4 Things First-Time Homebuyers Won’t Ask about Home Insurance

As insurance agents, we get requests for quotes from first-time homebuyers all day long. It’s essential to remember that these folks aren’t insurance agents or realtors. They may not understand how home insurance works, what it covers, and why they need it. Many first time buyers will assume a home insurance policy is just like an auto policy.

Realtor explaining home insurance to first-time homebuyers

Vargas & Vargas Insurance is here to help! With this blog, we’re going to cover a few concepts every agent should be reviewing with first-time homebuyers.

1. What Is Replacement Cost Value vs. Actual Cash Value, vs. Purchase Price

Most home insurance policies are written at Replacement Cost (RCV). It’s crucial to explain to new buyers that we’re insuring the home and its contents for what we estimate it will cost to replace the home with a brand new home and brand new contents on the same piece of property. 

This is important because:

  • Many buyers assume we’re insuring a home for Actual Cash Value (ACV) — what the building is worth today, considering depreciation.
  • Buyers may not understand that the purchase price of the property does not equal the cost to replace the home completely.
  • The purchase price of a property and replacement cost of a home are not the same thing. 

2. Are Their Vehicles Covered When Stored in Other Structures?

First-time buyers might think that their stored vehicles, which aren’t insured with an auto policy, will be covered by Other Structures coverage. This is not the case!

3. Will a Swimming Pool Change Their Rates?

Possibly. Swimming pools present a significant risk, even when they’re empty. New homebuyers should consider purchasing an umbrella policy if the home has a swimming pool. 

4. Is Your Client’s $10,000 Diamond Engagement Ring Covered? 

Generally, no. Most home insurance policies will set a specific limit on valuables like:

  • Jewelry
  • Furs
  • Cash
  • Musical instruments
  • Artwork

Ask your prospective client if they own these sorts of expensive items, and explain what the limits of coverage are. If your customers do have these sorts of belongings, often in the form of precious wedding jewelry, they probably need a Personal Articles Floater (PAF).

Be sure to put notes in their file, describing your conversation. At Vargas & Vargas, our goal as insurance agents is to be sure that customers have the protection they need so that they won’t face any surprises. Check out our blog for more great insurance topics, or get in touch with us today.

The First-Time Homebuyer’s Quick Guide to Finding Insurance

If you are purchasing your first home through a home loan, you will need to show proof of home insurance to your lenders before they can finalize the loan.

First-time homebuyers moving into their home

Since lenders do hold a lien on your property until you finish paying off your loan, having clients under home insurance is in their best interest. This can help protect the equity they have in your home in case of damages, such as electrical hazards.

While you might not always need to have insurance if you are paying your home through an unsecured line of credit or with cash, it pays to invest in it. Home insurance helps keep your home protected. When shopping for insurance, comparing prices and policies makes it easy to pick an insurance policy that covers your home optimally and is affordable enough.

Here are some insights on finding home insurance:

1. Pay Attention to the Limits

Home insurance coverage is divided into categories. Typically, any personal belongings you own will be covered under Coverage C of your insurance (personal property), and it pays to ensure that the limit will be enough to cater for what you own. However, some items, such as jewelry, will fall under a category containing a sub-limit, which tends to be set by your insurance company. If the sub-limit isn’t enough for such valuables, you have to add a rider for protection.

On the other hand, coverage E (liability) will protect your liability in case someone gets injured by accident in your property. When picking insurance, ensure that the liability limit awarded is enough to cover all your assets. Since most insurance policies set their liability limits at half a million dollars, you should consider buying umbrella insurance for extra coverage if this limit will not be enough for your property.

2. Understand Your Deductibles

Deductibles in insurance are the amount of cash you will pay out of pocket to cover any damages. When setting your deductible, choose a figure that is right into your budget. Unlike car insurance that fixes the deductible to a specific amount, home insurance deductibles might vary.

Some policies wills set your deductible at a percentage of your dwelling coverage. Others tend to have a split deductible system, whereby most claims will work under a set dollar deductible amount, while some claims (such as wind damage and other perils) may work under a percentage.

Also, some carriers might include a wind and storm deductible — or a named storm deductible — as a percentage of your dwelling coverage. To save on insurance costs, you can always increase your deductible. But it might be wise to save an amount equal to the deductible in a savings account for a rainy day.

3. Beware Of Exclusions

In some states, insurance agencies might exclude certain things from your policy. Under most policies, landslides, mudflows, and even earthquakes might be excluded. Flooding, in particular, isn’t always covered. For instance, in Massachusetts, earthquakes and floods are excluded. Even though you do not live in an earthquake or flood-prone area, it might be wise to purchase the extra coverage to eliminate the financial risks.  If you think you need coverage for an excluded peril, talk to your agency about purchasing the ad hoc coverage.

The future is not set in stone. It can be very easy for a disaster to destroy your most prized investment: your home. Home insurance ensures that you can protect your investments. If you want to buy home insurance or get insights on how to save on insurance, feel free to contact us.