Understanding what home insurance is and how it works is essential for any homeowner. The right policy can protect you against financial ruin and losing your home should the worst case scenario occur. However, there are many types of home insurance policies out there, with a huge number of variables, and choosing the right type for your circumstances can be tricky.
By spending a little time to understand the different types of home insurance available, you can figure out which one will work best for you, and which can save you money in the long run. There’s no one size fits all, and it pays to shop around. Price is important, but sometimes it can be worth paying a little extra to ensure you’ve covered the things that are most important for you.
Below, we’ll take a look at the main types of home insurance, and figure out how to choose the right type for you.
No Frills Home Insurance
A no-frills home insurance offers only the most basic coverage and will cover those homes that wouldn’t normally qualify for typical policies. So, if you’ve bought an old house that you want to fix up and transform into your dream home, this can be the ideal starting point.
It’s worth getting in touch with your provider as you make repairs and improvements to your home, as you may find that your premium reduces. Once you’ve fixed the major structural problems, replaced the roof and installed a sump pump, you may qualify for better coverage.
Standard Home Insurance
For those on a tight budget, a standard policy — also known as a basic or named perils policy — is often the most tempting to take out. It offers coverage for risks to your home and possessions that are specifically named in the policy, such as fire damage, theft, and personal liability. Most providers are flexible and will allow you to add or remove named risks, increasing the cost with each addition.
A standard policy is a good choice for those looking to save a bit of cash, and who are willing to take the financial risk of paying for some losses themselves. It’s essential that you know exactly what you’re covered for before taking out coverage, as different providers offer different things.
Comprehensive Home Insurance
If your budget isn’t so tight, comprehensive home insurance — also known as a special or all-perils policy — is an excellent choice for your peace of mind. It will cover you for all risks to your home and possessions, except for any listed exclusions. Often, exclusions will depend on location and can differ from provider to provider. In flood-prone areas, overland water damage may be excluded, for example.
This is a fantastic choice if you want the ultimate peace of mind, but it is well worth reading through the exclusions. You might find that the coverage you really want falls under an exclusion, in which case it’s worth shopping around.
Broad Home Insurance
Also known as broad-form insurance, a broad policy offers a middle ground between comprehensive and standard policies. Broad policies are generally split into two sections; the first deals with the property and the second with your possessions. Like a comprehensive policy, the home itself is covered for all risks except those in the exclusions, whereas possessions are only covered for named risks, like a standard policy.
It’s the best choice if the comprehensive cover is out of your price range, but you want the peace of mind that your home is fully protected. It’s also useful for minimalists, or those who desire only basic coverage for possessions.
Know What You Need
Before approaching home insurance providers, it’s good to know what you need from your coverage, taking into account things that are specific to your circumstances. Obviously, you’ll want to be covered for the basics, but if you’re not diligent, you may find yourself paying for coverage you don’t actually need.
Inform your provider of all the details, including renovations and additions you’ve made to your home. Things like installing a sump pump, adding security systems and replacing the roof can lower your premium, but only if your provider knows about it. Alternatively, if you’ve installed a backwater prevention valve into your plumbing, you might consider cancelling ‘sewer backup’ coverage, which can be an expense that comes as standard on many policies.
Whatever policy you take out, always be sure you know exactly what you are and aren’t covered for. The last thing you need when disaster strikes is to discover that you’re not covered for damage or loss when you assumed you were. Each provider is different, and no two policies are the same, so do your research!