Homeowners Insurance Policies

by FAZ

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Homeowners insurance is not exactly the most enthralling topic in the world. In fact you are probably rolling your eyes already and looking bored. While it may not be exciting insurance for your home is a topic that is essential for all new home buyers to comprehend to the best of their ability. Practically every mortgage lender will require that home buyers purchase insurance for their homes.

You would be hard pressed to find any company that will give you a mortgage without proof that you have homeowner’s insurance. The reason for this is because having this type of insurance protects the investment of the bank or mortgage company. Think of it this way, until you pay off your mortgage the bank is the one that in reality owns your home. If your home is destroyed by fire or something else terrible happens to it then without insurance the bank takes a huge loss in a financial sense. This is something they are not willing to gamble on.

Homeowners insurance is not just for homeowners. Many apartment building managers deem it a requirement for their tenants to have insurance to cover the contents of their apartments. However in the case of a person who rents it is often referred to as renter’s insurance.

Regardless of whether it is compulsory for you to have homeowner’s insurance or not it is always a wise form of protection to purchase. After all you have no way to predict what could happen to your home in the next six months to a year or further down the road. Better safe than sorry is a good motto to live by. Let us take the time to delve further into what homeowner’s insurance is all about.

Essential Components of a Homeowners Insurance Policy

A standard homeowner’s insurance policy covers the costs related to certain case scenarios. For example, if the interior or exterior of your home sustains damage due to a fire, vandalism, lightning, or a hurricane (as well as other natural disasters) then your insurance policy will compensate you accordingly. In other words, it will make it possible for you to repair the damage to your home or completely rebuild it if that is necessary. In many cases damage that occurs because of earthquakes, flooding or poor home maintenance is not covered. In order to protect yourself from those items you would be required to purchase separate riders.

Most standard policies also cover damage or loss that takes place to your personal belongings. This includes your clothing, furniture, appliances and electronics. In fact most of your belongings will be covered if something unfortunate was to occur. Some policies will even allow the insured individual to obtain “off-premises” coverage. This would allow you to file a claim for something such as a lost piece of jewelry, regardless of where you were when it got lost or went missing.

Be aware however that the insurance company may impose a limit upon the amount of money it is willing to reimburse you for items that go missing off of your premises. Even if your beloved diamond ring or your Rolex is damaged while in your home you may be limited to the amount of coverage you have on these items. If you are really worry about anything happening to your most prized possessions then you may wish to buy a separate floater policy from your insurance company which will insure the item(s) for the full value that it has been appraised at. It is entirely up to you whether you choose to do this or not.

The majority of insurance companies out there will provide coverage for 50 to 70 percent of the amount of insurance that you have on your home’s structure, according to the Insurance Information Institute. To use an example of this, if your home has been insured for $200,000 then you would receive in the area of $140,000 of coverage for your belongings. To know if this amount would suffice if disaster struck you would first need to draw up a home inventory list which is a list that details all of your possessions and what each is valued at. Go room by room in your home to get as well acquainted as possible with what you own.

Many homeowner’s policies provide personal liability for injuries or damage that is caused by you, a family member, and even in some cases your pet. For example, if your neighbor drops by for a visit and your dog bites her then your insurance company will pay for her medical bills. Even if your dog bites your neighbor in the yard or in her yard the same holds true. If your dog or cat breaks something in your neighbor’s yard then you can put in a claim and the company will reimburse your neighbor for the cost of whatever was damaged.

If someone hurts themselves in your house, backyard or driveway, such as slipping on ice in the wintertime then the insurance company will pay the injured party for pain and suffering, lost time from work, or both. Most homeowner’s policies start in the area of $100,000 in coverage. However experts recommend that you take out a policy that covers you for at least $300,000 (in order to be on the safest side possible). For the extra protection you seek, paying a few hundred dollars more a year in premiums may allow for an additional one million dollars (or more) by way of what is known as umbrella coverage.

Some insurance policies will cover you for a house rental or time spent in a hotel while your house is being repaired or rebuilt. This is something many people never need unless their home is completely uninhabitable after damage has taken place. If you do ever need it then you will be glad that you purchased this type of homeowner’s coverage. This aspect of the coverage will reimburse you for the cost of renting a house or apartment or staying in a hotel or motel until you can move back into your home. It will also reimburse you for meals at restaurants and other incidental costs. Be aware however that this is not to be taken advantage of. Insurance companies impose very strict daily limits as well as total limits for this type of coverage. If you wish to expand those limits then you must pay out more money to the insurance company.

Homeowners Insurance Coverage Options

Not all kinds of insurance are exactly the same. If you purchase the cheapest homeowner’s insurance you can find then you will receive the least amount of coverage. It works in the reverse if you purchase the most expensive coverage you can find. It is important to be aware of this before you sign up for an insurance policy of any kind.

Homeowner’s insurance coverage can be broken down into three levels. There is actual cash value, replacement cost and guaranteed replacement cost. Let us take a look at all three of these now.

Actual Cash Value

Actual cash value is the value that covers your home as well as the value of all of your possessions after depreciation is deducted from the equation. Depreciation is defined as the value that your possessions are worth at the current time as opposed to what you paid for them when you first bought them.

Replacement Cost

The replacement cost refers to the actual cash value of your home without figuring in the deduction for the depreciating value of it. For example, it is how much it would cost to rebuild or repair your house up to what it was originally valued at when it was purchased.

Guaranteed Replacement Cost

This is the most comprehensive homeowner’s coverage that acts as an inflation buffer. To put it another way, guaranteed replacement cost pays for whatever it will cost to repair or rebuild your home, even if that cost goes beyond the limits of the policy. Some insurance providers also offer what is known as extended replacement cost insurance. What this means is that you are allowed a higher level of coverage than you purchased from the company but there is a ceiling on it. In most cases you can go 20 to 25 percent higher than the limits of the policy.

How Much Will You Pay?

While homeowner’s policies do tend to vary from one insurance provider to another, according to a study conducted by the Insurance Information Institute, the average annual premium cost for homeowner’s insurance in the United States in the year 2005 was $764. However bear in mind that premiums do tend to vary tremendously and are based on a number of different factors.

The price of a policy has a great deal to do with the amount of coverage you wish to purchase. You cannot know for sure how much this translates to for you until you evaluate the market value of your home, figure out how much liability protection you need and create a household inventory.

The area you live in makes a difference as well. Insurance premiums are higher in areas that boost more crime. It works in the reverse for areas where crime is less common. The size of your home also figures into the cost, as does such things as the condition that your plumbing is in, how close your house is to a fire hydrant, and the type of electrical and heating systems your home has. Any claims that have been filed against the house you wish to insure also plays a role. Even such things as your credit score make a difference as this reflects on whether or not you are responsible as a consumer and pay your bills on time.

It is always a good practice to shop around for insurance quotes. Even if the first one you get sounds good do a little bit more checking. Compare rates from one company to another. Remember too that there are plenty of ways that you can reduce the costs you pay for your policy. You can raise your deductible, buy multiple policies from the same insurance company and take advantage of any available discounts (such as discounts for having a burglar alarm or fire alarm).You might also want to look for group coverage options by way of your workplace, a trade union or credit union or an association that you belong to.  Finding ways to increase your credit score if it is low can make a difference as well.

Choosing an Homeowners Insurance Provider

The price of insurance coverage is a significant consideration in terms of choosing an insurance provider but it should not be the only one. You want to find a company that is legitimate, comes well recommended, has an upstanding reputation and is creditworthy (as well as trustworthy). Before you sign an insurance policy get in touch with the insurance department in your state to verify that the insurance company in question is licensed (as it is supposed to be by law). You should then visit the websites of the top credit agencies to find out how financially stable the company is. The top agencies include A.M. Best, Moody’s and Standard & Poor’s. You might also want to speak to family members, friends and work colleagues to get some references. Find out which companies those you trust most had good experiences with and which ones you should stay away from.

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