How to Compare Homeowners Insurance

Three Parts:Evaluating PoliciesComparing CostsAssessing Insurance Company Performance

Homeowners insurance covers damage to your property while also providing you with protection against legal liability for injuries/damage incurred on your property.[1] Figuring out how to compare home insurance policies can be difficult and overwhelming. A good way to compare homeowners insurance policies is to look at the policies themselves, the cost of each policy, and the quality of each insurance company. There is a great deal of variance in terms of what policies are available and how much they will cost. Insurance is state-regulated, so a lot of options and offers will differ from one state to another. Talk to an insurance agent in your area to get a better understanding of what your state requires/permits.

Part 1
Evaluating Policies

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    Compare coverage. Depending on where you live and what policies are available to you, you should have a lot of options in terms of coverage. Some incidents are not covered by standard homeowners insurance, and will require a separate policy (if one is available in your area). Talk to the agents you're considering and read through your coverage to see what each policy would protect against. Common coverage articles include damage caused by[2]:
    • fire
    • lightning
    • windstorm/hail
    • explosions
    • smoke damage
    • sudden or accidental leaks from plumbing, heating, or air conditioning
    • rain through a damaged roof, window, or door
    • backed up sewers/drains
    • frozen plumbing/pipes
    • broken heating system
    • mold
    • falling objects (including trees)
    • weight of ice, sleet, or snow
    • animals
    • construction defects
    • acts of vandalism
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    See what's excluded. Most homeowners insurance policies cover basic accidents, man-made damages, and some natural causes of damage. However, some natural disasters are typically not covered by a standard homeowners insurance policy, including flood damage and earthquake damage.[3]
    • Most policies are either open peril or named peril policies. Open peril means that your policy covers every possibility except the ones specifically excluded, while named peril means that your policy only covers what is listed.[4]
    • Earthquake damage is almost never covered.
    • Flood damage is seldom ever covered by a standard policy, even when the flooding was caused by a windstorm. Flood damage may include damage caused by an actual flood, rising water, surface water, tidal water, or tidal waves.
    • You can purchase flood insurance as a separate policy, either through your homeowners insurance provider or through the National Flood Insurance Program.
    • The contents of your home may or may not be covered by flood insurance, so be sure to talk to an agent before finalizing your insurance purchase.[5]
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    Examine additional coverages. In addition to natural disasters (especially earthquakes and flooding), many homeowners insurance policies do not cover mold problems or sewage backups. Some policies do cover these problems, but limit how much you can claim for these damages.[6]
    • Ask your provider about adding on specialized coverage for these problems, if you believe they may be an issue.
    • Sewage backup coverage only costs an average of $40 to $50 per year, but mold insurance (when available) is often much higher.
    • If you live in an area where these problems may arise, you'll have to balance the cost against the risk to determine if this type of coverage is right for you.

Part 2
Comparing Costs

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    Check the premium vs deductible. An insurance deductible is the amount of money that your insurer "deducts" from your insured loss. In other words, it's how much money you'll have to pay before the insurance company reimburses you for your loss/damage.[7] The premium, on the other hand, is what you pay each month or year to maintain coverage.
    • Your deductible and your premium are often balanced. If you pay a higher deductible you'll typically pay a lower premium, and vice versa.[8]
    • Deductibles can be written into your policy as a percentage or as a specified dollar amount.
    • Sometimes, in the event of a large-scale natural disaster, your dollar amount may be altered to become a percentage. Read the fine print and ask questions about what kind of natural disaster deductible you might have to deal with.[9]
    • As an example of how deductibles work, imagine that your damages come to $10,000 and you have a $500 deductible. Your insurance company will pay you $9,500, leaving you to manage the $500 deductible out of pocket.
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    Look at the liability limit. Your homeowners insurance policy offers some personal liability coverage if someone is injured or if someone else's belongings are damaged on your property. $100,000 is a pretty standard liability coverage. However, your policy will most likely have an exclusions section that can deny or preclude coverage based on certain situations and scenarios.[10]
    • Homeowners insurance typically will not cover damages caused by your car.
    • Liability coverage usually does not apply to injuries/damages related to any business/professional activities conducted at your home (like a home office).
    • Injuries/damages deliberately caused by you are not covered, nor are injuries/damages sustained by other members of your household.
    • There will be a list of conditions in your insurance policy detailing what conditions must be met before your coverage will apply. An example condition may be providing written notice to your insurer of any covered occurrences, or forwarding them any notice related to a claim.
    • Some policies do not cover liability claims. These policies will cover structural damage to the house and damage to personal possessions, but not the medical bills or legal fees that may arise from an injury on your property.[11]
    • Read through the conditions and coverages in each policy you consider. If you think you may need more liability coverage, you may want to consider buying an additional personal umbrella liability policy.
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    Negotiate a better rate. Insurance rates are in sort of a gray area: they're not completely fixed, but they're also not entirely flexible. The best way to negotiate a better rate is to shop around and compare policy rates, but you may be able to do some actual bargaining with an insurer as well.
    • Contact multiple insurance agencies to get a custom quote on your policy rate.[12]
    • Know that certain factors, like your profession or your credit score, can affect your insurance rate.[13]
    • Tell the insurers you're considering that you're shopping around for a better deal. Let them know of the best deal you've found so far (and bring supporting evidence), then ask if they can offer you anything better.
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    Look for personal discounts. Depending on your current and future insurance needs, you may be able to get some type of discount on one or more of your insurance policies. Talk to an agent at an insurance company you're considering to see if there are any additional discounts you might be eligible for.[14]
    • Most insurance companies offer a discount if you bundle your home and auto insurance policies through the same insurer.
    • Retired individuals typically qualify for discounts. This is because they are home more often, and are more likely to catch/report a burglar or home fire before any damage is incurred.
    • Make sure your insurer adjusts your policy rates after an insurance appraisal of the property (if you have such an appraisal performed).[15]
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    Make home improvements for discounts. Anything you can do to reduce the chances of an incident (and by extension, the chances that your insurer will have to pay out a claim) can lower your homeowners insurance costs. Some discounts may be offered if you make certain amendments to your home, while others may depend on your circumstances.[16]
    • Improving home security typically reduces your insurance costs. Add smoke detectors, a burglar alarm, and dead-bolt locks to your home to improve your costs.
    • Installing a sprinkler system may also reduce your costs, though these systems could be expensive to purchase.
    • Adding storm shutters, reinforcing your roof, or retrofitting your home for earthquakes (if you live in an earthquake-prone area) can lower your costs due to the improved disaster resistance of your home.

Part 3
Assessing Insurance Company Performance

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    Check each company's financial rating. A company's financial rating will give you some idea about how well they are able to treat their customers.[17] Many independent comparisons use financial strength ratings to compare an insurance company's ability to pay claims to their customers in a reasonable time frame.[18]
    • Use an independent, third-party evaluation like A.M. Best, which compiles credit ratings for insurance companies across the country.[19]
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    Examine consumer complaint reports. Most states have some type of official Department of Insurance (or some variation on that title). This department receives and investigates consumer complaints about unfair treatment by insurance companies, and their results are typically available online for consumers to view.[20]
    • In compiling complaint data, some departments develop a consumer complaint index. If your state has such an index, you should be able to view it online at your state insurance department website.
    • In a consumer complaint index, a higher index number indicates a worse complaint record, while a lower index number indicates an average or below-average number of complaints.[21]
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    Beware of insurance fraud. Insurance fraud is any deceptive, dishonest, or misleading insurance practice that leads to financial gain. While many acts of insurance fraud involve customers committing the illegal action, it is also possible for insurance companies/agents to commit fraud.
    • It is illegal in many states for an insurance company to sell insurance without a license. An unlicensed company may offer you a better deal, but may not be able to pay you a claim because they do not meet the state's minimum financial requirements.[22]
    • Many unlicensed insurance agents/companies take advantage of customers who have financial problems.
    • If you believe a company or agent is committing insurance fraud, you should avoid dealing with that agency and report them to your state's insurance department.

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