Homeowners Insurance: Things to Know Before Purchasing a Home

House With A Mortgage This post is contributed by Spencer Josan.

Buying a home is one of the single largest purchases you will make in your life. Protecting this investment often entails getting some form of homeowners insurance; however, there is no such thing as a “one size fits all” application of insurance policies. Depending on the type of home you purchase, your insurance company will give you different rates, policies and types of coverages.

Without further adieu, let’s take a look at all the things to know before purchasing a home.

Coverage When it Comes to Natural Disasters
There are instances when disasters simply strike without warning and can cause a considerable amount of property damage. For example, various states in the Midwest often have to contend with twisters and other forms of high wind damage, which can totally destroy a home. In cases like these, you need to be sure to have an HO-2 policy that specifically states that it will cover damage based on the type of weather phenomena that is common in the area that you choose. The reason why an HO-2 is better for you when it comes to particular areas is due to the greater potential for specific types of damage. While it is true that an HO-3 protects your home from a wider variety of different damages, this type of policy can contain specific provisions which do not cover damages related to certain types of natural disasters. That is why when you do purchase a home in an area that is known for having strong winds or weather patterns that cause specific types of damage, the HO-2 is definitely the best option.

Cash or Replacement Cost: What’s the Difference?
When it comes to purchasing home insurance, one of the most common questions clients encounter is whether they want a replacement-cost policy or a cash-value policy instead. This choice between the two depends on what sort of home you purchased and the type of furnishings you’ll have in it.

For example, one of the more common trends in home purchasing today has been to buy older homes that utilizing construction methods (i.e. columns, stained glass windows, etc.) that are no longer common today. Older homes have a unique appeal to buyers resulting in a rather brisk demand for this type of real estate. However, should an accident occur in a home, such as a fire or a natural disaster, the uniqueness of the home can actually go against the buyer. This is due to the unique moldings, castings and construction that went into it and that makes it rather expensive to repair or replace the home in question. It is due to instances such as these that a replacement-cost policy is often favored for older homes since, despite it costing more than 10 percent of the pricing of a cash value policy, it does help to cover the added cost of rebuilding an antique home.

Cash-value policies, on the other hand, have a replacement policy based on the current market value of the home and the contents within it. However, the Insurance Information Institute explains that while this type of policy is cheaper than the replacement-cost policy, it does have the caveat of the depreciating cost of the items within the home. For example, appliances such as a television, refrigerator or even the furnishings depreciate in value over time resulting in a lower recouped cost if they are lost in a fire or natural disaster. The cost of the home may increase over time but it also has the potential to drop considerably as seen in the market situation immediately after the 2007 financial crisis. Replacement-cost policies are often best suited for newer homes that already have a set value based on their current market price.

Additions that Can be Insured
While it was mentioned earlier that the location of your future home impacts the type of insurance coverage that you should choose, locations can also impact the type of additions that can be included onto a home. In the case of Texas, Arizona and New Mexico, there has been a growing trend of solar array purchases by local homeowners. This is due to a combination of the arid environment in these areas as well as the readily available sunlight. As a result, many homeowners install extensive solar power arrays onto the roofs of their houses so that they can reduce the amount of money they pay. U.S. News stated that what some owners fail to realize is that they can include “riders” onto their current insurance policies so that the valuable additions to their home can also be covered.

Need more information? Explore quote comparison and full-service websites like CoverHound for more information on how to get homeowners insurance. This will let you examine the various factors they take into consideration prior to purchasing a home. All you need to do is focus on getting the best coverage possible for a reasonable amount.

Is Your Emergency Fund in Good Shape?

Pile of MoneyHaving an emergency fund is imperative to any family’s financial health. After all, an emergency fund is usually what stands between us and all of those unfortunate things that happen to us. When you’re slapped with an unexpected car repair bill, for instance, your emergency fund absorbs the blow. You shouldn’t be satisfied just to have an emergency fund. You need to have an emergency fund that is large enough to sustain you in tough times. But how much is enough? Is there a magic number that you should have in your emergency fund or does it vary from family to family?

At a bare minimum, I think everyone should strive to have at least $1,000 in their emergency fund. That should cover most major appliance or car repairs, as well as the deductible amount of most insurance policies. This minimal emergency fund should tide you over until you are secure enough in your finances (and debt is paid off) to focus on a building a larger emergency fund.

Our goal is to keep an amount equivalent to six months of our expenses in our emergency fund all of the time. (Remember we are living on one income). With a beefy emergency fund like this I am confident that we can weather just about any storm. This year alone we’ve used our emergency fund for car repairs and orthodontic expenses we hadn’t planned on.

So if you don’t have an emergency fund, what can you do to build one up? I have a few ideas to help you get started:

Use your tax refund to quickly fund your emergency fund
Although it’s tempting to use that windfall from Uncle Sam to treat yourself to something that doesn’t normally fit into your budget, resist the temptation. Take your refund, or at least a chunk of it, and place it into a savings account.

Take advantage of your employer’s direct deposit program
By putting a small amount of your weekly paycheck into a savings account each week you can start working towards having a healthy emergency fund. Even a small sacrifice each week, such as $10, will provide you with a little bit of financial security.

Use your “extra” paycheck
Four times each year, or twice depending upon the length of their pay periods, many people receive an “extra” paycheck. Since you’re used to paying your regular bills without using this paycheck, consider using it to fund your emergency fund.

Have a garage sale
Sure, garage sales are a lot of work, but the proceeds from your garage sale could allow you to build a significant emergency fund without even changing your spending habits.

Pick up a part-time job
A part-time job, in addition to the work that you normally do, is a fantastic way to scrape up the extra money for an emergency fund. If you’re hesitant to take on a part-time job for any length of time, check with your local staffing agency for some short-time assignments. Simply giving up a day or two a month could help you start saving for that proverbial rainy day.

Once you’ve built up your emergency fund, you should also think carefully about where you choose to keep it. We opt to use a plain, average savings account for our fund. The money is far enough away that I can’t access it for silly, impulsive buys but close enough that I can move it quickly into our checking account.

Do you have an emergency fund? How did you fund it? If you don’t have one already, how do you plan to get one started?