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Comparison shopping is the only way to know if you’re paying more than you need to pay for homeowners insurance. Good thing is that getting quotes is free and easy.

Home insurance rates change daily, and if you have not compared rates within the past year, you’re probably paying too much. If you have a mortgage, your lender requires homeowners insurance, but it still makes sense to buy home insurance to protect your greatest asset even if your home is paid off. As market factors change, so does the price of labor and supplies, which may raise your insurance rate.

Instead of spending hours on the phone, giving various agents the same information, SmartFinancial can find you the best coverage at the most affordable prices after you fill out one simple questionnaire to start receiving free quotes right away.

The Basics of Home Insurance

Key Terms to Know

Key Term

Policy

Homeowners Insurance is a contract between the insured and an insurance company. If the insured suffers a covered loss, the insurance company will help pay for expenses to repair or rebuild the home and for damaged belongings. A policy lists all coverages, exclusions, limits as well as a deductible amount.

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Key Term

Actual Cash Value (ACV)

An actual cash value home insurance policy covers damaged or destroyed personal property minus the depreciated cost.

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Key Term

Replacement Cost Value Insurance (RCV)

A replacement cost value insurance policy covers damaged or destroyed personal property at today’s prices. It costs more than an ACV policy but covers more.

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Key Term

Catastrophe

Catastrophe insurance refers to an insurance endorsement or ride or a standalone policy that covers your home against certain natural disasters not covered with a home insurance policy, such as earthquake and flood insurance.

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Key Term

Deductible

Every policyholder must pay a deductible which is deducted from the payout after a claim is filed. The deductible is of your choosing and can be changed at any time. If your deductible is $1,000 and your $5,000 claim is accepted, you will receive $4,000 towards repairs.

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Key Term

Depreciation

Over time, our belongings and a home’s components lose value due to wear-and-tear. For instance, if you file a claim for a faulty roof when it’s three years old, you’ll receive a much bigger payout than filing a claim for a 10 year old roof, which will need to be replaced in another 10 to 15 years.

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Key Term

Endorsement

Also known as a rider, an endorsement is an add-on supplemental insurance. There are endorsements for bed bugs, expensive jewelry or furs and more.

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Key Term

Inventory

Everything that you own and renovations you have made should be photographed or videotaped. It’s also important to keep receipts and pricing information. An inventory will be helpful if you ever have to file a claim. It’ll also help you determine how much coverage you need.

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Key Term

Named Peril

Every insurance policy lists perils that are covered, like fire or theft. It’s equally important to look at exclusions to see what’s specifically not covered so you can determine whether or not you need to add on a rider or two.

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Key Term

Premium

To keep your homeowners insurance policy active, you must pay your monthly premium unless you pay for the year upfront.

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Key Term

Hazard Coverage

As a component of your home insurance policy, hazard coverage extends only to your home’s structure, while a home policy also includes your personal property and liability.

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Key Term

Rider

lso called an endorsement, a rider is add-on supplemental insurance that enhances your home insurance policy. You may need a rider if you have very expensive watches or paintings. Otherwise, you may not get the full value back if they are stolen or destroyed.

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Frequently Asked Questions

What are the three types of homeowners insurance?

Homeowners insurance has three coverage options in how you will be paid out if you file a claim. The first option, which most homeowners have, is called an Actual Cash Value policy. With this type of policy, you will be paid out for repairs and losses up to limits but with depreciation deducted from the total. With a Replacement Cost policy, you pay more but will receive two checks, first with depreciation deducted and a second check that makes up for the difference. The last option is the Guaranteed/Extended Replacement Cost policy which is the most expensive of the three and offers the highest level of coverage. If you have a Guaranteed Cost policy, the insurer will cover all necessary costs for rebuilding your home, even if you surpass the coverage limit. An Extended Cost policy will cover up to 20 or 25% more than the limit.

What kind of home insurance should I get?

The type of home insurance you buy depends on the value of your belongings as well as how much it will cost to rebuild your home with the right materials. During times of inflation, materials and labor cost more and you may end up being underinsured. Or, your rate may go up at renewal due to inflationary prices. It’s important to calculate what your losses will be if a disaster strikes and consider whether or not it is worth it to pay more for a Replacement Cost or a Guaranteed/Extended Replacement Cost homeowners policy. A standard Actual Cash Value policy deducts the depreciation on losses but costs significantly less than the others.

What is not covered by Home Insurance?

Floods and earthquake damage are not covered with home insurance and each needs to be bought separately. Wear-and-tear and issues related to neglect are not covered by home insurance and neither are infestations, like bed bugs, termites and mold. Landslides, mudslides and sinkholes are not covered without a specific endorsement, and certain breeds of aggressive dogs may not be covered with your policy. If you live in a hurricane-prone or tornado-prone region, you may have to buy a separate wind policy or endorsement with an additional wind deductible. Government actions, like property seizure, and nuclear hazards or accidents are never covered with homeowners insurance.

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