Understanding Homeowner's Insurance
While you’re basking in the joy of buying a new home, we know the last thing you want to think about is any destruction or vandalism done to the property. But an unfortunate part of homeownership is safeguarding against any potential damage. To ensure you get shortchanged when you’re trying to recover, here are the 5 important things you need to understand about your homeowner’s insurance.
1. Look for exclusions to coverage.
Don’t wait until disaster strikes to receive a pitiful reimbursement or find out you have to pay to rebuild all on your own. Typically, of course, you’ll pay a set amount, or “deductible”, before your insurance company helps make up any financial losses you incur. But most popular insurance policies have standard damage items that they won’t pay for, and will require their own additional coverage:
- Floods
- Earthquakes
- Fires
- Windstorms
- Explosions
- Smog
- Rust/Corrosion
- Collapse due to ice or snow
- Frozen plumbing
- Power surges
- Demolition to bring your house up to code
The list goes on. These types of coverages often must be bought separately, so be sure to have an insurance company walk you through any add-ons when you’re shopping for a policy. Keep up-to-date on what benefits you receive and what restrictions apply, so you know the limits of your home insurance policy’s features. It’s important to be on the same page when you’re defining “comprehensive.”
2. Look for dollar limitations on claims.
Even if you’re covered for a risk, or “peril” in insurance terms, there may be a limit on how much your insurer will pay. Many policies put caps on the amount that they’ll put forward for stolen items unless you insure them separately. When you invest in expensive lifestyle items, know whether you should have a separate rider for the following:
- Jewelry
- Watches
- Furs
- Sporting equipment
- Electronics
- Instruments
- Fine arts
- Personal records, such as passports, deeds, etc.
The declarations page of your homeowner’s insurance policy should summarize what percentage you can expect to make back on certain items, depending on their value at the time of your claim. You should always outline the maximum amounts payable for your valuables so you don’t run into a nasty surprise down the road. If an insurance policy has low limits, keep shopping to enhance your coverage.
What about mortgage insurance?
3. Understand replacement cost.
Replacement cost will pay to rebuild your home to restore its original quality, even if current building costs have increased. If your home is destroyed, you'll receive money to replace it only to the maximum of your coverage. So if your home is insured for $150,000 and it costs $180,000 to replace it, you'll only receive $150,000. Bottom line? You need sufficient coverage. You’re only entitled to a replacement if the damage you incur could not have been predicted. In other words, your property was not purposefully damaged. There’s a difference between “sudden and accidental loss” versus negligence.
4. Understand actual cash value.
Actual cash value refers to the reimbursement that you receive for destroyed belongings after depreciation, meaning it factors in any reduction in value due to age or condition. So unlike replacement cost, the actual cash value will only restore a portion of your property’s worth. You don’t come out even. Ease any future heartbreak from financial and personal loss. Review your needs to plan for the level of protection your home insurance should include.
5. Understand liability.
Generally, your homeowner’s insurance backs you up in medical costs and legal fees when you’re sued for accidents that befall other people on your property. However, there is usually an upper limit to the amount of coverage provided. Ensuring your homeowner’s insurance will have a large enough reserve for court costs, death benefits, etc. will protect your significant assets.
For more advice about homeowner’s insurance or claims,
Speak to a Loan Officer today!
Sources: www.insure.com www.allstate.com www.thebalance.com www.thebalance.com[2] www.trustedchoice.com