Tyler Flaherty's Blog

Homeowners insurance appears to be a tremendously overlooked part of the home buying process. Being not only a real estate agent but also an insurance agent, I have seen an unfortunate amount of home buyers pay very little research into what exactly they are getting when they purchase a policy.   Today’s economic woes have sent everyone into a “whatever is cheapest” mentality and that is understandable, but during these troubling times it is important to not only want to save our hard earned dollar but to also enhance ourselves to be educated buyers. 
At the risk of splitting hairs and arguing semantics, I think it important for people to be “Thrifty” and not “cheap.”  So immediately some of you may say “whats the difference?”  Well here it goes… In my opinion “cheap” is greatly negative where “thrifty” is greatly positive.  A thrifty individual does their research and/or considers what they are paying for to be worthy of their dollar.  When someone wants the cheapest insurance out there in order to simply get a loan or close the deal without so much as looking into what is being covered they are being cheap.  Thrifty individuals are the ones that will weather this economic storm better than the rest of us.
The basics of homeowners insurance are simple if you take a little bit of time to understand the basic coverages.
Coverage A: Dwelling value.  There has been a dramtic shift in this coverage over the past 2 years.  During the height of the housing boom it was typical for this amount to be less than what a person purchased the home for since when you purchase the home you are also purchasing the land underneath.  The value of the land caused the purchase price of the home to be more than what you needed in coverage to satisfy your insurance needs.  In essence it was cheaper to rebuild the home then to buy it outright. 
Now we have reached the point where it is cheaper to buy than to rebuild.  Depending on your location insurance agents will know the appropriate price per square foot needed to rebuild your home.  In this market your coverage A, majority of the time, should be more than the purchase price of your home. 
Coverage B: Other Structures.  This coverage is 10% of the Coverage A value.  Majority of the insurance companies include this coverage for no extra charge so even though you may not have a detached garage or a detached gazebo this coverage is included in your premium.
Coverage C: Personal Property.  The standard limit of coverage is 50% of your dwelling value.  Many companies have higher limits but 50% is the standard.  The important factor of this coverage is that 100% of the Coverage C limit applies against losses by covered perils to personal property while it is anywhere in the world.  So what qualifies as personal property?  If you turned your house upside down, anything that falls out is personal property.  There are some limits on certain things like furs, jewelry, antiques, and guns so ask your agent what your limits may be.   It is possible for very little extra premium to “schedule” personal property items to make sure those items are insured for the full extent of their value.
Coverage D:  Loss of use.  In the event of peril to your property, Coverage D provides you coverage for your expenses that will occur with finding a place to live and living expenses while your home is repaired.  Typically you are covered for 50-70% of the Dwelling value.
Coverage E:  Personal Liability.  This coverage will take effect if a claim is made against you for damages due to bodily injury or property damage cased by the insured’s negligence.  Negligence must be deductible!  This coverage has no deductible.  Basically this protects you from law suits.  The basic limit is $100,000 but you would have to be crazy to stick with this basic limit when you can get $300,000 for less then $2 per month.  I don’t know of any agents that will even give a homeowners quote with less than $300,000 in coverage because it is so cheap to have 3 times the coverage.  Make sure you have at least $300,000 in liability coverage.  If you have a pool you shouldn’t have less than $500,000 and you probably want to consider a Personal Umbrella!
Coverage F: Medical Payments to others.  The standard limit of this is $1,000.  No proof of negligence required for this coverage.  Coverage does not include injury to you or your family members residing in the household.  It is basically for the friend that twists their ankle at your backyard bbq.
All of these limits can be extended to greater coverages and it is important to discuss these with your insurance agent or real estate agent.  Coverage for one individual may be completely different for their neighbor so it is important to look into all your options.  Your home, no matter what market, is a major investment that is important to protect.  It is important for you to be able to sleep easy knowing that you, your property, and your structure are covered in the event of a loss.
This is an exciting time for you first time home buyers.  Don’t settle with a simple, “you’re covered” from an agent in order to close the deal, dig in and find out what that means.

Best of luck to everyone during these crazy times.  The important thing to remember is that there is plenty of help out there regardless of your situation just don’t be afraid to ask.

These numbers and coverages are based upon information relevant to the state of California.  Other states may have totally different limits of coverage.  Please contact your insurance agent or real estate agent with questions regarding your situation.

Tyler Flaherty
Sales Agent
Realty World Sungate