Understanding Homeowner Insurance
If you are like most homeowners, your initial decision to purchase homeowners insurance has more to do with qualifying for a mortgage loan than believing you will ever need the policy benefits one day. In fact, if you are purchasing your first home, you may be so overwhelmed by that process you are tempted to not even read your insurance policy that carefully. This is a mistake too many harried first-time homeowners make, and it can come back to haunt you later.
What is Homeowner Insurance?
Homeowner insurance is a policy designed to ensure if emergency strikes, you can afford to replace your home to its exact original specifications. At a less extreme level, homeowner insurance can also protect you if a visitor gets injured while on your property or if your possessions are lost, stolen or damaged.
Understanding Your Policy Coverage
Your homeowner insurance policy will not cover you for every type of incident that can affect your home. For instance, you may need to purchase special additional coverage if the area you live in is prone to flooding, earthquakes or other unique weather patterns. What your basic policy should cover is replacement of your home itself (not including the land it sits on).
Different Types of Coverage
In general, experts recommend taking out a policy that covers at least 80 percent of the replacement value of your home if it were to be totally destroyed. But there are different ways your coverage level can be calculated.
– An “actual cash value” policy will compensate you for the value of what was lost at the time it was lost. This may or may not be enough funding to replace what was lost in full.
– A “full replacement value” policy or “comprehensive homeowners coverage” policy will reimburse you for the cost of replacing what was lost, damaged or destroyed sans depreciation.
– A “guaranteed replacement value” policy will reimburse you for up to 20 percent more than the policy maximum payout limit.
– If you have additional property of substantial value that you keep on the premises at home, you may want to purchase a special “rider” to cover the replacement value of that property as well.
Reading through your homeowner insurance policy may not be the most interesting activity, but you will be glad you did if you need your benefits!