UPDATED: Mar 13, 2020
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Are you thinking about buying your first home? If so, then you should really think about buying homeowners insurance, too. Homeowners insurance is the sometimes optional, sometimes not way to protect your investment from perils and natural disasters. Without it, you could get yourself into some serious financial trouble. But with it, you can sleep soundly knowing that your home and property are protected.
The state of Maryland, like so many others in the country, rely on the standardized HO-3 policy for most of their home-owning clients. These policies provide very comprehensive coverage for your structure, liability, and medical payments. They also provide selective but beneficial coverage for your personal belongings.
|Type of Coverage||Coverage Amount|
|Replacement Cost (Dwelling)||$200,000|
|Replacement Cost (Contents)||$160,000|
Typical coverage limits for an HO-3 policy in Maryland are listed in the table above. Of course, the numbers in the table above are modeled after a modest $200,000 home. Your premiums may be more expensive if you have outdoor structures to protect, additions such as a back porch or a pool, or very expensive personal property to protect.
The chart above details average annual premiums for major cities in Maryland. Obviously, these rates won’t be the same if you live in a more rural part of the state, own a smaller home, or live in an area with a high crime rate. Furthermore, rates can vary significantly from one company to another. A columbia resident, for example, could save nearly $500 per year just by shopping around for the best quote. After 20, or 30, or 40+ years, that’s a lifetime savings of nearly $20,000.
Laws and Requirements
For the most part, everyone who buys a home also purchases homeowners insurance. But there are exceptions. People who have fully paid off their mortgage or paid for their house in full with cash aren’t legally required to purchase insurance. But many do, since they don’t want to have to pay for a whole new house or replace all of their property if the worst happens. And most people who are on a mortgage loan have to purchase it, because their bank will make it a requirement of the loan terms.
Taking a Home Inventory
Taking a home inventory is essential, and you shouldn’t let anyone tell you differently. And it isn’t just useful for homeowners insurance purposes, either. But the importance of taking on the tedious, daunting task of your home inventory has an important influence on your annual premium. Overestimating your home’s total worth, and the worth of the property inside it, can cost you in the long run with more expensive premiums. And while underestimating its value may cost you less each year, you won’t be paid enough (and you’ll share a bigger part of the financial responsibility) if you have to file an expensive claim.
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Choosing What (and How Much) Coverage
The basic homeowners insurance policy that many Maryland insurance companies offer generally only covers common, basic disasters that aren’t too expensive to fix. On top of your basic policy, there are many other factors to consider. Such as:
- Fires – In the northern wintery latitudes of Maryland, damage from fire usually isn’t that big of a problem. Some areas of the state, however, may still be vulnerable to fire damage. If this is a concern for you, and it is not covered on your basic policy, and you should talk to your insurance agent about adding a fire protection endorsement to your policy.
- Floods – Flood and water damage, on the other hand, may be more likely to cause property damage for Maryland homeowners. Maryland is flush with rivers and other bodies of water that could overflow at any time, causing expensive damage. And the bad news is that most insurance companies don’t cover this. But the National Flood Insurance Program (NFIP), fortunately, does.
- Damage from Winter Storms – The weather in Maryland is very cold for much of the year. Additionally, water damage from melting snow, burst pipes, and other winter related disasters might not be fully covered on your homeowners insurance policy because these problems are so common in the state. Again, it is a good idea to talk to your insurance agent about possible endorsements on your policy which cover these types of damages.
- Covering Your Property – Your homeowners insurance policy doesn’t just cover the structure of your house, it also covers your personal belongings which are regularly kept Inside. This type of coverage is a basic addition to every homeowners insurance policy. And how much coverage you decide to purchase will depend largely on your home Inventory (as we mentioned earlier).
- Liability Coverage – If someone gets hurt while spending time on your property, or someone else’s property is damaged in or near your home, there’s a chance you may be held financially liable for that damage. Liability coverage, on the other hand, can help protect you financially from having to make a large payout.
- Umbrella Coverage – Not every home in Maryland costs the same. Likewise, not all homeowners own property of the same value. If your home and/or property costs more than what your insurer is willing to cover you for, be sure to ask about Umbrella Coverage. It adds extended coverage limits to your policy in order to make sure you are adequately covered.
Replacement Cost vs. Actual Cash Value
Here’s a basic definition for replacement cost: when you file a claim, your insurance company will honor it for 100% of how much it costs to repair or replace. Usually, this is strictly reserved for repairs/replacements to the external structure of your house, with some exceptions.
Actual cash value, on the other hand, means something different. Usually, actual cash value is reserved for claims regarding damaged or stolen property within the home. When your insurance company pays out on your claim, you receive the dollar amount of the property minus depreciation. You will usually not receive 100% of its full replacement cost in most situations.
How Your Credit Score May Influence Your Rate
In general, there is good news and bad news when it comes to your credit history and homeowners insurance. Let’s get the bad news out of the way first. Unfortunately, your insurer can and will examine your history in order to determine your premium. They can look up to 7 years into your past, and strongly consider things like how often and reliably you pay your premiums on other forms of insurance you may own.
So that’s the bad news. The good news is that they can’t look at every single element of your credit history. They can only evaluate whatever is included in your CLUE report. And for your protection, you are entitled to see a copy of your CLUE long before you start shopping around for quotes. This can help you negotiate with your insurer to make sure you get the best deal. And the better your CLUE report, the lower your premiums!
Additionally, these statistics may not even be an issue for Maryland homeowners. In the past, state law forbade homeowners insurance companies from using credit scores to determine premiums. But state laws come and go like the wind, and this issue may have changed in recent years. Be sure to contact your state insurance department for more information on how your credit score will influence your Maryland homeowners insurance premium.
For more information, feel free to click any of the links you see in this article. They all lead to more detailed information about homeowner’s insurance, specifics on purchasing a policy, and how to find the best deal. You should also contact local resources in your state, such as:
Or contact them directly through the following resources:
Maryland Insurance Administration
200 St. Paul Place, Suite 2700, Baltimore, MD 21202