Homeowner's Insurance
Seeing as the purchase of a home is often the largest investment most people will make in a lifetime and usually represents the bulk of an individuals wealth and net worth, it makes good sense to insure it with proper coverage. Lenders understand the importance of a (casualty / liability) policy and will require it if any financing is to be made on a property. Simply put, insurance provides a safety net for you and your family when certain unfortunate events happen like theft, fire, burglary and vandalism. Given that, a homeowner or buyer should familiarize themselves with the basics of coverage.
What do Policies Protect Against?
Casualty: This part of a policy will protect the homeowner from hazards such as fire, wind, hail, lightning, smoke, vandalism, theft/burglary, and damage by vehicles or aircraft. You may need to contact your insurance agent and request additional coverage for hurricane, earthquake or flood since they may not be covered in a standard homeowners policy. Upgrades can usually be made to include additional areas of concern.
Liability: This is to protect you against lawsuits and medical bills resulting from injuries that occur to visitors or guests in your home. The cost for this coverage, to a large degree, is based on the limits (in dollars) of coverage. Secure as much as possible in order to protect your assets.
Personal Property: Personal Property: Coverage for personal belongings is detailed here. Items such as clothing, furniture and standard electronics are covered. Some policies may include credit card theft/misuse and away-from-home theft. Usually 40-50% of your total home insurance is limited to personal property. However, this coverage has certain exclusions and limitations, especially for more valuable items like jewelry, artwork and antiques. You may want to purchase additional endorsements for more comprehensive coverage.
5 Things to Understand about Homeowners Insurance
1. Look for exclusions to coverage. For example, most insurance policies do not cover flood or earthquake damage as a standard item.
2. Look for dollar limitations on claims. Even if you are covered for a risk, there may a limit on how much the insurer will pay. For example, many policies limit the amount paid for stolen jewelry unless items are insured separately.
3. Understand replacement cost. If your home is destroyed you'll receive money to replace it only to the maximum of your coverage, so be sure your insurance is sufficient. This means that if your home is insured for $150,000 and it costs $180,000 to replace it, you'll only receive $150,000.
4. Understand actual cash value. If you chose not to replace your home when it's destroyed, you'll receive replacement cost, less depreciation. This is called actual cash value.
5. Understand liability. Generally your homeowners insurance covers you for accidents that happen to other people on your property, including medical care, court costs, and awards by the court. However, there is usually an upper limit to the amount of coverage provided. Be sure that it's sufficient if you have significant assets.