Home Insurance

Needed Coverage for an Individual’s Most Investment

Buying a home is the single largest investment most individuals will ever make in their lifetime. Therefore, it is critical that this valued investment be fully protected. A good home insurance policy is needed.

Most of the basic home insurance policies on the market today protect homeowners and their investment for damage to the dwelling or home as well as the contents within the home. The causes for coverage within a homeowner's insurance policy include the following: theft, fire and lightning, smoke damage, frozen pipes, and damage resulting from ice and snow.

In addition to protection for the above mentioned causes of damage, home insurance policies provide the insured coverage for liability claims, and medical payments that need to be made to third parties as well as legal costs should a lawsuit be filed against the insured.

It is recommended that the homeowner read his or her home insurance very carefully as to understand fully what the contract covers and what it does not cover. A licensed agent can assist in the process. This is a needed step before the policyholder is subject to a loss. By fully understanding his or her coverage, the insured will not be disappointed should the policy not cover a specific loss.

Damages that are not normally covered under a typical homeowner's policy include: damages resulting as an act of war, flood, earthquakes, acts of terrorism, and nuclear accident. Although the above events may not be covered under a standard homeowner’s policy, the insured may purchase special policies or endorsements for the losses not covered. The insured will benefit in consulting with his or her licensed insurance advisor should extra coverage be a concern.

There are also limitations within the standard home insurance policy for specific higher-priced items or items that would be difficult to replace. In this situation, it will be essential that the insured purchase an additional endorsement or floater to the policy. Items where an added endorsement may be needed include: engagement rings, high-priced watches, furs, antiques as well as other valuables of comparable nature. Before insuring such items an appraisal will need to be attained.

The question that arises is: How much home insurance is actually enough? On average, most mortgage lenders will advise that the homeowner purchase an amount of insurance equal to the purchase price or the appraised value of his or her home. However, this amount, many times, is not the most appropriate coverage or the coverage the homeowner truly needs. Possibly a better way is for the homeowner to check on the cost of what it would take for him or her to rebuild their home. The cost to rebuild may be the best coverage to purchase.

Another consideration for the homeowner is his or her need to replace any personal items or property that is damaged. In other words, what personal property items will he or she wish to replace should a loss occur. In this situation, should the insured find replacement of personal property a concern, it is advisable to purchase replacement cost coverage with the home insurance policy.

Normally, when determining valuation of property, one of two methods is employed. The first method is called the actual cash value method. Using this method, the personal property loss is compensated in the following manner: The amount paid is equivalent to the replacement value of the personal property minus any depreciation taken for the years in which the policy holder has possessed or owned the property. The second method of valuation is called replacement cost. This method is more costly than the actual cash value method; however, the insured can be assured the full current value of the damaged item will be paid. In other words, the insured may replace the damaged item with one that is brand new.

The insured may also have concerns along the lines of payment of premium. Should the insured be following any budgetary guidelines as far as purchasing a policy, he or she may wish to include a deductible amount within the policy. In this way, the insured will be making the premium more affordable. Deductible amounts include $250, $500, and even $1,000 amounts. By including a deductible within the policy, the insured will be required to pay, out of pocket, the deductible amount upon the event of the loss, with the policy covering payment for the remainder of the loss.

The insured mustn’t forget to remind his or her agent should they own a home security system. Examples of systems include: fire and burglar systems. The homeowner normally will receive a discount. Also, another point is that many insurers will discount policies if the insured lives near a fire station or in close proximity of a fire hydrant. The insured may also receive discounts for a new home or a home built of special fire-retardant materials. Any of these safety features should be mentioned to the insured’s agent.

Another reduction in premium may be gained when the homeowner purchases his or her automobile policy through the same insurance company that provides coverage for the home.

It is important to shop various insurance companies before purchasing a home insurance policy. This process will be helpful in attaining competitive quotes. However, it is also significant for the insured to realize that the lowest price does not necessarily mean he or she is getting the best deal. The best approach when comparison shopping is to initially compare the coverage of several different providers and secondly, check with the local department of insurance to gain further insight as to the insurer’s reputation within the industry. In this way, the individual seeking coverage for such a significant investment as a home may be assured he or she is dealing with a perfectly sound and reliable source.

In summary, owning a good home insurance policy is extremely important considering a home is the average individual’s single most important financial investment in his or her lifetime. Therefore, understanding what the home insurance policy actually covers so that there are no surprises down the road is necessary. In addition, attaining the advice of an insurance agent reputable in the industry will be needed in order to establish the proper coverage.