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Guest Blogger: David Hafner, Hafner Insurance & Financial Services

Okay, so you finally found the dream home you have been searching for and you’ve secured your mortgage with Adelo. The most exciting step (insert sarcasm) is still to come, procuring property insurance for your investment. Insurance is one of the single most boring, complicated, and frustrating things to shop for. I get it, this is my career, and it is only exciting to us insurance nerds. However, this is a necessary step in the process, and a mandatory one if you are using a mortgage to purchase your home.

The insurance contract isn’t layman language and can make your head spin if you are really trying to figure out what it’s saying. It also makes for good reading should you suffer from insomnia. There are a couple of areas to focus on when shopping, but the most important is the starting point and the most important question: How much coverage do I need for my home?

The Background

Before I dive into the details, let me give you some key background information: Most insurance policies today use software with a standard formula to determine the amount to insure for your home – this is usually based on the specific features of your home as well as your ZIP code. This is the starting point for determining the coverage.

Now, let’s get into the nuts and bolts of getting an insurance policy for this new home of yours.

1. Determine the Coverage Needed for Your Home

Make sure you are purchasing a “replacement cost” policy. Replacement cost policies don’t take depreciation into account when reimbursing you for what is damaged, rather they pay you for what it would cost to buy new items that were damaged, stolen, etc. Generally speaking, with a replacement cost policy, you won’t be able to insure your home for less value than what the software deems it will cost to completely rebuild your home.

The most common question I get here is, “I am buying my house for $300,000. Why would I need to insure it for $325,000?” And, to be honest, this does happen — quite often to be honest. You are buying your home for fair market value. There is not really a direct correlation between that and what it would cost to hire a custom builder to completely rebuild your home with the same features it had prior to the loss. This is what an insurance company has to be prepared for.

2. Determine Your Deductible

It is worth noting that, at this point, you should be thinking about what you want your deductible to be. The amount of your deductible will directly affect the premium for the policy – the higher the deductible, the lower the premium. The property insurance climate in Texas is such that right now, very few companies offer a deductible lower than 1% for wind and hail coverage.

Case in Point: A 1% deductible on a $325,000 home is equal to $3,250 for a single event. If a hailstorm damages your roof, you are responsible for the first $3,250 of the repairs.

You will need to find a happy medium with your policy here: a premium that is affordable and a deductible that you’d be willing to pay for out of pocket in order to get repairs done.

3. Decide on Additional Types of Claims

Most companies have a separate deductible for other types of claims such as fire, theft, water damage (not flood – that is a separate policy), etc. Again, see how the different choices affect the overall premium and pick what you are comfortable with – there is no right or wrong here.

One Final Note

Insurance policies vary widely from company to company on what they cover. Lining up the policy limits is not always going to give you a fair comparison when looking at the premiums. Just because both companies are covering the home for $325,000 does not necessarily make the policies a direct comparison. Make sure you have an agent you can trust and advise you on your individual needs.

David Hafner Hafner Insurance & Financial Services Farmers Insurance Group (512) 744-1428 dhafner@farmersagent.com

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