What questions should I ask the agent when shopping for homeowners insurance?

Before you buy homeowners insurance, there are some important questions you should ask of the potential insurer. Even if you think that you have found the company which meets your needs, these questions, and how they are answered, may give you some unexpected answers that change your mind.

Cash value or replacement cost?
Cash value is the actual amount you are paying for the home, based on your mortgage value. Replacement cost means that if the home is damaged or destroyed, it will be repaired to the original condition, regardless of the actual cash value. Because of depreciation and inflation, the replacement cost of your home will increase over time, while the actual cash value tends to go down. Replacement cost coverage will cost more, but it is worth the added cost.

How is my home value calculated?
Insurance companies use different cost models to calculate your home value, and the model being used can have a very large impact on what happens if the home is damaged or destroyed. Most insurance companies will give you this information on request. If you do not understand how the formula works, do not hesitate to have it explained.

What are the policy exclusions?
Most insurance policies contain exclusions that limit what the insurance policy will pay for. For example, many policies will not cover damages related to your sewer backing up, even though the damages could be extensive. Ask about the exclusions of your policy, and make sure that you understand them completely.

What about pets, pools, or trampolines?
These three items are very often excluded from coverage, or covered only at a moderate level. Find out how your policy handles them, and if necessary as to have riders or extensions added to the policy. In all three cases, you will probably be required to perform certain tasks, such as installing fences or other safety equipment. Read more about homeowners insurance for pet owners.

What are the policy limits?
Most policies include limits for the different portions of the policy. This might be a limit on your personal property coverage, or limits on the amount of liability included for damages or injuries to other people. In most cases, you can increase the limits or purchase riders that provide additional coverage.

In addition to asking questions of a potential insurer, it is also important that you check the credentials of the insurance company. Contact your state's Bureau of insurance to verify licensing and with a financial rating company such as Moody's or the A.M. Best Company and read insurance company reviews and ratings. Finally, call the local Better Business Bureau to find out what complaints may have been filed with the insurer, and how the company responded to those complaints.