Home-Buying Process:
Purchasing Homeowners Insurance
Costs and Coverage
Numerous companies sell homeowners insurance and prices vary among policies. It pays to shop around and get at least three price quotes from companies and agents. Be sure when comparing rates that you consider the coverage options of each. Determine the similarities and differences among offers and decide which policy offers the most benefits. When trying to get the right insurance coverage at the lowest price keep the following in mind:
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Take the highest deductible you can afford
The higher the deductible, the lower the premium. Since most people only file a claim every eight to 10 years, you will save money over time and reserve your insurance for when it is really needed. However, in your spending plan you should set aside the deductible as part of your emergency savings fund. -
Ask about available discounts on:
- Multiple policies (house, car or other policies with the same company)
- Smoke detectors
- Fire extinguishers
- Sprinkler systems
- Burglar and fire alarms that alert an outside service
- Deadbolt locks and fire-safe window grates
- Age (55 years old and/or retired)
- Long-time policy holder
- Upgrades to plumbing, heating and electrical systems
- Earthquake retrofitting to make the house safer
- Wind-resistant shutters
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Get enough insurance
Take the time to properly insure your house. Make sure you have enough coverage to:- Completely rebuild the house in the event it is destroyed by fire or other insured disaster.
- Replace everything in it.
- Protect yourself by including enough liability insurance in case someone is injured on your property and sues you.
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Ask about additional coverage such as:
- Replacement cost coverage for possessions
- Extended or guaranteed replacement cost coverage for the structure
- Building code upgrades
- Sewer and drain back-ups
- Inflation guard
- Umbrella coverage for a pool or other high-risk item
- Special riders for jewelry, collectables and expensive items
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Flood, windstorm and earthquake risk
Damage caused by flooding, earthquakes and windstorms is not covered by standard homeowners insurance policies. Instead, homeowners will need to purchase additional insurance for these risks.
In New Mexico, rainfall usually does not cause flooding, however, floods can occur. Property owners should have flood insurance if their home is in a flood hazard zone. Flood insurance is available through private insurance agents, but is funded by the Federal Emergency Management Administration, which administers the National Flood Insurance Program. When you buy property, the real estate professional can check with the city or county government to determine if the property is within a flood hazard boundary and whether you need to purchase flood insurance. Each community – city or county – has a flood plain manager who is a member of the New Mexico Flood Plain Management Association. For more information, contact the New Mexico State Climate Center at (575) 646-6041 or visit their Web site at www.weather.nmsu.edu. They also provide information about the National Flood Insurance Program.
Certain areas of New Mexico are more susceptible to windstorm and hail damage. Windstorm and hail damage coverage is usually included in most common insurance policies, however, due to the location and susceptibility of your house, the deductible can vary. Other areas, such as coastal states, will have a sizeable windstorm deductible, which means the homeowner may be responsible for thousands of dollars of damage before the insurance company pays. It is important to know what is in your policy.
Private insurance companies offer earthquake insurance. If you live in an area where there are earthquakes, coverage is available through state programs and the private market. It can be expensive and may come with a high deductible.
Household Property Inventory
When you become a homeowner, do not underinsure your personal property just to save a little money. It is important to buy the coverage in your homeowner’s policy that protects what you have. To figure out how much insurance is needed, make a written inventory of clothing, jewelry, electronic gear, books, CDs and other household goods. Write the name, cost, purchase date, model and serial number on the inventory. If you use a credit card for most purchases, check past statements for prices and dates. If you pay by check, consult your checkbook register or carbon check duplicates. If you do not have cost and date information, make estimates of the cost and approximately when you think you bought it. Clothing and furnishing catalogs can help in the estimating process.
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| Household Property Inventory spreadsheet |
If you are comfortable with computers, use the Household Property Inventory spreadsheet to list the things you own. Just save it to your computer or a disk. You can change the row headings to fit your needs. For example, you can change “mirror” to “antique wall mirror” in the Living/Family Room section. Make room for additional property by inserting extra rows as needed. For instance, you can add several rows and create a new section for a family room that is separate from the living room.
The total calculated value will give a good estimate of how much coverage to include in your homeowner’s policy and can be helpful if you file a claim. You can support the inventory with a video or photographs of your personal property. Keep this initial inventory, video or photographs in a safe place with a friend or family member just in case. Keep a copy of the inventory handy so you can update it as you buy new things and get rid of items you no longer need. Keep receipts for expensive items. Once or twice a year, copy the updated list and make a new video as needed.
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