The Basics to Buying Home Owners Insurance

Home owners insurance is one investment you hope you never need but that you’ll be glad you have in the event that you do. Although the price for protecting your home can be quite high, you do get peace of mind from knowing you have some protection. Additionally, your financing company may require that you have home owners insurance as part of your mortgage contract so their interest in your property is also protected. Before you purchase your own policy, here are some factors to consider.

Coverage for the Structure

The main part of the home owners insurance policy that concerns your mortgage holder is probably the amount dealing with the structure itself. This portion of the policy will pay for repairing or rebuilding your home in the event of damage covered by your policy. Keep in mind there may be some exclusion in the policy.

Don’t be alarmed if your coverage amount is not as high as what you’ve paid for the home or even for the appraised value of the home. The cost of rebuilding your home should be less because this figure won’t factor in the cost of your land which often is responsible for a big chunk of your home’s cost and value.

Extra Structure Coverage Recommended

You may also want to opt for extended or guaranteed coverage here. That’s because if the costs of repairing or rebuilding your home skyrocket, as they sometimes do after a tornado, for example, then you may end up having costs that exceed the liability limit of your policy. With this extra coverage, that won’t be a problem because the policy will go above those limits to cover what you’re out.

Coverage for Your Possessions

Your home is also going to be filled with items which are valuable to you. If your home was destroyed by a hurricane or if you were the victim of theft, you would want to be compensated for everything you have lost. However, when you are purchasing home owners insurance you’ll need to make an important choice when it comes to this part of the coverage. You must decide whether you want cash value or replacement cost for your lost items. The latter is going to end up costing you more but will provide you with enough money to buy the lost items again. The cash value approach will only give you the depreciated value of the item at the time of the loss but that’s better than nothing and will save you on your premiums.

You may also want to choose to insure some of your more valuable possessions separately. Discuss this option with your home owners insurance agent.

Alternative Living Expenses

When you purchase a policy, make sure it also provides coverage for alternative living expenses. These can be very important and may not be something you think about until it’s too late. For example, let’s say you have a fire in your home. If you can’t stay in the home because of the fire damage, you’ll need to go somewhere else, such as a hotel. You’ll also need food because you won’t have a kitchen to cook in. This type of coverage will reimburse you for those out-of-pocket costs. However, make sure you know what limits on these expenses are included in your policy.

Liability

While most homeowners thing about protecting their property, few consider the importance of the liability portion of their policy. However, this coverage can truly save you from financial ruin. Imagine what would happen if your dog attacked a visitor to your home and caused a disfiguring injury to that person. Would you have the money to defend yourself against the inevitable lawsuit? Could you pay the medical bills or the pain and suffering caused by your property? Very few people could cover those costs. With liability protection, however, these costs up to the maximum amount of your policy would be covered. While most home owners insurance includes at least $100,000 in liability coverage, you may want to invest in more.

Coverage Offered

Most home owners insurance policies will provide coverage for most of the events that could damage your home. For example, fires, theft, tornados, falling trees, and vandalism would all be covered under policies. Of course, if you’ve started the fire in order to get the insurance money, the company won’t pay. Or if the damage was the result of negligence on the part of someone else, the insurance company may choose to go after that person instead. For example, if a dead tree limb that should have been removed damages your roof, the fault would be with the neighbor who was not properly caring for the tree.

Earthquakes and Floods

Two types of natural disasters that are not covered by the standard policy are floods and earthquakes. Although both are optional, they are worth purchasing if you are at risk for either occurrence. A national flood insurance program is in place that offers this coverage and tries to keep it affordable. However, earthquake insurance, especially in areas prone to them, is quite expensive. You may also want to check your policy to make sure wind damage is included. This is not always the case as some hurricane victims had to learn the hard way.

Choosing a Deductible

Although a higher deductible will lower your premiums or make a larger amount of home owners insurance coverage affordable, don’t choose a deductible above what you can afford to spend out-of-pocket. Otherwise, you may find yourself in financial trouble despite having the protection offered by your policy.

March 15, 2009, Posted by Rainy Day Mitch