers your house and belongings only for the 16 [listed] causes . . . HO-1, which isn’t widely available, is the most bare-bones type of homeowners insurance. It covers losses from an even shorter list of perils than the HO-2 form.”
HO-3
“HO-3 insurance policies, also called ‘special form,’ are by far the most common,” accounting for almost 80% of coverage on owner-occupied homes. “If you have a mortgage, your lender is likely to require at least this level of coverage. HO-3 insurance policies generally cover damage to your home from any cause except those the policy specifically excludes, such as an earthquake or flood. However, where it concerns your belongings, an HO-3 policy typically covers only damage from 16 ‘named perils’ unless you buy extra coverage.”
HO-5
Also known as comprehensive form or premier coverage, this type of policy provides the broadest and most extensive coverage. “It pays for damage to your home and belongings from all causes except those the policy excludes by name. . . . It’s typically available only for well-maintained homes in low-risk areas, and not all insurers offer it.”
Replacement Cost, Actual Cash Value, and More
You also need to be aware that “[i]fyour home is destroyed, your homeowner’s insurance company isn’t likely to simply write you a check for the amount listed on your policy. Your payout could differ depending on the cost to rebuild and the coverage you chose – and much of it will be paid directly to contractors rebuilding your home, in many cases.”
Concerning this, here are some things you need to consider when deciding on coverage:
REPLACEMENT COST
This is coverage that will pay however much it takes to rebuild your home(and that may exceed your policy limits). “This situation may arise, for instance, if construction costs have increased in your area while your coverage has remained level.”
ACTUAL CASH VALUE
“Actual cash value coverage pays the cost to repair or replace your damaged property, minus a deduction for depreciation. Most policies don’t use this method for the house itself, but it’s common for personal belongings.”
FUNCTIONAL REPLACEMENT COST VALUE
This type of coverage will pay to repair damage to your home, but possibly with cheaper materials than the original. For example, damage to plaster walls may be repaired with drywall, which is cheaper.
REPLACEMENTCOST VALUE
“Replacement cost value coverage pays to repair your home with materials of ‘like kind and quality,’ so plaster walls can be replaced with plaster. However, the payout won’t exceed your policy’s dwelling coverage limits.”
EXTENDED REPLACEMENT COST VALUE
This type of coverage “will pay out more than the face value of your dwelling coverage, up to a specified limit, if that’s what it takes to fix your home.” This limit is typically a percentage or a dollar amount, but in either case, it provides “a cushion if rebuilding is more expensive than you expected.”
Guaranteed Replacement Cost Value
“Guaranteed replacement cost value coverage pays the full cost to repair or replace your home after a covered loss, even if it exceeds your policy limits.” The catch, though, is that this level of coverage isn’t offered by all insurance companies.
Determining Amount of Coverage Needed
Now, you need to determine exactly how much coverage you need from your homeowner’s insurance. You’ll need enough coverage to rebuild/repair your home in the case that is destroyed or severely damaged. You can estimate the cost to rebuild by multiplying your home’s square footage by per-square-foot local construction costs. YourWashington agent can also provide some guidance here. Just call(253) 799-1210 to find out more.
What you shouldn’t do is “focus on what you paid for the house, how much you owe on your mortgage, your property tax, or the price you could get if you sell. If you base your coverage on those numbers, you could end up with the wrong amount of insurance. Instead, set your dwelling coverage limit at the cost to rebuild. You can be confident you’ll have enough funds for repairs, and you won’t be paying for more coverage than you need.”
When it comes to your belongings, your personal property, “you’ll generally want coverage limits that are at least 50% of your dwelling coverage amount, and your insurer may automatically set the limit that way.” You can, however, lower the limit or purchase more coverage if you need to/
With respect to the liability limit, experts advise having a “limit at least high enough to cover your net worth,” including “savings, investment accounts, and other assets, minus auto loans, credit card balances, and other debts.”
Cost of Homeowners Insurance
So what does homeowner’s insurance cost? The national average is about $1,600 per year, but this is an average and individual prices can be much higher or lower. In addition, your credit score can also affect the cost of your insurance.
And then there’s the deductible – the amount you have to pay out of your pocket before the insurance kicks in. Here are the two main things to keep in mind when choosing your policy’s deductible:
- A higher deductible will reduce your premium, but you’ll pay a lot more when you file a claim.
- With a lower deductible, you’ll pay a higher premium, but will pay a lot less out of your pocket for a claim.
Homeowners insurance costs in Puyallup, WA, can vary based on several factors unique to the area and the individual homeowner. Here’s a breakdown of what influences these costs:
- Location: Puyallup’s location in the Pacific Northwest can affect insurance costs. Factors such as proximity to bodies of water (like rivers or Puget Sound), risk of flooding, and susceptibility to natural disasters like earthquakes or landslides can impact insurance premiums.
- Property Value: The value of your home and property will directly affect insurance costs. Higher-valued homes typically have higher premiums since they require more coverage in case of damage or loss.
- Home Features: Specific features of your home, such as its age, construction materials, and any additional structures like sheds or garages, can impact insurance costs. Older homes may cost more to insure due to the increased likelihood of maintenance issues or outdated systems.
- Local Crime Rates: The crime rate in Puyallup can also influence insurance premiums. Areas with higher crime rates may have higher premiums due to increased risk of theft or vandalism.
- Credit Score: In some cases, your credit score may affect your insurance premium. Insurers may use credit information to predict the likelihood of a claim being filed.
- Claims History: Your personal claims history and the claims history of your area can also play a role. If there have been frequent claims in your neighborhood, insurers may consider it a higher risk area and adjust premiums accordingly.
- Deductible Amount: The deductible is the amount you agree to pay out-of-pocket before your insurance coverage kicks in. Choosing a higher deductible can lower your premiums, but it means you’ll pay more in the event of a claim.
- Type and Amount of Coverage: The type and amount of coverage you choose will impact your premiums. Basic policies may cost less but provide less coverage, while comprehensive policies offer more protection but come with higher premiums.
To get an accurate estimate of homeowners insurance costs in Puyallup, WA, it’s best to contact local insurance providers and request quotes based on your specific needs and circumstances. They can take into account all these factors and provide you with a personalized estimate.
Tips And Tricks To Lower Costs
Certainly! Saving on homeowners insurance is possible with a few strategic steps:
- Shop Around: Don’t settle for the first quote you receive. Shop around and compare prices from multiple insurance companies. Each insurer has its own pricing model and may offer different discounts, so getting quotes from several can help you find the best deal.
- Bundle Policies: Many insurance companies offer discounts if you purchase multiple policies from them, such as bundling your homeowners and auto insurance. Consolidating your policies with one insurer can lead to significant savings.
- Increase Deductibles: Consider raising your deductible—the amount you pay out-of-pocket before your insurance coverage kicks in. A higher deductible typically results in lower premiums. Just be sure you can afford the higher deductible if you need to make a claim.
- Improve Home Security: Installing security features like deadbolt locks, burglar alarms, smoke detectors, and security cameras can lower your insurance premiums. These measures reduce the risk of theft, fire, and other damages, making your home safer and less expensive to insure.
- Maintain Good Credit: Insurers often use credit scores to assess risk. Maintaining a good credit score can result in lower insurance premiums. Pay your bills on time, keep credit card balances low, and avoid opening unnecessary new accounts.
- Review and Update Coverage Regularly: Periodically review your policy to ensure you’re not paying for coverage you don’t need. If you’ve made renovations, upgrades, or significant changes to your home, your coverage needs may have changed as well. Adjust your policy accordingly to avoid overpaying for unnecessary coverage.
- Look for Discounts: Inquire about available discounts with your insurance provider. Common discounts include loyalty discounts for long-term customers, discounts for certain professions or affiliations, and discounts for retirees or senior citizens.
- Consider Location Factors: Certain location-specific factors, like proximity to fire stations or floodplains, can impact insurance premiums. If possible, choose a home in a low-risk area or take measures to mitigate specific risks, such as installing flood barriers or fire-resistant materials.
- Stay Claims-Free: Avoid filing small claims whenever possible. Making frequent claims can lead to higher premiums or even policy cancellation. Save your insurance for significant losses and handle minor repairs out-of-pocket.
By implementing these strategies and being proactive in managing your homeowners insurance policy, you can potentially save money while still maintaining adequate coverage for your home.
When It’s Time to Buy
Ultimately, homeowners insurance isn’t a luxury – it’s a necessity. But there are so many influencing factors and available options, it’s difficult to know what kind of policy and coverage is right for you. An experienced Washington agent can provide valuable assistance in many of these areas. We suggest that Washington home buyers trying to untangle the homeowner’s insurance puzzle, contact us today at (253) 799-1210.