A homeowners insurance policy is something people usually only think about when they are going through the homebuying process, as it’s something that is typically required by the bank securing the mortgage. For many homeowners, these expenses are included as part of their mortgage payment, and therefore not seeing regular bills puts the policy out of sight and out of mind. The next time most of us check to see what’s covered under our policies is when we unfortunately need to use them.
However, this isn’t the only time you should think about your policy or shop home insurance rates, as you could be leaving money on the table unnecessarily or be leaving yourself uncovered for material changes in your needs.
If you haven’t looked at your home insurance policy in a while, it is often worth shopping around to see if your rates are still competitive and that you have enough coverage. Not all policies increase the coverage amount as your house value increases in the real estate market. Homeowners insurance premiums can also increase drastically year over year depending on where you live and trending claims in your market. Physicians in Florida can tell you horror stories in the past few years.
If you’re buying a home insurance policy, there are four main steps to the process:
Decide what you need to cover
Determine how much coverage you need
Gather information on the property you want to cover
Compare quotes from different companies for different coverage limits and deductibles
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Where Can I Buy Homeowners Insurance?
You can purchase a homeowners insurance policy directly through a particular company that offers it or through an insurance broker. While it may be helpful to get a quote from a particular insurance company, they will only provide quotes for coverage through their company, so you will have to contact a lot of companies to find out if their offer is competitive both in price and scope of coverage offered.
Insurance brokers, however, have contacts with multiple companies and know the unique points of each that may be beneficial or detrimental in your situation. They are able to price several policy options with different companies and present you with the best deals for your particular situation, as well as guide you through the pros and cons of each option. Working with an insurance broker can also help you price policies with companies you may not otherwise find during your own search.
For busy physicians in particular, we recommend reaching out to an insurance broker to help you find the best deal possible with the least amount of hassle.
Our sponsor, PolicyGenius, offers a convenient online way to compare rates amongst multiple lenders without having to call around. They're well regarded in the space and have niche knowledge in life insurance, and can help you go through options.
Is Homeowners Insurance Required?
If you are purchasing a home with a mortgage, your lender will require you to have proof of homeowners insurance coverage prior to closing. For the life of your mortgage, your lender will require you to carry homeowners insurance on the property to protect their interest.
Even after your mortgage is paid off, it’s still likely a good idea to carry a home insurance policy. An unexpected event such as a fire in the home or a natural disaster could really threaten your financial stability. Having to cover the cost of a complete loss would significantly set back your retirement and take a huge chunk out of your net worth.
Even if you have achieved financial independence, when major expenses come up unexpectedly, you could have to liquidate assets at an inopportune time to pay for repairs or a home rebuild, which could result in even larger losses. Just like disability insurance and life insurance coverage, these are policies our members tend to carry regardless of their financial status until much later stages in their career when they have truly reached later stages of financial independence where they are confident that major changes would not threaten their ability to maintain their standard of living.
What Does Homeowners Insurance Typically Cover?
Your homeowners insurance policy typically covers your home and your personal possessions within it should you experience a break-in or suffer damage, though there can be exclusions to be aware of as you shop policies, such as damage caused by:
Floods
Earthquakes
Landslides
Sinkholes
If you live in an area prone to these types of natural disasters, look into getting a separate policy to cover damage in these situations as well.
Depending on where you live, you may have more than one deductible included in your policy. For example, some states have a standard deductible and then a separate, higher deductible for damage caused by windstorms (like hurricanes) and hail. These deductibles are usually given as a percentage of your house’s value instead of a flat dollar amount like the regular deductible.
In addition to covering structural damage and your personal possessions, homeowners insurance usually reimburses you for additional living expenses in the event that you have to evacuate the home and live somewhere else temporarily while repairs are made.
Homeowners insurance can also protect you if someone–like a contractor, neighbor, or friend–gets injured on your property and sues you. Doctors can be targeted more than others for these types of lawsuits, which is why we recommend carrying ample coverage, as well as umbrella insurance to protect you if a claim exceeds your homeowners coverage limit.
How Do I Determine What Homeowners Insurance Policy Coverage Limits I Need?
A standard homeowners insurance policy includes different types of coverage. Each one is structured with a deductible you must pay out of pocket first before the insurance picks up the tab, as well as a coverage limit, which is the maximum amount the insurance will pay you. Some examples of different categories of coverage are:
Dwelling coverage - this is the primary coverage for homeowners insurance, covering the structure of your home (walls, roof, etc.) and attached structures (decks, garage, porches, etc.)
Personal property coverage - covers your personal contents within the home (clothes, electronics, furniture, etc.)
Loss of use coverage - covers your living expenses (food, hotels, etc.) if you have to vacate the home while repairs are made
Other structures coverage - covers structures on your property that aren’t attached to the house (detached garage, fence, shed, etc.)
Personal liability coverage - covers you from bodily injury or property damage claims from others (dog bites, slip and falls, etc.)
Medical payments coverage - covers the medical expenses for people injured on your property (regardless of who is at fault)
Minimum Coverage You Should Carry
With six different types of coverage wrapped into one policy, determining minimums are situationally dependent, but we’ve included some general guidelines below.
Before finalizing your homeowners policy, check with your mortgage lender. If you have an umbrella policy, double check that policy as well. Your lender and umbrella policy may have requirements for coverage you haven’t considered that will dictate what minimums you need to carry.
The dwelling coverage is the main factor when it comes to your homeowners insurance policy, including what the policy will cost. The general consensus on our physician communities is that your home should be insured under the dwelling coverage for the replacement cost.This is not the current market value with the house plus the land, but the cost if you had to rebuild your home after a complete loss due to tornado, hurricane, fire, etc.
Your personal property coverage is usually 50%-70% of your dwelling coverage. If you have a lot of high-value personal property, consider adding additional coverage. See below.
If you are a higher net worth physician with significant financial assets to your name, your minimum coverage for your personal liability and medical payments coverages should be higher to offer you more protection under the liability portion of the homeowners policy.
Deductibles
The higher your deductibles, the cheaper the cost of your policy. A physician with an abundant emergency fund can weather a disaster better than a physician living paycheck to paycheck.
If you have the cash reserves available to cover a higher deductible and the likelihood of needing to file a claim is relatively low, it’s worth checking with your insurance broker or agent to see what the different policy amounts will be based on different deductibles. Many physicians will elect to have higher deductibles for the cost savings, knowing they can easily cover the cost of a minor repair, but wanting to insure significant damages such as a large leak in an upstairs bathroom.
Additional Coverage You Can Purchase
On top of the six main coverages listed above, you may also be able to buy add-ons or endorsements to your policy for an additional cost, including:
Home business endorsement - extended coverage if you run a home-based business out of your property
Scheduled personal property - coverage for items in your house that exceed the standard personal property limit, such as art and jewelry
Sewer or water backup coverage - while your homeowners insurance policy may not cover flood damage from a natural disaster, you may be able to buy an add-on to protect yourself against water damage, such as pipes bursting or a sump pump failing
Actual Value Vs. Replacement Cost
Actual value coverage is the standard on most homeowners policies. This coverage reimburses you for the depreciated value of your personal property.
Add-ons exist for replacement cost coverage, which will pay to replace the damaged (or stolen) item with a similar, new one. Depending on the significance and value of your belongings, it may or may not be worth upgrading to the replacement cost, especially if you are a resident or newly hired attending and these unexpected expenses would impact your budget.
How Much Does Homeowners Insurance Cost?
Similar to other types of insurance, companies consider several factors when pricing homeowners insurance policies, including:
Windstorm and hail deductible
The age, size, and construction of your home
Your home’s location
Your credit history
The dwelling coverage is one of the largest factors in determining your policy amount. You may be tempted to reduce your coverage to save money, but we strongly urge you to budget for the proper coverage to avoid a situation where an unexpected expense results in a lot of financial stress. Location is obviously another key factor, but one that you have less control over.
Looking strictly at national averages, annual homeowners insurance premiums are around the $2,500 range, but remember your specific quotes can vary drastically with the above factors. A 1,500 square foot home in an area without many natural disasters is going to cost much, much less to insure than a 9,000 square foot home in an area prone to natural disasters.
What Information Do I Need to Price a Homeowners Insurance Policy?
When shopping different policies or talking with an insurance broker to help in your search, you will need to provide information such as:
Your home’s square footage
The age of your home
Your home’s roof type (gable, hip, etc.)
The construction of your home (brick, concrete block, etc.)
Additional structures (attached and non-attached) on the property
If the appliances are gas or electric
Whether this is a primary or secondary home
Whether you rent it out (short or long term)
Whether you have a home business
If you have features such as a pool or trampoline which increase liability
If you’re shopping for a policy to put in place for a home you are purchasing, check with the seller’s real estate agent or the property appraiser’s website if you need help tracking down some of this information.
When Can I Change Homeowners Insurance Policies?
You can cancel your policy at any time, even in the middle of your current coverage term. Like with life insurance policies, we don’t recommend doing this until you’re sure you have another policy lined up so there’s no lapse in coverage.
Check your policy before you cancel, as there may be an early cancellation fee. Not all policies have them, and the ones that do are typically small (around $25 or so), but it’s better to know for sure. If you’re changing policies, you’ll likely more than make up the early cancellation fee in the premium savings.
It’s smart to re-shop regularly (some of our members do it yearly) to make sure your current rates are competitive. When shopping, check your auto insurance as well. Some companies that offer policies for both will have a multi-policy discount if you bundle them. If you shop around and find you have the best rates for your necessary coverage, you’re under no obligation to change policies. A good rule of thumb is to get either three or four quotes, or to work with an insurance broker who checks multiple carriers for you before providing you with the best option available within their providers.
When Should I Re-Shop or Update My Homeowners Insurance Policy?
While we recommend making it a point to compare available policies at regular intervals (every year or two), there are a few situations where you need to make sure to either update or re-shop your policy. These include:
You move
The housing market significantly changes in your area (dwelling amount changes)
You’ve purchased several high-valued items
You’ve done major renovations (new kitchen, added a pool, etc.)
You’ve installed solar panels (not all policies cover them)
Your policy renewal cost increased 10%+
You received a notice of cancellation with a notice of a single insurance company they recommend
You’ve received a notice of policy exclusion at renewal
Discounts to Check
If you’ve changed one of the following, you may be eligible for a significant discount on your policy premiums, so check with your insurance company. If your current policy doesn’t offer a break, shop around to see if you can get a better deal elsewhere.
Roof replacement
Added a security system
Purchased hurricane shutters
Conclusion
While home insurance is not something that we all routinely think about after initially purchasing our homes, it is a significant cost in most people’s annual budgets, and undercoverage could leave you financially vulnerable and threaten your pathway to financial independence. Make it a point to regularly check whether your policy is the best one for you or whether you could be getting a better rate. A great time to do that is when you get a notification for payment for your annual premium, but for those whose payment is set up through your mortgage payments, set an annual reminder date on your calendar to run a quick quote and make sure your pricing is still competitive.