What forms of coverage/insurance should I buy for my home?
November 30, 2011 11:22 AM   Subscribe

As a owner of a brand new house, I am deluged by offers in the mail for various forms of insurance, protection, or coverage for my home (examples: mortgage insurance, water line coverage). What forms of coverage/insurance are a good idea to purchase, and which are unnecessary?
posted by Deathalicious to Home & Garden (15 answers total) 3 users marked this as a favorite
Options vary by state. I think you should add where you are located.
posted by beccaj at 11:27 AM on November 30, 2011

I've heard that mortgage insurance is not necessary if you have already have life insurance, and that you should not have mortgage insurance *instead* of life insurance since the dollar value of the mortage insurance decreases over time, whereas the life insurance amount stays the same.
posted by ThatCanadianGirl at 11:28 AM on November 30, 2011

Check first with your home owners insurance agency. They will tell you what is already covered, plus let you know what additional insurance / alarms / upgrades etc would qualify for additional home owners discounts.

I carry nothing but my homeowners insurance. But my neighbors have a Home Service Plus plan with their natural gas company that covers all their appliances and some other home items, plus a plan through Sears that covers their lawn mower and snow blower etc.. They love it, but be aware that if it can be fixed it will be fixed, so they have a lot of quite old and innefficient appliances, and their snowblower was built in 1972. It has treads like a tank, and weighs about as much.
posted by lstanley at 11:29 AM on November 30, 2011

My personal rule of thumb is: I buy insurance if I couldn't afford to fix the problem myself.

I have enough savings to pay for a water line problem. So I don't insure for that. I don't have enough savings to rebuild the house if it burns down, so I have buildings insurance for that. I can afford to get my boiler fixed if it breaks, so I fend off the gas company every time they try to sell me insurance against problems with my boiler.
posted by emilyw at 11:45 AM on November 30, 2011 [3 favorites]

In addition to standard policies (home, auto, life), we have an umbrella policy. A million dollars of coverage is cheap enough that I feel peace of mind for having it. here's a NYT article that talks about them.
posted by dpx.mfx at 12:01 PM on November 30, 2011 [1 favorite]

Are you in a major floodplain? If so you should have flood insurance. (That's not automatically part of normal homeowner's insurance.)
posted by Chocolate Pickle at 12:02 PM on November 30, 2011

Flood insurance. It's cheap if a flood is unlikely, and floods are not covered by regular homeowner's insurance.
posted by Ery at 12:02 PM on November 30, 2011 [1 favorite]

Also depends on the other insurance you have. I've gotten similar offers for mortgage insurance that kicks in if you get injured in order to pay your mortgage. Your employer may have long or short term disability policies that would cover you in the same situation, allowing you to continue to make mortgage payments anyway.
posted by craven_morhead at 12:27 PM on November 30, 2011

Even if you're not in a major flood area, you might want to think about getting flood insurance. It will usually cover it if you have plumbing issues that cause "floods."
posted by Weeping_angel at 12:49 PM on November 30, 2011

From Ms. Vegetable:
Depending on where you are, you might want to consider earthquake insurance. And DEFINITELY listen to the flood insurance people.
posted by a robot made out of meat at 1:14 PM on November 30, 2011 [1 favorite]

Assuming you did not pay cash for your house, you've already gotten the insurance you need to have as a condition of your mortgage. If you're in a floodplain, your note-holder will have required you to get flood insurance. And you must have typical homeowner's insurance (though in theory, you might not have contents covered, as the note-holder doesn't care about that). You may have gotten a home warranty (a form of insurance) thrown in with your purchase, and this will cover white goods. In my experience, these home warrantees seem like a good deal, but the terms are limiting enough that I could never really take advantage of them.

Also be aware that if your note is held by a bank that is going to flip it (which is very common), you will need to prove that you have insurance every time it gets flipped. If you fail to do so promptly, the new note-holder will purchase homeowner's insurance on your behalf at extremely bad rates and add that to your bill.
posted by adamrice at 1:25 PM on November 30, 2011

What forms of coverage/insurance are a good idea to purchase, and which are unnecessary?

You've probably already got those forms of insurance which are actually required, because having them is almost certainly a condition of your mortgage, and the bank will actually get you a policy and charge you for it if you don't have one on your own.

As to the rest of it? Get yourself an insurance agent. Talk with him about the following:

Flood insurance is definitely something you should look into. Flood damage is universally excluded from homeowners policies and just from private insurance in general. It's offered by the federal government. Look here. Note that coverage for plumbing backups is not the same thing as flood coverage. You'll need to talk to your agent about getting coverage for that.

Earthquake insurance should also be on the list. This is either going to be so ridiculously cheap that it's hard to say no (just because an earthquake hasn't happened in your area for a while doesn't mean it couldn't, and we're talking pennies on the dollar here), or pretty expensive but absolutely necessary. As your agent.

Look into disability coverage. It's pretty cheap, especially if you're young, but getting injured and not being able to work for the rest of your life sucks, as do federal disability benefits. Check with your employer to see if you've got some basic coverage. Note that there are short-term disability policies and long-term disability policies. Having both is a good idea.

Home warranty coverage is... well, not a scam precisely, but unlikely to be worth it. Same goes for extended warranties on your car. You may well be better off just stashing the premium in a savings account and using that to pay maintenance costs. Like, get a quote, then put about 120% of that in a savings account every year. You'll keep the money, and earn interest on it.

Definitely look into life insurance, particularly if you've got a spouse and/or dependents. Me, I'm single with no kids, so I just have enough to cover the school loan my dad cosigned on, as it would suck to leave him holding that bill in the event of my death. But if I get married, I'll want generous benefits to provide for my wife/kids if I die. Definitely do term life instead of whole life. The former is basically just insurance against the event of your death. The latter is actually an investment product, and not a very good one.

Depending on what is meant by "mortgage insurance," you've either already got it/don't need it, or can totally do with out it even if you could theoretically use it. "Mortgage insurance" can mean either "private mortgage insurance," i.e. money you pay to the bank if you've equity less than 20% of the total, or "mortgage life insurance," i.e. a policy that will continue to pay your mortgage if something bad happens. The former is either required or completely unnecessary. The latter is just a more expensive and narrow form of life insurance or disability insurance. Skip it.

Something most people don't realize is that their homeowners' policy comes with liability coverage. Check to make sure that it's enough. A good rule of thumb is that you should have enough coverage to cover your entire net worth, though you can talk about details with your agent. If you have more assets than there are limits available for your homeowners' policy, that's what "umbrella" or "excess liability" policies are for. They're much cheaper. They also sit on top of your personal auto policy, and you should make sure you've got enough coverage there too. Something to keep in mind here is that when you buy liability insurance, you're also buying legal defense in the event that you get sued. Which is potentially more valuable than the coverage itself, as defense costs do not generally count against available limits.

From your profile, it doesn't sound like you'd be in the market for professional liability insurance, but you should be aware that homeowners policies generally don't provide coverage for losses that occur in the course of your business or employment. That's what commercial policies are for. If you're running a small business, or even just freelancing, you may want to look into this. Even driving somewhere on business can trigger exclusions in personal policies. Something to keep in mind.

All of this sounds like a lot, and it is. But really, the question should be less "Can I afford this?" and more "Can I afford not to have this?"
posted by valkyryn at 1:30 PM on November 30, 2011 [4 favorites]

I keep getting offers on sewer line insurance. While it is true that the homeowner is responsible for the connection to the main sewer line in the street I don't often see many front yards dug up because of problems. That being said it can cost many thousands of dollars to replace a broken sewer pipe. If you have several trees in the yard it could be a consideration.

I also get offers for pre-paid service agreements for the gas ( or oil) furnace. These are typically equal to the cost of an annual cleaning and inspection. So I just don't see the benefit.
posted by Gungho at 6:04 AM on December 1, 2011

Easy answer: don't buy anything based off something you got sent in the mail.

Slightly less easy answer: insurance trades risk for money. You pay someone else to bear the costs if something unusual happens. The more unusual the thing, the cheaper the cost. That's why it costs 10x as much to insure a car that's worth 10x less than a house. It's (roughly) 100x more likely your car will suffer a loss than will your house.

Valkyryn speaks the truth. Get an insurance agent who you trust and discuss your needs with them. My personal preference is to combine things into as few policies as possible. Instead of getting a separate "pennies a day!!" mortgage life insurance policy, I'd spend those pennies on upping my life insurance. You will probably get more coverage for the same amount, and it will be one-stop shopping for you, and for your family should they need to make a claim.

Examples of overlap: my auto insurance policy (as well as my credit card) covers rental car insurance. Now I don't have to pay the $17 a day when I rent a car.

Like for my auto insurance, upping it from the state minimum coverage (10/20/10 I think) to 100/300/100 was like $4 a month. Remember, insurance is sort of a donut: you have to pay for small things, don't have to pay up to the limits of your policy, and then you have to pay the rest. So if someone falls on your sidewalk and smacks their head and your coverage only goes up to $100k, if they sued you for $500k, you might as well not have any insurance at all for what it will end up costing you.

So consider the worst that could happen, and get coverage that covers that. Homeowners insurance usually has lots of little add-ons that can prove beneficial. Maybe you have a lot of personal property, so you'd want to pay the extra dollar a month to double the coverage for personal property.

And the other side of the coin is to self-insure for some things. Like for example, cell phone insurance. It costs $10 a month. So, just put $10 a month into an envelope every month, and chances are, you'll be able to replace your own phone without having to deal with making a claim.
posted by gjc at 8:42 AM on December 1, 2011

So if someone falls on your sidewalk and smacks their head and your coverage only goes up to $100k, if they sued you for $500k, you might as well not have any insurance at all for what it will end up costing you.

The rest of gjc's comment is good advice, but this is just simply not the case, for two reasons.

First of all, just because you're sued for $500,000 doesn't mean that the plaintiff is going to get $500,000. I've seen plaintiffs make an initial demand of $250,000, walk into mediation nine months later with a demand of $150,000, and settle for $40,000 in under three hours. The plaintiff is going to be made aware of your available insurance, and knows that you're going to be much, more willing to settle within limits than outside of them, so there's a huge incentive to just take the money and run, especially since you're unlikely to be able to pay any significant amount of money on your own. Plaintiff's counsel only get paid if they win, so there's no incentive for them to go after you for money they aren't going to get. If there is a demand in excess of your limits, your carrier will send you a letter saying "Look, you may not have enough limits here," but odds are very good that the thing will settle for limits or less. Indeed, your insurance carrier has contractually allowed to settle a case within limits even if you'd rather fight! But I do insurance defense all day, every day, and lemme tell you, something like 75% of claims settle before a lawsuit is filed and about 99% of lawsuits that are filed settle before trial.

Second, and related to the first, one of the things you get with an insurance policy is defense. So sure, even if you do wind up in a situation where there's a judgment in excess of your limits (which is, again, quite uncommon), just getting you to that point could easily cost $50,000 to $100,000 in defense costs alone that you didn't have to pay. So yeah, maybe you are stuck with an excess judgment--that's what bankruptcy is for--but at least you're not also stuck with your defense costs too.
posted by valkyryn at 9:12 AM on December 1, 2011

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