Home Insurance 101

My favorite client is the first-time home buyer.  They are excited, nervous, and most important of all a captive and eager audience to learn about how to properly protect their biggest investment.


A lot has changed in the industry regarding homeowner’s insurance over the last 15 years.  So many different factors go into how the price is determined that it is almost impossible to predict an estimate off just the purchase price of the home.


The very first step that we start with is the insurance score.  This is based on credit, however it isn’t based quite the same as a credit score.  One of the factors in this is how much revolving credit is utilized and how much is accessible.  Although the insurance score tends to be close to the actual credit score and credit is used in determining the insurance score it isn’t exactly the same score.  Often the insurance scores that are assigned are made up of alphabet letters as well (all companies have a different scoring system).


Replacement costs of a home


After a score is completed we then determine the replacement cost of the home.  The replacement costs can and will be a different amount than the purchase price.  We insure the home for what it costs to re-build it.  We have a program that takes the square footage and characteristics of the home and calculates the cost to re-build that home.  The insurance company is very strict about having the correct replacement cost.


The year the home was built, construction (brick or frame) and proximity to fire hydrants, and fire departments are the other components that go into the calculation of the home insurance pricing.  The newest component is the age of the roof.  This is almost one of the most important pieces of information we need to determine the quote for the policy.  The newer the roof – the better the premium we are going to get.  Other factors that grab attention to are age of electrical and if it is on fuses, or a 200 circuit breaker.


What are Coverages A, B, C and D?


After the replacement cost is determined this is the main coverage of the home policy.  Or as we’ll call it, coverage A.  All other coverages roll off coverage A.  Coverage B is the other structures – this is a detached garage/mini barn or anything else on the property not attached to the dwelling. Coverage C is the contents or personal property coverage and coverage D is the loss of use coverage. A customary deductible these days is $1000 for the above named coverage.  Coverage E & F are Personal Liability and Medical payments coverage, these two coverages do not have a deductible.


There are many optional coverages that can be purchased on a home policy.  Earthquake and Water Back up of sewers and drains are common.  If a homeowner has a basement it is always advisable to purchase the water back up endorsement in the event the sump pump fails.


Other optional coverages include scheduled items such as jewelry, collectibles, artwork, or guns. An appraisal is required for these and some companies refer to these items coverage as a “rider policy”.  It is important to obtain coverage for these items separately as there are limits on the coverage in the main policy for them.  The standard homeowner’s insurance form has set limits but most companies add some coverage to these limits so it’s best to find out from your agent what your company offers and how much additional coverage you may need.


As one can see – a lot goes into determining what the correct policy is for a home purchase.  Not all homeowner’s insurance policies are the same for everyone, each one is tailored  to the individual needs of the customer.


A lot of information goes into ensuring that you have correct and sufficient insurance coverage. The purpose of an insurance policy is to recover after a loss. Having an inventory of your contents will provide the information you will need to file a thorough claim and receive an equitable settlement so you can remember and prove ownership.


Michelle Benjamin has been working in insurance since 1988 when she started as a file clerk.  She worked her way up to the position of agency owner in 2005. Her agency has been located in Avon Indiana since 2010 where she serves the greater west side of Indianapolis, and much of Hendricks County.  Michelle resides in Avon, Indiana and travels frequently with her husband; her favorite hobby is sunshine.