A good time to start thinking about homeowners insurance is while you’re in the process of the buying a new home. A great time to start thinking about it is before you even start looking. An important factor in determining the cost of your homeowners insurance premium is going to be the home itself. Some homeowners insurance policies are based around something known as indemnification. Indemnification isn’t quite compensation, nor is it a reparation. Indemnification means that your homeowners insurance policy is designed to “make you whole” again by rebuilding your home to the same size and standard before it was damaged. Here are two things to consider before you start looking for a home.
Because your homeowners insurance is based on the cost to rebuild your home, larger homes tend to come with higher premiums for one very simple reason: they require more materials to be rebuilt. Of course, some people have a certain size requirement, such as needing a certain amount of bedrooms, but to save on your insurance, try not to buy more than what you need.
The quality of the building materials your home is made of will also influence the price of your homeowners insurance premium. It’s going to cost a lot more to replace exotic materials. For example, your typical hardwood flooring costs anywhere from $3 to $9 per square foot. Or, you can opt for Macassar Ebony which runs for about $150 per square foot. Of course this is a pretty wild example, and most people who can afford Macassar Ebony flooring aren’t usually worried about the cost of replacing it. But even in the first example, the difference can be striking. To replace the hardwood flooring in a 2,000 square foot home at $3 per sq. ft. will cost $6,000 for materials alone. At $9 per square foot, a difference of only $6, you’re looking at $18,000.
Of course, if you have a homeowners insurance policy based on ACV (actual cash value), then things are going to work out a little different – but that’s a whole other issue!