As a homeowner, you need insurance coverage to protect your investment in the event of an unforeseen circumstances. Additionally, your mortgage company will require coverage to protect the value of the mortgage itself. There are three primary components of homeowner’s insurance — insurance for the structure itself, insurance for your personal belongings and liability coverage.
Structural coverage pays to repair or rebuild your home in the case of a fire or other occurrence specifically named in the policy. Be aware that some situations such as earthquakes or power failures may be excluded by the language of the policy. Policy coverage may fluctuate depending on where your home is located, its age and type of construction. If you have more than one building on the property such as a detached garage or workshop, make sure the policy includes that structure.
Understand clearly the type of policy you are considering. An “actual cash value” policy means the replacement cost minus depreciation. While the premium for this type of policy might look good up front, the policy won’t actually cover the cost of replacing your home. A “replacement cost” policy will cover you up to the value of the policy. If you insure the home for $150,000, that’s what the policy will pay. An “extended replacement cost” policy will pay to rebuild the home up to the value of the policy plus 20 to 30 percent. This will give you a margin in the case of higher materials costs or stricter building codes. The “guaranteed replacement cost” policy that would pay whatever it cost to rebuild the structure is pretty much a thing of the past.
As many people have learned the hard way in recent years, flood insurance is not part of a regular homeowner’s policy. If there is even a small possibility that you will have to deal with flood damage, find out what flood insurance will cost and consider whether you should have it.
Coverage for your personal belongings can be full or partial, similar to the structural coverage. If your policy says “cash value” or “market value,” you will only recover the depreciated value of your belongings. Get “replacement cost” coverage to be sure that you can replace your belongings with new ones if needed. Unique or high value items such as jewelry or antiques may require a rider or floater policy and an additional premium for full protection. Maintaining a home inventory is essential because, if a disaster strikes, that is not the time to try to remember everything that you own.
Considering the volume of litigation happening today, liability coverage is an important part of your policy. If someone is injured or there is an accident on your property, the policy will provide coverage up to the stated limit.
Some homeowner’s policies may provide coverage for you to stay in a hotel or other accommodation and pay for meals or other expenses while your home is being repaired or rebuilt.
When you ask for quotes on coverage, take into consideration the affect of a higher deductible. A homeowner’s policy isn’t really meant to be used for each small expenditure. If you raise the deductible, you can lower your premium cost.
For most average citizens, a home is the most valuable asset they will own in their lives. It only makes sense to take the time to assure that the insurance policy for that home provides the right coverage in the right amounts.