How-To: Homeowner's Insurance
When you purchase a home, the lender will require that you also purchase homeowner's insurance. Selecting an insurance carrier and determining which policy is right for you can be confusing to navigate. I spoke in-depth with Charles Trub at Farmer's Insurance to help bring some clarity to the process. Together we walked through an example policy proposal and he showed me the ropes.
A standard homeowner's insurance policy is for a 12 month timespan. The premium is paid annually and rolled into an escrow account along with taxes due as part of your closing costs. Depending on your provider, monthly or quarterly installment payments should be an option if you need to reduce the amount due at time of closing.
- Coverage A - Dwelling: This number is determined by software that pulls from county records and is an estimate of what it would cost to rebuild the home from scratch. This figure is not related to the purchase price or loan amount. In Central Denver it costs an average of $150-$180 per square foot to replace a home.
- Extended Replacement Cost: This percentage serves as an inflation buffer for the Coverage A figure. 25% is the most common number to see here; in this example they reduced it to 10%.
- Coverage B - Separate Structures: Covers structures outside of the home (detached garages, decks, fences, sheds, etc.)
- Coverage C - Personal Property: A typical baseline number to see here is $45-50K for existing goods, plus additional amounts for any large purchases you are making with the purchase of the home (furniture, electronics, etc.) The note for "replacement cost" states the policy will cover what it takes to replace the item day-of, not what the actual cash value is today.
- Coverage D - Loss of Use: This sum covers the cost for a hotel or other needs while the home is being repaired.
- Coverage E - Personal Liability: Charles emphasizes this line item as an important one. This will cover any personal litigation, long term medical bills, etc. Many insurance companies limit this coverage to $1,000. If you want the flexibility for greater protection, select a carrier like Farmer's that has realistic personal liability thresholds.
- Coverage F - Medical Payments to Others: Covers medical costs in the case that a non-resident were to be injured on your premises. Many companies set this coverage at $1,000 which won't even cover an ambulance.
- Sewer & Drain: Charles recommends doubling down on sewage & drainage coverage over anything else. Drainage incidents are the most common and often the most expensive.
Earthquake and flood insurance is not included with homeowners insurance and needs to be purchased separately. Wind and hail coverage should be included in every home policy.
If in the future your home is reassessed and the county confirms appreciation, you can expect your mortgage payment to increase as well as your homeowner's insurance payment.
Shopping for homeowner's insurance in the state of Colorado? Charles and his team offer top-notch customer service and flexibility to make sure your plan fits your needs and your budget. Give him a shout via this link.