First time home buying is daunting. What levels and types of insurance should a first time home owner get?

Asked by Daniel Dohlstrom

1 Answer

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Answered by Donn Sharer , CFP ChFC CLU in Millstone Township, NJ
Hi Daniel - Congratulations! First-time home buying can be daunting and it’s probably why many people don’t take the time to learn how their homeowner insurance works. We could probably write a small book with considerations for you, but you’re probably pretty busy at the moment. A few tips that can be helpful:
• Dwelling coverage: Try to provide as much info about your new home as possible. This will help ensure that coverage on the dwelling (physical structure) is as accurate as possible. Don’t worry, this isn’t an exact science but generally speaking more info is better. Most policies will have an “Extended Limits” or “Additional Dwelling Limits” coverage that adds 20%-30% to this limit. Consider taking it as it’s not that expensive & gives you a cushion, when big storms cause major damage & drive building costs. Trying to think of a recent example in your area….
• Personal property coverage: This will likely be a percentage of your dwelling coverage. Personal property is basically everything that would fall out if you tipped your home on its side. Think clothing, furniture, electronics, etc. As or even more important than the limit is to make sure you have Replacement Cost on your contents. You don’t want to receive a depreciated amount for your stuff – you may not mind sitting on your old couch but you definitely don’t want to sit on someone else’s.
• Liability coverage: Lawsuit coverage if you or a family member were to be sued. Would get at least $300,000, and $500,000 is often not that much more. Here you’re protecting what would be targeted in a personal injury lawsuit – namely the equity in your home & other property, savings & investments & a portion of your future earnings.

There are many other coverages on the policy. The more you share about your situation and what you have with your insurance specialist, the better they will be able to guide you. A few to potentially address:
• Water Backup covers water overflow from sinks, toilets & sump pumps. Can be especially important for finished basements as it helps with both remediation (getting the water out) and repair. Water damage due to surface water affecting more than one property is only covered by flood insurance from the National Flood Insurance program, which is a separate policy you can typically get from the same place you get your homeowner insurance.
• Jewelry & watches. Most homeowner policies carry specific lower limits, typically in the $1000 to $5000 range, often with a lower “per-item” limit. While small jewelry claims probably aren’t in your best interest, having coverage for items like engagement/wedding rings can often be very important. Be sure to ask about this coverage if that’s a concern.
• Law & Ordinance or Building Codes Coverage. If your new home is more than 10-20 years old, consider adding this coverage. In New Jersey, if more than half your home is damaged, your local building inspector can require you to bring your home up to current building codes. This will be covered, but only for the damaged portion of your home. Typically not that expensive to add to your policy.

Also, check into options for your deductible, or the amount you would pay first before your insurance coverage kicks in. Generally speaking, taking a higher deductible is worth the savings as most people have fewer homeowner insurance claims than auto insurance claims.

Hope this helps Daniel. We’d be happy to answer any follow-up questions you might have. Good luck with your transition!!
| 09.08.15 @ 20:34
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$commenter.renderDisplayableName() — {comment} | 10.26.16 @ 23:43
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Answered by

Donn Sharer
Donn Sharer , CFP ChFC CLU in Millstone Township, NJ

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