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  • Why you need homeowners insurance

    In basic terms, homeowners insurance gives you financial protection from most damages to your home such as those caused by fire, theft, and certain natural disasters.

    Homeowners insurance

    Your homeowner insurance premium is frequently added to your monthly mortgage payment. Whether you borrow from a bank or another type of lender, most require that, at a minimum, your policy cover the amount of the mortgage.

    Homeowners insurance has many parts to it, but three important basics you need to understand are the deductible, claims, and exclusions.

    Deductible
    A deductible is what you have to pay out of pocket when you file a claim on your home due to damage. If your house catches fire, your homeowners insurance should cover it, but you still have to pay your deductible. You decide how much you pay for your deductible with your insurance company. Be aware that if you choose a higher deductible in exchange for a smaller monthly payment, you will have to come up with that larger amount of money when a disaster hits.

    Dave Ramsey says that if increasing the premium saves you $30 a year, it will take you 25 years without a claim to break even. But if you save $250 a year in premiums, you only have to go three years without a claim to break even [1]. In essence, does raising your premium save you enough money to justify the risk of having to pay more out of pocket when a disaster strikes?

    Making a claim
    You should contact your insurance company to file a claim immediately after any damage occurs. When you file a claim, you will contact your homeowners insurance to tell them of any damage that has happened to your home. After your claim is filed, an adjuster will be sent to your home to assess the damage. Depending on what the adjuster says, your insurance company will then offer you a certain amount of money to replace or repair any damage and settle the claim [2].

    Keep in mind that filing too many claims can backfire. U.S. News states that filing more than two or three claims can raise the cost of your policy [2]. This can cause you to pay a higher monthly premium and/or deductible. So, if you have a minor accident happen that you know how to easily repair, consider fixing it yourself instead of filing another claim.

    Exclusions
    Know that your homeowner insurance policy doesn't cover all possible catastrophes that could happen to your house. Many insurance companies exclude disasters like flood and earthquake damage. Where you live could affect if you need to add on extra coverage to your original insurance plan.

    [1] Why you must have homeowners insurance, Dave Ramsey
    [2] Do you need homeowner's insurance? U.S. News



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