In Ohio, unlike driving a car, you can legally own a home without homeowners insurance. But, if you have bought your home and financed the purchase with a , your lender will most likely require you to get homeowners' insurance coverage. That’s because lenders need to protect their investment in your home in case your house burns down or is badly damaged by a storm, tornado, or other disaster.
If you live in an area that is likely to flood, the bank will also require you to purchase . Some financial institutions may also require earthquake coverage if you live in a region vulnerable to earthquakes. If you buy a co-op or , your will probably require you to buy homeowners insurance.
After your mortgage is paid off, no one will force you to buy homeowners insurance. But it is not advisable to cancel your policy and risk losing what you’ve invested in your home.
Damage caused by most disasters is covered but - there are exceptions. The most significant are damage caused by floods, earthquakes and poor maintenance. You must buy two separate policies for flood and earthquake coverage. Maintenance-related problems are the homeowners' responsibility and there is help, here also, in the form of the "home warranty."
Your homeowners' policy will not cover you in the event your furnace doesn't come on next October. That's the job of the Home Warranty - usually a one-year limited home service agreement that helps protect homeowners against the costs of repair or replacement of covered appliances and major systems that break down due to normal wear and tear (i.e. - they break down all by themselves and not because of a hazardous event).
Understanding Homeowners Insurance
|1. Look for exclusions to coverage. For example, most insurance policies do not cover flood or earthquake damage as a standard item. These coverages must be bought separately. (See "insuring Against Natural Disasters" below.|
|2. Look for dollar limitations on claims. Even if you are covered for a risk, there may a limit on how much the insurer will pay. For example, many policies limit the amount paid for stolen jewelry unless items are insured separately.|
|3. Understand replacement cost. If your home is destroyed you’ll receive money to replace it only to the maximum of your coverage, so be sure your insurance is sufficient. This means that if your home is insured for $150,000 and it costs $180,000 to replace it, you’ll only receive $150,000. |
|4. Understand actual cash value. If you choose not to replace your home when it’s destroyed, you’ll receive replacement cost, less depreciation. This is called actual cash value. |
|5. Understand liability. Generally your homeowners insurance covers you for on your property, including medical care, court costs, and awards by the court. However, there is usually an upper limit to the amount of coverage provided. Be sure that it’s sufficient if you have significant assets. |
|6. Understand your Insurance Score. Your ability to qualify for coverage and how much you pay for it is determined by your Insurance Score. A very large part of this score is derived from two other scores: your credit score (a calculated number ranging from 300 to 850 based on the history of your credit use or abuse); and from a report called (a check on the claims history of prospective policyholders which also includes insurance claims made on your home before you even bought it).|
See ► What's The Big Deal About CLUE and your CREDIT SCORE? below.
Paying for more homeowners insurance than you need is a waste of money, but it can prove even more costly to get caught without enough coverage.
An annual check-up on your homeowners insurance can result in a healthier policy and a healthier pocketbook.
A house is probably the biggest investment you’ll ever make. Create a financial plan that takes into account repairs, upgrades, mortgages, insurance, and taxes.
Use these tactics to create a home inventory after a casualty loss to support an insurance claim.
Create a home inventory before disaster strikes to make filing an insurance claim a smoother process.
A home inventory of your belongings for insurance purposes is a relatively inexpensive way to make any future claims go smoother.
Your homeowners claims don’t disappear after your insurer cuts a check because CLUE reports keep them alive for seven years—and that could cost you.
An error in your CLUE report can increase your homeowners insurance premium or even prevent you from getting coverage at all.
How good you are at paying your bills can have as much effect on your homeowners insurance premium as the tree that fell on your house.
The answer to that question will go a long way toward determining whether your homeowners insurance will ultimately cost you more or even get canceled.
Your homeowners insurance covers many of life’s disasters, just not most of the natural ones like earthquakes and floods, so consider supplemental policies.
The secret to filing a successful disaster insurance claim is getting prepared long before catastrophe actually strikes your home.
Where you live dictates what kind of disaster insurance you might need to protect your home from Mother Nature’s wrath.
Few places in the country are considered flood-free, so mitigate your risk.
After flood waters subside, document, work with your insurer, and clean up safely.
1. Raise your deductible. If you pay more toward a loss that occurs, your premiums will be lower. Since most home owners only file a claim every eight to ten years, not only will you save a lot of cash over the years but you'll save your insurance for when you really need it.
2. Buy your homeowners and auto policies from the same company. You’ll usually qualify for a discount. But make sure that the savings really yields the lowest price.
3. Make your home less susceptible to damage. Keep roofs and drains in good repair. Retrofit your house to protect against natural disasters common to your area.
4. Keep your home safer. Install smoke detectors, burglar alarms, and dead-bolt locks. All of these will usually qualify for a discount.
5. Be sure you insure your house for the correct amount. Remember, you’re covering replacement cost, not market value.6. Ask about other discounts. For example, retirees who are home more than working people may qualify for a discount on theft insurance. Other discounts may include:
- Smoke detectors Fire extinguishers Sprinkler systems
- Burglar and fire alarms that alert an outside service
- Deadbolt locks and fire-safe window grates
- 55 years old and retired
- Upgrades to plumbing, heating and electrical systems
7. Stay with the same insurer. Especially in today’s tight insurance market, your current vendor is more likely to give you a good price.
8. See if you belong to any groups (associations, alumni groups, unions) that offer lower insurance rates.
9. Review your policy limits and the value of your home and possessions annually. Some items depreciate and may not need as much coverage.
10. See if there’s a government-backed insurance plan. In some high-risk areas, such as the coasts, federal or state governments may back plans to lower rates. Ask your insurance agent. (In Ohio, if you cannot find insurance coverage for your home, you can apply through the Ohio FAIR Plan Underwriting Association. )
11. Maintain a good credit history. Most insurers use credit-based insurance scores when reviewing new applications for homeowners insurance. A person with a good insurance score will usually pay less for insurance than someone with a poor score. Studies show that how a person manages his or her financial affairs, which is what an insurance score indicates, is a good predictor of insurance claims. (The video in the sidebar to right helps explain.)