But hold on. Did you factor in the cost of homeowners insurance? The cost of homeowners insurance typically doesn’t have a big enough impact that you end up stuck inside your new home without living it up outside of it.
Still, it is extremely important to factor in insurance costs to figure out what’s right for your situation.
Of course, lenders always require homeowners insurance before signing off on the loan. And even if you’re fortunate enough to have paid for your home in full, you’ll still need good insurance to protect your investment.
So you know you need it, but how much are you going to pay for it? Just how much relies on several factors – including your deductible, the value of your home and belongings, your history of claims and other variables such as the cost and age of your home.
Your deductible is one key factor in how much you will pay. If you select a policy with a high deductible, the annual cost for your insurance policy should be lower. Of course, when you go to make a claim, you will pay more out of pocket to meet that deductible. Conversely, if you pick a lower deductible, the cost of your insurance will be higher, but you won’t suffer sticker shock when it comes time to put in that claim. Whatever deductible you choose, it’s a smart idea to have that amount stashed away in your emergency fund so you’re financially prepared in case you need to file a claim.
While we’re focusing on the actual cost of homeowners insurance, it’s essential that you get the right amount of coverage. Specifically, you need enough insurance that would allow you to rebuild your home in the event of a total loss. In other words, don’t pinch pennies by choosing a lower limit that will hurt you in the event of a catastrophe.
Ask your agent about replacement cost versus actual cash value. Replacement cost is typically the way to go because you could rebuild after a major loss without concern for depreciation.
Is your new home going to be move-in ready or a fixer-upper? If you are planning on doing major upgrades to your home that will boost its value, keep in mind that the cost to insure it will likely rise, as well. If and when you do a home improvement project, report that to your insurance company so they can adjust the limit, if necessary.
If your ‘home improvement’ project is the result of major damage to your home… make sure you have what’s known as “loss of use” coverage. That coverage can reimburse you for hotel costs or apartment rental if your home is a total loss, or becomes uninhabitable after a covered loss. You would want that reimbursement if you’re forced out of your home while repairs are made.
Lawsuits are pretty common these days and can be extremely costly. That’s why you should make sure you buy an appropriate amount of coverage. When you buy homeowners liability coverage, you’re investing in peace of mind. Homeowners liability coverage protects your assets in case someone gets hurt on your property. You might not realize this, but it also provides coverage for some incidents away from the home.
It’s a pretty simple formula – if your home costs more, you’re going to pay more to insure it. You need a good, solid assessment of your home’s worth. It also helps to estimate the value of your personal possessions through a home inventory.
Also, you might want to consider an appraisal for high-value belongings and talk to your insurance agent to see if you should consider any supplemental coverages to make sure your valuables are properly covered.