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Shopping for Homeowners Insurance

Buying homeowners insurance used to be fairly straightforward. However, thanks to a string of hurricanes and other disasters in the 1990s, companies are now more selective, and rates often vary widely. This means that it's all the more important to shop carefully before you buy. Here are some keys to smart shopping.

Know what you're shopping for

You wouldn't go shopping for a car until you had some idea of what you were looking for, so why should it be any different with insurance? Assess your coverage needs before you start shopping the market. First, decide which of the standard homeowners policies best suits you (the HO-3 policy is the most popular package for homeowners). Then, consider how much dwelling coverage you should have on your home (your mortgage lender and/or your insurer may impose minimums). You should ideally have enough coverage to replace your home in the event of a fire or other tragedy. Next, do a household inventory of your home's contents and their value. This will help you figure out how much personal property coverage you need.

But homeowners insurance does more than just insure your home and belongings. Just as important (in some cases, more) is the fact that you're protected from liability claims and lawsuits. If you or a family member accidentally injures someone or damages someone's property, you're generally covered up to your policy limits. This is critical because hospital bills and other costs in a case like this can be substantial. Homeowners insurance also covers your expenses (e.g., hotel and meals) if you can't live in your home while it's being repaired. Decide how much coverage you need for personal liability, medical payments, and additional living expenses to protect your assets and income. Also, weigh your need for any optional coverages (added through forms known as endorsements).

Brush the dust off that old policy

If you're buying a new home, you also have to buy a new insurance policy. However, if you already have coverage and you are not moving, should you bother shopping around for a new policy? It depends. Take a close look at your policy to make sure it still meets all of your coverage needs. Maybe it did at one time, but things have changed. For example, have you made any major improvements to your home? Do you need more liability coverage to protect your growing assets? It's also possible that you simply chose the wrong policy to begin with. Even if the policy itself still works for you, what about your satisfaction with the insurance company? Finally, has your premium gone up and caused you to wonder whether you're really getting such a great deal?

If nothing else, a thorough review of your coverage will give you the comfort of knowing that nothing needs to be changed. Or, you may find that it's time to update your coverage amounts, add a few endorsements, or make other changes to your existing policy. In either of these cases, shopping around for an entirely different policy may be a waste of your time. But be objective in your evaluation, and if you have any doubts, explore what other companies can offer you in terms of coverage, price, and service. You may be glad you did.

Should you use a professional shopper?

One of your alternatives is to brave the insurance market yourself. If you do this, you'll quickly find that you have no shortage of options to choose from. Many on-line quote services are available to help people shop for insurance. Also, many companies now sell homeowners policies and other insurance products directly to the public. The advantage of buying from one of these direct marketers is that you may end up paying less for the coverage you need. These companies are able to save money on commissions and fees that other companies must pay their agents. Some of the savings are then passed on to consumers in the form of lower premiums. If you're lucky, you may even find a direct marketer that offers both low rates and good service.

Often, though, you sacrifice something by shopping on your own. Since different companies emphasize different priorities, a company that stresses low prices may be short on customer service. You may find that out the hard way when you need to file a claim or resolve a dispute. Plus, you may get limited advice during the sale about your coverage needs and other matters. That's where a qualified insurance agent or broker can come in very handy. One of these professionals can shop the market for you to find the particular company and policy that are most suitable. You may pay a bit more this way, but it's worth it if you're pleased with what you get in return. And remember, the service duties of an agent or broker don't end when you buy a policy.

If you remember anything, remember this: shop for value

No matter how you shop for insurance, your goal is always to get the best value for your money. This isn't surprising, because you have the same goal when you shop for groceries or anything else. However, because homeowners insurance is somewhat complicated, finding a good value isn't always as easy as it might seem. First, you need to understand that value and price are not the same thing--and this point can't be stressed enough. There are cases where the least expensive policy clearly offers the best value, but there are just as many cases where it doesn't. The key to shopping for value is knowing how to balance the cost of a policy against the quality of coverage and service. As you might guess, that takes a little work.

Once you've determined your coverage needs and how much you can afford to spend on premiums, obtain price quotes from several different insurers. Be sure to provide each company with the same information so that you'll be able to compare quotes for similar coverage. Still, don't be surprised if the quotes vary by quite a bit. You should eliminate any that are over your budget and focus on the rest. Ask friends, your state's insurance department, and others for information about each of the companies. You want a company that's financially stable, has a strong service reputation, and offers generous discounts. It's also important to compare the policies themselves, because standard coverage limits, out-of-pocket deductibles, coverage exclusions, and other key details often vary.