Homeowner’s Insurance

Basics Homeowners Insurance — You need to secure homeowner’s insurance in order to get a loan to buy a house. But a homeowner’s policy can covers more than just the structure itself.

Policies vary widely, but in general, homeowner’s insurance covers the following areas:

Your Home – Protects your home against damage from fire, wind, smoke, lightning, theft, vandalism, and just about anything else that isn’t specifically excluded. Common exclusions are flood and earthquake damage, but you may be able to buy additional coverage for these if desired or required.

Your Possessions — Your belongings are also covered under your homeowner’s policy, including losses that happen away from home, (e.g., if your smartphone or camera is stolen while on vacation). Keep an inventory of everything you own so any claims can be handled accurately and efficiently. Write down serial numbers, as well as the date of purchase and original cost of the items, or document it on video. Keep the inventory in a fireproof safe or somewhere outside your home where it can be accessed if your home should be destroyed.

Liability — Protects you against lawsuits arising from damage you, your family members, or your pets may cause to other people. Pays not only for the actual damage, but also for the cost of defending you in court and for any court-ordered damage payments.

How much will your insurance cover in the event of a loss?

It depends on how your policy is written. There are several features to consider:

Replacement Cost Coverage — Covers the costs to replace the property with an identical or similar item. For example, if your bicycle is stolen from your garage, your insurance pays to replace it with a new bicycle of the same or similar make and model (less your deductible).

Actual Cash Value — Pays what it costs to replace the property with an identical or similar item, once that item has been devalued for depreciation.  Instead of paying for a new bicycle that was stolen, your insurance would give you the cash value of a used bicycle of the same make and model that was stolen (less your deductible).

Extended Replacement Cost — This type of coverage applies only to the structure of your home and isn’t always exactly a total “replacement.” You’re covered only up to set limits, which may not be enough to pay for the entire value of your home. If you want the assurance that the full replacement value of your home would be paid in the event of disaster, ask for “guaranteed replacement cost.”

If you’ve purchased a condo, or townhouse, ask your insurance agent about specific homeowner policies designed for these types of homes. You’ll want to purchase coverage above the association policy, but the additional coverage is usually very affordable.

An insurance agent can help you determine how much and what type of coverage is right for your family and your new home. Be sure to ask what discounts may be available, such as rate reductions for smoke alarms, fire extinguishers, security systems, and nonsmoking households.

After purchasing your homeowner’s insurance, make it a practice to review your coverage every year to be sure that it’s keeping up with increasing real estate values and any additions or improvements you may have made.