Laura interviews Melanie Musson from Clearsurance.com about how to use smart home technology to protect your property and save money on home and renters insurance.
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Hello friends, and thanks for joining me this week. My name is Laura Adams and I’m a personal finance and small business expert and author. Who’s been hosting the money girl podcast since 2008. I am thrilled that you’re here. My mission is to help you get the knowledge and motivation to prioritize your finances, build wealth, and have a lot more security and less stress every week. You’ll either hear me do a solo cast or interview an expert, and that’s actually what we’re going to do today. My goal is to help you come away with practical advice that will help you make better money decisions and ultimately take your financial life to the next level. So be sure to subscribe. I don’t want you to miss any episodes and also participate by sending me your money, questions, or comments. You can always leave a message 24 7 on our voicemail line, just call 3 0 2 3 6 4 0 3 0 8.
And of course you can email me using my [email protected] Or you can connect with me on Instagram at Laura D. Adams. I’ve got a great interview for you today. We’re going to talk about smart home technology. You’ve probably heard about this. It’s really changing the way we live and it can even save you money, which is why we’re going to talk about it by connecting one or more smart home devices to apps on your smartphone. You can control things like appliances, security features and utilities in your home or your rental property. Whether smart technology allows you to monitor water leaks. Who’s at your doorstep, your air conditioning and heating system, your sprinkler system, window coverings, lighting, or even your power. It can make your life easier and also make you appear less risky to your home insurance company. So to talk about what homeowners and renters need to know about using smart home devices to save money.
I interviewed Melanie Musson. She’s a home insurance expert with clear [inaudible] dot com, which is an insurance comparison site. We cover lots of money, saving tips, including how to know if installing a smart home device can pay off for you over the long run tips for managing insurance. When your home’s value is rising, various ways you benefit from using smart home devices, the types of devices that save the most on insurance and protect your property, which insurance companies offer the best smart home device partnerships and the difference between replacement and cash value home and renter’s insurance coverage. And of course, we also talk about tips to be a savvy insurance shopper and get a lot more coverage for your money. But before we dive in, I want to cover your questions. I got a great question from Emily who says, I just graduated from college and am starting my first job as an RN, I’ve been looking for ways to learn more about saving and investing my money.
I came across your podcast and have been bingeing episodes on my commute. Do you have any advice for new graduates and young adults entering the workforce about managing money and understanding where to invest? I love your show and I’ll definitely be listening a lot. Emily, thank you so much. I appreciate you. Bingeing shows, and I’m really glad that it can keep you company on your commute and congrats. Uh, it’s such a noble and wonderful career. So I really admire you for going into healthcare. So let’s talk about my best advice for you and everyone. Who’s just starting their careers. My very best piece of advice is pretty simple. It’s to enroll in any retirement plan that you may be offered at work and enroll. As soon as you become eligible and some cases you might have a short waiting period, it could be 30 days.
In some cases, some companies may require you to wait six months, but as soon as you’re eligible, you want to go ahead and contribute as much as you can. And you want to contribute at least as much to max out any employer matching funds. So let me give you an example. Let’s say your employer matches your contributions up to 3% of your salary. Then you need to contribute at least 3% to get every potential dollar of matching funds. Remember matching funds are free money, free, free money. So you got to max that out. And my recommendation is to invest much more. I would love you to invest no less than 10 to 15% of your gross salary for retirement. So definitely contribute more than the match if you can. And you want to work on increasing your contribution rate a little bit every year. So let’s say you can only start out with 1%.
Maybe next year, you go up to 2% and you keep bumping that up every year until you can max out the account for 2021, you can put in as much as $19,500. If you’re younger than age 50, with retirement accounts, you get a menu of investment options to choose from, and you might choose one or more stock funds, which will be pretty aggressive, or you might even choose what’s called a target date fund, which will be a little bit more conservative. And the target date fund is basically based on your future retirement date. So it will change your allocation based on the time horizon that you have. But if you’re just starting out, you got a long way to go. And so it’s going to be primarily stocks in the beginning and get advice from your plans, custodian or the representative of the investment company.
If you do need some help choosing the investment or investments, your contributions will go into, and I would definitely opt for a Roth option. That’s typically available for 401ks and 4 0 3 BS. Also at the same time, you are investing for retirement. You need to work on building up your emergency fund. You need to do that in parallel. A good goal is to have at least a few months worth of living expenses on hand. It may take you a while to build that up, but that’s okay. So your goal should be to simultaneously accumulate emergency savings. And that’s going to just go in a regular bank account and also slowly increase your retirement savings that are invested every year. So a combination of savings and investments is going to put you in the right place for your short term financial needs and your long-term financial needs. And if you don’t have a job with a retirement plan, it’s not a problem. Simply open an IRA using an online brokerage account. So Emily, I hope that helps, you know, the bottom line is to get started as soon as you can, and you know, not spend all of your paycheck without thinking about your short-term and your long-term goals. All right, let’s switch gears and get to my interview with Melanie Madison, Melanie. I am so glad to have you on the money girl podcast to talk about home insurance today. I’m so
Glad to be here.
Thank you. First of all, there are probably a lot of people that are thinking about buying a home. I know there’s a lot more buyers right now than there is a home supply in many parts of the country. And so there’s just a lot of competition going on. And I’m wondering if you might be able to just start out by talking a little bit about that. What should we think about in areas where the prices of homes have been surging? You know, no matter if you’re an existing homeowner or you’re a first-timer, you know, is there anything that we need to know in terms of managing home insurance? When the prices are going up,
Once you purchase your home, you to evaluate every year, how much you’re insuring it for? Because if you bought the house for, let’s say $400,000, and then within a few months, even it’s worth 500,000, you may need to keep up with your insurance and make sure that your insurance levels are keeping up with the rising markets. This isn’t the case in all markets, but in some markets you really want to be careful that you’re insuring the house for what it would cost to rebuild it instead of what the market value is, that would be in cases where the house maybe would cost less than it would cost to build it fresh. So you want the, you want to insure it from in some cases more than the market value, because if it, if something catastrophic were to happen to it, you would want to rebuild your home. But if it’s only re insured for the market value, that may not be enough.
Yeah, that’s a great point. So what you’re saying is that if your market value, if, if somebody would be willing to pay, let’s say $400,000 for your home, but you’ve got some really like, you know, like, uh, nice features or maybe special glass in the windows, or, you know, some really kind of superior features in the home to rebuild it. You might need $500,000 in some cases. So that is key. You want to think about if this home burned to the ground? I mean, that’s probably the worst case scenario, right? If it was just literally gone tomorrow after a disaster, like a fire or a storm, could you rebuild it? And I think that’s really important that that’s a fact that a lot of homeowners don’t think about. And also, you know, what, is there any help that they can get to, to try to figure that out? Should they kind of just check in with their home insurance company maybe once a year or, or if they believe that the value or the, or the construction re you know, re building cost has gone up, should they check in with their insurance company?
Yes, they should. And, uh, most of the time the insurance companies, especially if they have a local office are aware of the housing markets. So if I were to call my local insurer and say, are you keep a name? They will know what I’m talking about. It won’t be like a foreign concept to them. So, but yeah, you might as well check in just to make sure that that’s a really good idea. You don’t ever want to assume anything.
Yeah. And while it might cause your premium to go up slightly, if you do have to adjust your dwelling coverage up just a bit, you know, that’s critical. If you were to have a disaster, you don’t want to get caught short of cash from the insurance payout and not be able to rebuild your home. You could be in a situation where you might have to downsize or find a, you know, rebuild a home. That’s not quite the same standard that you were living in before. So, Melanie, let’s talk a little bit about smart [email protected] You all published something recently about smart home devices and how that can help save money on homeowner’s insurance. And it really caught my eye because I think this is an area of insurance. That’s, you know, we’re really just in the beginning phases and stages of, and many people might even be unaware of some of the ways that they can save money on home insurance related to smart products. So first tell us what exactly is a smart home and why can it be a way to save money?
Well, a smart home is a home where devices in the homes such as appliances lights, thermostat, home security, and even access can be controlled remotely. The devices are connected to the internet. So then the homeowner can control features on those devices from a far as long as they have access to the internet. And the reason that most of the time, a smart home will receive insurance discounts is that a smart home is typically a safer home. If you have a security system that is monitoring your house, you’re less likely to experience a break in you’ll receive help more quickly if there is. And then it’s not just the exterior of the smart home, like protecting you from break-in, but there are interior features that can help you save leg a water shut off feature. So let’s say you’re on vacation and it gets really cold.
Your pipes freeze, you have no idea. And then they burst and your home is flooding. Well, you’re going to come home and there’s going to be, you know, three feet of water in your basement. And that’s going to cost the insurance company, a lot of money to repair all the damage that water does. But if you had a smart home feature that monitored your water and would turn it off in such a situation, you would have very minimal damage from that burst pipe. And so the insurance company has less risk to take on with that feature. So then they will give you a lower premium because you’re representing a lower risk to them.
Yeah. I think we’re mostly familiar with things like, uh, security system, smoke detector, those sorts of things. So, you know, basically these smart devices are, what you’re saying is they’re more tied to, let’s say an app or some technology would allow you to truly monitor what’s going on in your home no matter where you are in the world. Um, and that’s pretty cool. I mean, that’s really, um, pretty amazing. And so I love the fact that insurance companies are partnering up with these different brands and technology companies to number one, make it more affordable for homeowners to install these devices and also making premiums a little bit more reasonable for homeowners who do elect to have these, uh, these devices. What are some examples of the partnerships that you’ve seen between home insurers and tech companies that maybe are some of the more, more popular ones right now?
Yeah. If you were to look at just about every insurance company, you’re going to find they partnered with somebody, but there are some partnerships that are a little more beneficial to the consumers. And there’s a lot of new partnerships being made. For example, farmers insurance linked up with simply safe. Just this past spring. It is a pilot program. So it’s only available in three states and it’s just going on for a year, but they plan to take the data from this. And if it looks good, if it looks like a good partnership for both sides, they are planning to expand it. So that’s something to watch out for. What they offer with this partnership is that if you have farmers for your home insurance and you sign a contract with simply safe, then you’ll receive their seven piece monitoring system for free. That’s a pretty good deal.
Um, something to watch for, um, if you don’t live in one of the states that that’s offered, you might want to check in next year and see if they’ve expanded, it simply save. They’re kind of one of the big security Wednesdays that are partnering up with a lot of different companies. And so they’re also partnered with, um, hippo insurance and hippo home insurances, kind of a new player in the insurance game. They’re not one of the old faithful ones that everyone’s heard of, but they are really innovative. They’re kind of rethinking insurance and they’re kind of exciting to watch and they have partnered with simply safe, but they’ve also partnered with ADT and they have also partnered with kangaroo home security. They really have a lot of partners. So if you’re a hippo customer, you might want to compare their different partners and see which, what each one of those offers and what kind of discounts they give.
And then American family is teamed up with ADT, also funds points. And those two companies offer both protection for, you know, for break-ins, but also for threats inside your house, they’ll monitor fires or monitor water. And then they also, American family is kind of related to that. They are teamed up with hello and hello. Tech helps with tech installation. They will give you tips on how to work your smart home devices effectively, and they are available to answer questions. So American family kind of has this. Well-rounded where you’re not just going to help you with a discount or a free thing, but they’re also providing help so that you’re using your devices to help you the most. Cause, you know, if you’re not using it right, it’s not going to help you. And then I also wanted to point out Liberty mutual. Um, these ones that I’ve talked about. So these are recent partnerships within the past. Sometimes this year, sometimes the past two years, but Liberty mutual mutual has partnered with vivid for eight years. They kind of were one of the first to start this partnership with a smart home company. It has just recently become more popular for just about all insurance companies to form partnerships.
Yeah, that’s super interesting. So you mentioned that there there’s some different ways that you might save money by having a smart home device, you know, run us through some of those opportunities and ways that you, you know, just depending on the insurance company that you’re with the device that you’ve got, what are some things that consumers should be looking for in terms of just basic opportunities to save money with these devices?
Well, I think the first thing you want to look for is a insurance discount because that’s going to stay with you as long as you have that device and any other discounts or incentives along the way are going to be added onto that. But that insurance discount that’s the long lasting one. And so I’d look to see how much of a discount you get for having these smart home features. Then what you’re going to want to do is look at how much you can save a lot of times on the product itself. So when you install, let’s say a security system, you’re going to need cameras. You’re going to need sensors. They usually have kits like different level of kits. When the insurance company has partnered with the smart home security company, a lot of times you can purchase that initial kit, maybe at a discount.
Maybe they’ll take a hundred dollars off in some cases like we talked about before you get that seven piece kit for free. So that’s something to look at, how much incentive are they giving you for making that initial purchase? And then you’re going to want to look at the installation costs. Are they giving you free installation? Are they giving you discounted installation or you just gonna have to pay for that installation yourself? You should look at the monthly payments for the security system. Does their partnership with your insurer mean that you get 10% off your monthly payment? Or maybe even more than that? So look for those there, maybe not, they, maybe no one company is going to have all of those, but you want to look for those different ways to save and then kind of unrelated to incentives. But something to think about is how much that lowered risk is going to save you in potential losses. So by installing that camera system outside, maybe you’re saving yourself from potentially being broken into it and you’re, you’re being safer and you’re saving money on the damage that somebody would do breaking in. Or you need to think about the, like within your house, the smart home devices, like, uh, the smoke detector and the water shut off valve. And you want to think about how much the protection that those things offer is potentially saving you from catastrophe.
Yeah. So consumers really need to think about, yes, there is an initial investment to purchase these different types of devices and get them installed and, you know, kind of get everything up and running. But the idea is that over the long run, they are going to save you money. And as you mentioned, they’re going to help just secure your property. And also, you know, I think in some cases they may be able to reduce utility bills. Let’s say if you’ve got, you know, a thermostat control that you can set remotely and really manage temperature in your home. I mean, th that’s one way even, uh, electricity, turning, uh, power to, you know, a lower level. I know a lot of, um, uh, electric and power companies will have programs that you can reserve power during hours of low, you know, low usage. That may be something that could tie in with a smart device as well, to help save money.
So there are just a lot of different ways that these devices are going to benefit you in the long run, but yes, there is going to be a little bit of a, of an investment upfront. So I think, you know, you kind of have to do the math and just sort of think through, uh, how it’s going to benefit you in, in multiple ways. Now, a word from Allstate identity protection, nobody thinks identity theft will happen to them until it does, or they think banks and credit card companies will help them recover afterward. But the truth is over two thirds of victims say their financial institutions didn’t resolve the fraud at all state identity protection. They’re committed to protecting your family every step of the way. That’s why their experts are available 24 7 to resolve fraud, helping you and your loved ones, save time, money, and stress fraud. It doesn’t just happen to someone else. Learn more about protecting your family’s identity and finances at a ip.com/family. Melanie, let’s say if you’re already a smart home device, but your home insurance or your renter’s insurance company doesn’t know about it, can you still save money?
Definitely. I mean, I’m not going to make this a guarantee, but in most cases you can. Um, now you’re not going to save money if you don’t tell your insurer, because how would they offer you a discount without knowing, but you can call them and say, I’ve installed this security system, this safety feature. Just tell them what you have and say, do you have a discount for me having that in my home? And in a lot of cases you will. And if you are thinking about installing smart home technology, check with your insurance company first, because if you’re choosing between, uh, let’s say ADT and simply safe, and your insurer has a partnership with one, you may decide it’s a better deal to go with the one that your insurance company has partnered with. So yes, if you have a device, let your insurance company know if you’re really in the market, find out who your insurer is partnered with.
Yeah. And in some cases it might even be worthwhile shopping around if you’ve got a particular smart device that you’re really partial toward, like, you know, I don’t know the nest or something, one of, one of the more well-known brands, you, it might even be worth shopping around to find out which home insurance company would actually give you a better rate for having that device. Um, so I think, you know, consumers just really need to be savvy and understand that the smart devices are, are definitely going to factor in to the rate that they’re paying and be a little strategic, you know, about, uh, which devices they’re choosing to begin with. And also the home insurance company that you’re, that you’re looking at using. What about renters? You know, if you’re not a homeowner, what are some ways that renters could use these devices? Is it pretty much, you know, the same thing, does it apply across the board? If you’ve got a renter’s policy?
Well, renter’s policies are a little different than homeowners because renters policies protect your belongings in the home. They don’t protect the structure of the home. Your landlord will have a coverage for that. So the discounts are not going to be the same because the coverage isn’t the same, but it’s still worth contacting your insurer to see, because obviously if you install a security system on your doors and windows, that is going to mean there’s less risk that someone is going to steal your belongings. And so you may get a discount for that. Now you’re probably not going to get a discount. If you were to install a water, shut off smart feature, because that is more likely to protect the landlord, then you, so maybe they would get a discount on their coverage, but you may not, but it’s worth looking into and not assuming that that is the case.
Yeah. That’s a great tip. So remember if you’re a renter, you definitely need renter’s insurance, but yeah, it’s very, um, it’s much less expensive than homeowners because you are not insuring the dwelling. You are just insuring liability and your personal belongings. Um, so yeah, I, I think if you’re somebody that wants to install a nest and your landlord says, sure, you know, it’s okay and you’ve got renter’s insurance definitely makes sure that the insured knows about it. So in addition to some of these smart devices that we’ve been talking about, Melanie, what are some ways that homeowners can save money on home insurance in general, just maybe some, some tips and overlooked ways, uh, that many people might not be thinking about could actually save money.
Well, you can underestimate the power of discounts. And if you don’t go over the discounts that your insurer offers, you may miss out on some, one of the major discounts is for bundling. And I’ll tell you a little personal story. When my husband and I first had our first apartment, we had each had to be a call. He had a motorcycle. And when we talked to our insurer about adding renter’s insurance, our total price we paid for insurance actually went down because of that bundling discount. So we added renter’s insurance and paid less than what we had been for our vehicles.
It is crazy. Yeah. So definitely do not skip renter’s insurance because you think it’s too expensive. It’s not expensive anyway. And it may get you a bundling discount. If you have other lines of coverage through them, you should always review your coverage annually. And when you’re reviewing your coverage, you should shop around for multiple quotes. Where I write for clearance.com is a site where you can shop. You can enter your information one time and receive quotes from several different insurance companies. So it just makes it easy to shop around. It’s free. It’s definitely worth doing every year, if not more often, if, if situations in your life change and then like we were talking, get that security system and see what kind of a discount that gets you. And another thing is sometimes when you install weather resistant features in your home, you’ll save money. It depends on where you live, but if you were to live in a hurricane prone area and you installed hurricane shutters and a metal roof, you may get a discount for that because it, those features will protect your home and lower the insurance risk in insuring your home. So a lot of times you get discounts for those types of features too.
Yeah, that’s great. Um, it really does depend on where you are in the nation, you know, the disasters and the typical types of things that we’re dealing with are a little different, you know, depending on where you live. So, you know, where I am in Florida, we’ve got a lot of things like hurricane deductibles and, you know, different things that apply based on the typical types of weather patterns that we have down here. Yeah. It really is going to depend on where you are. So I think, you know, the lesson here is you’ve got to shop around, you’ve got to ask a lot of questions, make sure that you’re getting all of the discounts possible because the discounts do vary from company to company, right? They’re not all kind of cookie cutter, uh, from one company to the next many are the same. Um, but there may be some discounts that actually would reduce your net premium.
So you’ve got to factor those in as you’re shopping. And, um, I think shopping apples to apples, you know, using a site where you can put your information in one time and look at policies that are for the exact same amount of coverage and looking at all of the kind of features of the policy that match and comparing quotes based on that is, is really the best way to go. Because there are a lot of features in these policies. You know, deductibles can change, the policy limits can change, et cetera. So, uh, if you’re not comparing them, uh, apples to apples, you’re really not getting fair quotes. Right?
Exactly. You will eat, you were comparing a one insurer with a $500 deductible, one with 1000 deductible. Even that difference is not a fair comparison. You really need to be making sure that everything you’re comparing is the same, so that you really know how those rates compare.
Yeah. And speaking of deductibles, this is an area too, where I think some people might be able to afford to raise their deductible. Maybe they’ve got a $500 deductible and they can go up to a thousand. If you’ve got that much in savings typically, and you could afford to pay that out of pocket. If you had some issue with your home or, uh, with your rental property, with your possessions, uh, being damaged or stolen, you can save money raising the deductible, but I will say it varies significantly from state to state. So get a quote for different deductibles. If you’re thinking about trying to save money that way in some states like where I am in Florida, raising the deductible, doesn’t save, you know, as much money as it does in other states. So that’s just kind of another myth. I think that, you know, raising the deductible always saves tons of money. It may, the tip is always shopping and compare it. Melanie, is there anything else that our listeners should know about home or renters insurance, you know, anything else that they should just do to be savvy consumers?
I think it’s just another thing that’s important to know is what your insurer covers, what your policy covers. I should say. A lot of people just assume that with any home policy, they will be able to replace damaged items, but less expensive policies may only cover the value of what was damaged. So if I have had a couch for 10 years, it’s really not worth very much. And if my insurer only covers the value of it, I might get a hundred dollars for my couch and good luck going out and finding a decent couch for a hundred dollars. So if you can afford it, it is worth it to look for a policy that covers the replacement costs, because then I can go get a new couch. I don’t have to worry about making up the difference myself. That’s one thing to look out for that I hadn’t mentioned before. And then as I did mention before, shop around compare rates, use clearance.com to easily and for free compare home insurance rates.
Melanie, thank you so much for all these great tips and it makes me want to go out and buy a smart home device.
Oh yes. Me too.
Yeah. Thanks again. And I appreciate it. I appreciate you being on the show with us.
Thank you so much for the opportunity.
I hope you enjoyed the interview and understand a little bit more about smart home devices and how they save money. If you want to learn more about home and renter’s insurance in general, be sure to visit the show notes. This is episode number 699, and you’ll find the notes in the money girl [email protected] In addition to the notes for the interview, I’ve also included five tips that every homeowner and renters should know about insurance and the article will explain what these policies include. And more importantly, what they do not include such as flood insurance. And you’ll also learn that certain of your belongings have coverage limits. So you need to know a little bit more about that. Especially if you have some valuable items, you’ll also learn the difference between actual cash value and replacement cost insurance, which we touched on a bit in the interview.
I talk about disaster deductible. So these are things like hurricanes and wind storms. If you live in disaster prone areas and the article also covers tips for reducing your costs, which I think you’ll find very, very helpful before we go. I want to invite you to join my free private Facebook group called dominate your dollars. It’s a really great group of people who are asking fantastic questions. They’re helping other people and they’re reaching ambitious financial goals. You can search for the group on Facebook or text the word dollars, D O L L a R S to the number 3, 3, 4, 4, 4. And I will send you an invitation to the group. You can also visit Laura D adams.com where you’ll find my contact page and more about me, my books and online courses. That’s all for now. I’ll talk to you next week until then here’s to living a richer life. Money girl is a quick and dirty tips podcast. It’s audio engineered by Steve Ricky Berg with script editing by Adam Cecil. Our operations and editorial manager is Michelle Marguiles. Our assistant manager is Emily Miller and our marketing and publicity assistant is Davina. Top one.
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Smart home technology is changing the way we live and can even save money. By connecting one or more smart home devices to apps on your smartphone, you can control various appliances, security features, and utilities.
Whether smart technology allows you to monitor water leaks, who’s at your doorstep, your air conditioning and heating, sprinkler system, window coverings, lighting, or power use, it can make your life easier and make you appear less risky to your home insurer.
To discuss what homeowners and renters should know about using smart home devices to save money, I interviewed Melanie Musson. She’s a home insurance expert with Clearsurance.com, an insurance comparison site.
We cover lots of money-saving tips, including:
- How to know if installing a smart home device can pay off in the long run
- Tips for managing insurance when your home’s value is rising
- Various ways you benefit from using smart home devices
- Types of devices that save the most on insurance and protect your property
- Which insurers offer the best smart home device partnerships
- The difference between replacement and cash value home and renters coverage
- Tips to be a savvy insurance shopper and get more coverage for your money
Listen to the interview using the embedded audio player or on Apple Podcasts, Audible, Stitcher, and Spotify.
5 Tips Every Homeowner and Renter Should Know About Insurance
- Not every type of damage is covered.
- Certain belongings have low coverage limits.
- There’s a big difference between cash value and replacement cost.
- There are special disaster deductibles.
- There are ways to reduce your insurance cost.
Here’s more information about each insurance tip.
1. Not every kind of damage is covered
We’ll cover the protections you get with home and renters insurance and the expressly excluded damages. A basic homeowners policy pays for these types of claims:
- Dwelling coverage pays to repair or replace the property that gets damaged due to a covered disaster, such as a fire, tornado, hail storm, or windstorm.
- Personal property coverage pays to repair or replace your belongings, such as furniture, electronics, clothing, and jewelry, up to policy limits, after a disaster, theft, or other loss.
- Liability coverage pays if you get involved in a lawsuit.
- Additional living expenses coverage pays for your hotel stay and meals, up to limits, if you can’t live in your home after a covered disaster.
If you’re a renter, you also need insurance. Your landlord probably has insurance for the actual structure of your rental, but they typically don’t insure your personal belongings.
Renters insurance gives the same protections as a homeowners policy, minus the dwelling insurance. You get coverage for your personal belongings, liability, and additional living expenses.
Unfortunately, about half of renters don’t have renters insurance. Many mistakenly believe that their landlord would pay to repair or replace their damaged or stolen possessions. Or they think a renters policy is too expensive. The good news is that a typical renters policy is affordable, costing just $179 per year (or about $15 a month) on average across the U.S.
While home and renters insurance gives you significant coverage, it doesn’t extend to all natural disasters. Some are expressly excluded, such as earthquakes and flooding from groundwater.
If you live in an earthquake-prone area, you can typically add earthquake coverage to a home or renters policy. But flooding is a different category of insurance that you must purchase separately.
Flooding gets handled differently than other types of disasters because it’s the nation’s most common and expensive disaster. Floods can happen anywhere, and they don’t even have to be catastrophic to cause significant damage.
If your town or community participates in the National Flood Insurance Program, you can buy flood insurance for your rental or your home through that program. And if you buy a home in a designated flood zone, mortgage lenders typically require you to have flood insurance.
Even though the federal government backs flood insurance, it’s brokered by regular insurance companies or agents. You can learn more at floodsmart.gov. Most flood policies have a 30-day waiting period, so you can’t wait until a storm is bearing down on you to sign up. You’d be too late.
Remember that water damage from rain, high winds, or a tree that fell on your roof gets covered by a standard home or renters insurance policy. But damages to your home or personal belongings that occur due to rising groundwater are never insured, except when you have flood insurance.
Also, note that you typically need business insurance if you have a home-based business with inventory, specialized equipment, or customers who enter your property. Likewise, if you turn your home into a rental, Airbnb, or vacation property, you generally need additional coverage or a landlord insurance policy.
With both home and renters insurance, your belongings are insured outside of your home, known as off-premise coverage. For example, if your laptop gets stolen from your car or your vacation luggage gets lost, your homeowner or renters policy covers it up to your off-premises policy limits.
2. Certain belongings have low coverage limits
In the same way that not every disaster is covered, not all personal belongings get protected with a home or renters policy. Some belongings, such as cash or bullion, aren’t covered, and others come with caps.
For instance, jewelry, watches, furs, silverware, electronics, and firearms are typically limited to one or two thousand dollars. If you have jewelry that’s worth $10,000 and it’s lost or stolen, you’d come up very short with just $2,000 of coverage.
If you have items worth more than insurance coverage caps, you can add an insurance rider to expand protections for that specific item. This addition is known as “scheduling” your personal property. It costs more, but it gives your most expensive items separate coverage so you can replace them.
So, pay attention to the insurance limits for possessions inside and outside of your home. Consider adding a rider or property schedule to boost coverage when needed for valuable items.
3. There’s a big difference between cash value and replacement cost
It can be a little confusing to know exactly how much money you’d receive from a renters or home insurance claim. So be sure you understand the different types of policies you can buy.
Actual cash value (ACV) coverage pays to repair or replace your property or possessions up to the policy limits, minus a depreciation deduction. In other words, it pays a percentage of what it would cost you to go out and buy the same item.
For instance, if your couch gets destroyed in a fire and you have an ACV policy, your coverage won’t pay the cost to buy a new one. Instead, your insurance provider pays the couch’s depreciated value, which could be pretty low. You’d have to pay the difference yourself. While an ACV policy is less expensive, it probably won’t pay enough to rebuild your home or fully replace your personal belongings without paying out-of-pocket.
If you want more coverage, you need a policy with replacement cost value (RCV). It costs more than a cash value policy but would pay you enough to rebuild a similar home and replace damaged belongings.
There are also guaranteed or extended replacement cost policies, which give you even more protection. They pay to replace your home as it was before a disaster, even if it costs more than your policy limit.
Remember that a home insurance policy is based on the cost to rebuild your home and any outbuildings, not the amount you paid for the property or its appraised value. You never include the value of your land in home insurance coverage. Depending on your home’s age, location, and construction quality, the insured value could be much higher or lower than its market value.
4. There are special disaster deductibles
A deductible is an amount you’re responsible for paying for an insured loss. In general, the higher your deductible, the lower your premiums. So, get quotes for different deductible amounts when shopping for renters and home insurance. But also make sure you can afford to pay a higher deductible.
In some high-risk areas, you may have separate deductibles for damage caused by certain disasters. According to the Insurance Information Institute, nineteen states (Alabama, Connecticut, Delaware, Florida, Georgia, Hawaii, Louisiana, Maine, Maryland, Massachusetts, Mississippi, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Texas, and Virginia) and the District of Columbia, have hurricane deductibles.
These special deductibles are additional and separate from the regular deductible for all other types of claims, such as fire or theft. A hurricane deductible applies only to damage from hurricanes. And a windstorm or hail deductible would apply only to damage caused by those disasters.
Hurricane and wind deductibles are a percentage that may vary from 1% to 5% of a home’s insured value (but they can be even higher in some coastal areas). The amount you must pay depends on your insured value and the “trigger” event.
For instance, if you have a 3% hurricane deductible and your home is insured for $200,000, you’d be responsible for the first $6,000 ($200,000 x 3%) in repair costs. That’s much more expensive than paying a standard $500 or $1,000 home deductible.
In some states, the triggering event for hurricane deductibles to apply is anytime a Category 1 storm causes damage, whether it made landfall or not. Other states have made Category 2 storms the threshold. In others, a hurricane deductible applies from the moment a hurricane watch or warning gets issued until 72 hours after it ends.
A hurricane deductible can only be applied once each hurricane season, from June to November.
5. There are ways to reduce your insurance cost
When it comes to the price of renters and home insurance, some factors you can control and some you can’t. To help you get the best price possible, here are some ways to save:
- Bundling insurance is when you purchase various policies from the same insurance company, such as home and auto. Check that the combined price from one insurer is less than buying policies separately from different insurers.
- Shopping around is critical because prices vary considerably from insurer to insurer. Compare home insurance quotes from at least three companies for the same coverage and deductibles.
- Installing safety devices such as smoke detectors, alarm systems, deadbolts, storm shutters, shatterproof windows, weather-resistant roofing, and approved smart home devices make your property less risky to insurers.
- Raising your deductible typically cuts insurance premiums. Just make sure that you can afford to pay it in the event of a claim. Also, the savings vary depending on where you live and your insurer, so get quotes with multiple scenarios.
- Maintaining good credit is critical for getting lower rates on home, renters, and car insurance. Depending on where you live, having poor credit can cause you to pay double the premium compared to having excellent credit! California, Maryland, and Massachusetts are the only states that currently prohibit home insurers from using credit when setting rates.
- Being loyal and sticking with an insurer for several years may qualify you for a significant discount. However, don’t let that keep you from periodically shopping around to make sure you’re still getting a good deal.
This article originally appeared on Quick and Dirty Tips.
Published by Debt.com, LLC