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Whether you’re a first time home buyer or are buying homeowners insurance for the fifteenth time, understanding each and every part of a homeowners insurance policy is crucial, as it’s protecting something that is one of the biggest investments you’ll ever make, if not the biggest. Buying homeowner’s insurance can be a bit overwhelming, but insuring your home adequately is one of the most important things you can do.
Before you begin to even look at homeowner’s insurance, you should familiarize yourself with the main and most common parts of a homeowners policy:
Additionally, you should familiarize yourself with the stated perils, or causes of loss, that are covered on your policy. Understanding what perils are covered, the amount of coverage you have, and what’s covered is important. Working with your insurance agent will enable you to figure out how much coverage you need for each kind of coverage and also what coverage you need according to other factors, such as the area you live in. Just as importantly, you need to know what is NOT covered on your policy. For example, it’s important to know that if you were to lose your home or experience a loss from natural flood, homeowners insurance does not provide any coverage for this. So if you lived in an area that has a high risk of flood, you would want to buy a flood insurance policy through the National Flood Association, which your insurance agent can also write for you.
To figure out how much coverage you need, your insurance agent will help determine the value of your home and come up with a replacement cost, meaning the insurer will determine how much it would cost to rebuild your home from the ground up. Typically most insurers insure a home at least 90 percent of what it would cost to rebuild it, although it’s recommended you purchase coverage at 100 percent. The same principle is applied to other structures on the property, such as sheds or detached garages.
Another important part of homeowners insurance is liability coverage. This is coverage that will pay for any damages that someone else experiences while on your property, such as if you had a friend over and something were to fall on them and injure them. Liability coverage would pay for their medical expenses, other related expenses, and also provide coverage if the person were to sue you. This is an important coverage as it protects your investment from being taken from you if you were found liable in such a situation, and if a judgment was placed against you; your liability coverage would cover this. Typically liability coverage can be bought in amounts from $100,000 to even a million in some cases, although $300,000 is about average. You should purchase as much as possible, as surprisingly, there’s not a huge price difference between $100,000 in coverage and $500,000.
The other important thing you’re insuring with homeowners insurance is your personal property, or your contents; basically everything inside your home. Amounts can vary greatly, and to come up with an adequate amount, you should take an inventory and estimate what it would cost to replace everything in your home if all was lost. An average amount would be around $30,000, but this can vary greatly depending on your possessions, and also if you have antiques, expensive jewelry, or valuable artwork.
Although buying homeowners insurance is often required by most mortgage companies, it’s something you should always carry regardless, as it’s not only protecting the roof over your head, it’s protecting everything you own, down to your toothbrush, and most of all, it’s protecting the results of your investment and hard work.