Understanding Home Insurance Options

Purchasing home insurance for the first time is often one of the most stressful parts of becoming a homeowner. There are so many questions that come up during the process. For example, what is family liability protection on homeowners insurance? And can you get coverage for treasured family heirlooms? 

We created this quick guide to help you find the answers.

What Does Homeowners Insurance Cover?

Home insurance covers the cost of repairing or replacing your home or possessions from natural disasters, damage and theft. And it's absolutely necessary for all American homeowners.

If you're looking to finance a home, you've probably noticed that most mortgage companies require you to buy home insurance before agreeing to work with you. Basic homeowners insurance policies typically cover the following four areas:

1. Your Physical Home

All home insurance policies include the costs of repairing the interior and exterior of your home after covered incidents such as:

• Fires
• Hurricanes
• Lightning
• Vandalism

It's important to note that basic homeowners insurance policies usually exclude damage resulting from:

• Certain natural disasters: Most insurers exclude damage from disasters such as flooding, earthquakes or sinkholes. 
• Home maintenance: Insurers often exclude damage resulting from routine wear, especially if you neglect home maintenance.
• Certain acts: Damage caused by terrorism, acts of war, nuclear accidents and civil unrest is usually excluded from homeowners insurance.

Additionally, while some policies include coverage for detached structures like garages and gazebos, others don't. Read your policy carefully to determine what yours entails.

2. Personal Belongings

Your policy also covers most of your possessions such as clothing, home appliances and furniture — as long as you lose them in an insured disaster. Coverage typically extends outside of your home as well, so if you were to lose an insured item while on vacation, you could file a claim.

That said, your coverage may not extend to the full cost of your item, as with fine jewelry and antiques. If your grandmother left you her favorite diamond necklace, for example, you might want to purchase additional coverage in case it gets stolen. 

3. Liability Protection

Typically, homeowners insurance does give you both property and liability protection. Personal liability coverage protects you and your family from legal action taken against you by others.

So, if your neighbor fell down your stairs and broke their leg, your insurer would pay for both your legal fees and your neighbor's medical bills. Note that liability protection doesn't include medical bills for your family members — that's where your health insurance policy comes in.

4. Additional Living Expenses (ALE)

If you're forced out of your home due to damage from an accident or natural disaster, your insurance company will reimburse you for most of the incidental costs you incur while you're waiting for repairs to wrap up, such as:

• Hotel stays 
• Restaurant meals
• Storage fees
• Moving costs
• Pet boarding

Most insurance companies place strict limits on ALE coverage, but you can expand those limits if you're willing to pay higher premiums.

What Types of Coverage Can You Get?

Most companies offer three coverage levels, though some may offer others.

1. Actual Cash Value (ACV)

An ACV policy covers the current value of your home and all included possessions. This amount is usually lower than their full price because it accounts for depreciation — an item's decrease in value over time due to wear and tear.

While premiums for ACV policies are usually the most affordable of the three, your insurer will pay less to replace your belongings if you need to file a claim. 

2. Replacement Cost Value (RCV)

RCV coverage includes the actual cash value of your home and covered possessions without factoring in the cost of depreciation. Essentially, it covers the costs to repair or rebuild up to your home's original value or to replace lost or damaged property with new items of similar quality.

While RCV premiums are typically higher than those of ACV policies, they significantly reduce the amount you'll have to pay out of pocket in the event of a disaster.

3. Guaranteed Replacement Value

This option is the most comprehensive of the three. It covers the entire cost of rebuilding your home, even if prices have changed due to inflation. That said, it's important to remember that guaranteed replacement value policies come with the highest monthly premiums. Carefully weigh which level of coverage is the best for your home before signing up for anything.

How Do Insurance Companies Determine Rates?

As with any other type of insurance, insurers calculate coverage policy rates based on the amount of risk they take on by accepting you as a client. The more risk incurred, the higher your premiums. 

Some key contributing factors include:

• Neighborhood
• Home condition and age
• Previous claims on the home
• Renovations or remodeling
• Credit score
• Total replacement cost
• Deductible

If you need help understanding how your insurer is calculating your rates, you can always ask for an explanation. A trustworthy insurer will be 100% transparent with you about their process.

Tips for Getting Quotes From Insurance Companies 

Here are some tips for finding legitimate insurance companies in your area:

• Use the South Carolina Department of Insurance (DOI) website to view customer ratings for each company.
• Use the DOI website to compare rates statewide.
• Investigate customer complaints and positive reviews.
• Look into each provider's financial health by checking their credit scores.

As a general rule of thumb, start by getting quotes from at least five of the companies on your shortlist, including any you're already working with. Compare the quotes you get to find the best rates.

How to Read Your Homeowners Insurance Policy

Most insurance policies have four parts:

1. Declaration page: The first section identifies all parties involved in the agreement and the specific items your policy covers. It also states your monthly premiums, policy limits, policy period and deductible.
2. Insuring agreement: A detailed summary of all the insurer's promises and what your policy covers. 
3. Policy exclusions: This section defines all costs the policy does not cover, such as specific causes of loss, types of loss and types of property. Excluded property for home insurance typically includes things like cars, boats and pets.
4. Conditions: This list of provisions defines when your insurer must deliver on their promises. For example, your policy may require you to file a proof of loss with your insurance company when filing a claim.

Many policies also include a section defining all the important terminology used in the rest of the agreement. Depending on your insurance company, this section could stand on its own or may be included as part of another section. Either way, you'll want to read this section first, as it will make the rest of the contract significantly easier to understand.

Find Your Dream Home With McAlister Realty

At McAlister Realty, we're committed to helping you find the perfect South Carolina home for you and your loved ones. Let us know what you're looking for by filling out our online contact form, and one of our representatives will be in touch.