Home insurance can provide financial protection against the range of losses and liabilities that a homeowner might face. Common risks include fires, natural disasters, and lawsuits from others injured on your property. Any of these unfortunate events can lead to a personal financial disaster in the absence of a homeowner’s insurance. In fact, almost all mortgage lenders require some level of homeowner’s insurance to protect their investment. Whether you already own a home or are considering purchasing one, this brief overview is intended to put you on the path to reducing the risks that come with homeownership.
The Main Classifications of Coverage
Depending on the policy that your purchase, the homeowner’s insurance can cover several different types of losses. They are usually broken down into the following classifications:
With dwelling coverage, you can insure your home’s value against the risk of vandalism, wind, fire, and hail. It will cover damage or destruction of and permanent fixtures (e.g., plumbing or HVAC systems) and your house, but the land’s value is not included in this coverage.
Sheds, garages, fences, and guest cottages that are not attached to your house are all typically classified as “Other Structures” on homeowner’s policies. Coverage for Other Structures is often limited to 10% of your Dwelling coverage limit unless otherwise agreed to by your insurance company.
Cost of repair
A Replacement Cost policy is designed to cover the full cost of replacing or rebuilding your property to the same or similar condition without a reduction for depreciation. Replacement Cost policies are more favorable to the insured homeowner, but the premiums are higher.
Loss of Use:
If you need to stay in a hotel or rent an apartment while your home is being repaired (e.g., after a fire), Loss of Use coverage will pay for some of the associated living expenses. If you are insuring a home that you rent out to tenants, Loss of Use may reimburse you for the fair market rental value while the home is unoccupied for repairs.
You need to read these terms very carefully. In law, the insurer will give you enough money to repair or replace the personal property you have. But this could lead to you benefiting because your old property is replaced by new. So many insurers include wording to limit the payment to the actual cash value. This allows the company to deduct the loss in value from fair wear and tear. With really old items that are not collectible, depreciation may wipe out all their insurable value.
Personal Property includes furniture, appliances, clothing, electronics, and other possessions. Many policies will cover your Personal Property that is damaged, destroyed, or stolen even if it was not actually on your property at the time of the event.
Liability coverage provides you with financial protection if you are sued for injuries or damages to another person. If your golden retriever bites someone who then sues you for negligence, Liability coverage will help pay for your legal expenses and the settlement or payout.
Medical Payments coverage pays for the medical bills of someone (not a member of your household) who is injured while on your property. This coverage usually extends to situations where a person is injured not on your property, but the injury was caused by you, a family member, or your pet. Importantly, Medical Payments coverage covers medical expenses regardless of your legal liability.
Tips for choosing the best homeowners insurance coverage
Even though the resale value of your property may have been falling, this is not a time to be dropping the value of your home insurance cover. The cost of the building materials and the labor to repair or rebuild your property has not been falling. Follow these tips to get the best homeowner’s coverage insurance.
1. Always shop around
Try to search the top insurance companies to get the best coverage. So whether you just want to see the premium rates or you are looking to renew, get quotes, and compare the coverage prices. Get as many quotes as possible before making up your mind.
2. Check out the insurance companies
Go to the website operated by the insurance department or commissioner for your state and see whether there are reports on the individual companies licensed to write policies. Many states publish details of the complaints against the insurers. Because repair and rebuilding costs can be so high, check out the financial stability of the insurers. Will the companies be able to pay out all the claims if there is a hurricane or major flooding?
3. Check out what you are buying
You want reasonable protection at an affordable price, so read through the policies to see what is covered. Just as important, do not be taken in by cheap introductory offers. Some companies hit you hard when you come round to renew.
4. Balance costs now against future costs
The cost of materials and labor is rising all the time (even now during a recession). When you take out a new policy or renew, it maybe 12 months before you revalue. Ask about the cost of covering not less than 110% of the estimated total loss to provide for inflation.
5. Decide how much of the structure to insure
In a rented property, make sure you only insure what the landlord actually requires and no more. In your own property, check you are not paying for sheds and garages you do not own (or vice versa).
6. Personal property
It is always wise to walk through your home room-by-room and work out how much it would cost to replace everything. This gives you a basis on which to negotiate coverage. If some property is more valuable or collectible, list it and add it to a schedule.
7. Do not forget third party liability
The courts can hold you liable to pay damages to anyone injured while they are on your property or by something that happens on your property. Discuss the extent of the coverage available and how much it costs.
Homeownership is rewarding, but it would be very risky without homeowner’s insurance. When you purchase a good homeowner’s insurance policy, you can rest assured that you have taken the right steps to protect your family, yourself, and your investment in a home.