By David Pitt, AP Personal Finance Writer
DES MOINES, Iowa (AP) — Time is running out. Homebuyers must sign a contract by the end of next week to take advantage of federal tax incentives.
In the rush to make a deal, one detail that they'll need to weigh carefully is securing the appropriate insurance to protect their investment.
Keep in mind these basics when thinking about homeowners insurance coverage:
1. Determine how much.
Insure your home for its replacement value, not what you paid for it. You want your insurance coverage to reflect what it costs to bring materials to the site and rebuild the home if it's damaged or destroyed, says Sean Meehan, a vice president at Travelers Insurance. The home will likely cost more to rebuild because of inflation. If you have home on a large piece of property, be aware that the insurance company isn't insuring the land, so the amount of your policy may be significantly less than what you paid for the home.
2. Know claims history.
Ask the seller to provide a home's insurance claim history report. Two companies keep databases used by the insurance industry. ChoicePoint has the largest database called CLUE (for Comprehensive Loss Underwriting Exchange), and Insurance Services Office Inc. maintains the other called the A-Plus (Automated Property Loss Underwriting System).
These reports outline previous fires, flooding and other claims that may have been made involving the home. They can tip you off to potential problems you might not be able to see, said Meehan. Certain problems such as previous water damage could make insurance more expensive on the home or in some cases, make it difficult to get insurance.
The reports must be purchased by the current homeowner. The CLUE report is $19.50 and can be purchased here. The A-Plus report is $9 by mail and $13 by fax and available here.
3. Understand what's covered.
Homeowners insurance typically covers the structure of your home, clothing and personal items. It also provides liability protection against lawsuits for injury or property damage to others on your property.
Also covered are living expenses in the event your home is damaged and you're temporarily displaced. These coverages often have various limits in standard policies, but can be adjusted by paying more. You'll need to think about levels appropriate for you given your location.
4. Consider special circumstances.
Most policies protect you against fire, lightning strikes, wind or hail damage. Losses from vandalism and theft are also typically covered to varying degrees. Other coverages may be included, too. You should check the list of the perils covered by your policy and make sure you understand them.
Flooding and earthquake damage typically are not covered but you can buy coverage separately. You should consider if you're in an area prone to such disaster and weigh the cost with the risk. Also not covered is damage caused by poor maintenance, mold or pest infestation such as termites.
5. Recognize that location matters.
When looking at homes, keep in mind location can cut 5%-15% off your premium costs. For example, a home near a fire hydrant may cost less to insure.
A home in a community with a professional fire department rather than volunteers also costs less.
6. Review other factors that cut the cost.
- Raising your deductible from $500 to $1,000 could save you as much as 25% on your premium. Be sure, however, that you can come up with the deductible in cash if needed.
- Insuring your home and car with the same company can save up to 15%, said the Insurance Information Institute, a nonprofit industry trade group.
- Installing smoke detectors, burglar alarms and deadbolt locks can save you 5%. It can be expensive but installing alarms that alert police and fire of a break-in or fire can cut as much as 20% from the premium cost.
- Homes with electrical and plumbing systems less than 10 years old save on insurance costs.
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