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Home Owners Insurance Tips for Everybody

filed under: Informational posted on December 17th, 2018

Home Owners Insurance is one of those things we don’t think about until we have a claim!

Understanding the ins and outs of the different policies and types of coverage is worth reading the article below:

Home Insurance Tips for First-Time Home Owners: Understanding What Is and Isn’t Covered

Why buy home owners insuranceFor most Americans, their home is the largest investment they will ever make. You spend years saving for the down payment, then your monthly mortgage payment probably takes a good chunk of your paycheck. But a home is an asset that can provide financial stability in the long-term, especially during your retirement years.

However, owning a home comes with a certain amount of risk. Weather-related damage, a break-in, or a fire can all threaten the value of your home, which is why many lenders require homeowners insurance for first-time buyers.

Why Do You Need Homeowners Insurance?

Unlike car insurance, homeowners insurance isn’t required by law so you may wonder why you need it. Well, homeowners insurance protects the investment you put into your home and is worth the cost.

Here are three reasons you should consider purchasing homeowners insurance:

  • Your lender may require it: Your state may not require that you buy homeowners insurance but your mortgage broker probably will. If you don’t buy it, your lender probably will and charge you for the payments.
  • It protects your home and belongings: Homeowners insurance will protect the value of your home in the event of a catastrophe like a storm or fire. And it will also cover your personal belongings in the event of theft.
  • Your personal liability will be covered: Homeowners insurance protects more than just your home and its contents. It also protects you from lawsuits stemming from an injury that occurred on your property. For example, if someone was injured on your trampoline, your insurance should cover the legal and medical fees resulting from the accident.

Understanding the Different Policies and Aspects of Homeowners Insurance

Now that you understand why you need homeowners insurance, you’re probably wondering what type you need. There are many types of coverage available so it can be difficult to know where to start.

Let’s review each policy type, who it’s for, and what is and isn’t covered.

Basic Form, Broad, and Special Form Insurance

A basic form homeowners policy is exactly what the name implies. It’s a basic policy that will cover you from some of the most common hazards like windstorms, lightning, and vandalism.

It mostly covers just the structure itself, though you may be able to get some of your belongings covered. Floods and earthquakes aren’t usually covered, nor is personal liability.

So, basic form insurance is better than nothing but you’re still left pretty vulnerable. In comparison, special form offers a much broader range of coverage. It will safeguard your home, any attached structures, your belongings, and your personal liability.

Comprehensive Form

A comprehensive form policy will cover more than most other types of homeowners insurance. It’s the broadest type of homeowners insurance you can purchase.

It covers general wear-and-tear, weather-related damage, your belongings, and your personal liability.

It will also generally cover:

  • Mold and fungus
  • Any household pets
  • Water damage
  • Smog, rust, or corrosion
  • Settling, shrinking or expanding in your home’s foundation

Replacement Cost Policies Versus Actual Cash Value Policies

Your insurance company will calculate the amount they owe you in the event of a loss in one of two different ways: by the replacement cost or by cash value. Calculating the replacement cost is usually the most favorable to homeowners.

For instance, let’s say your laptop is stolen in a burglary. Replacement cost policies ensure that you’re compensated for the actual cost of replacing that laptop. They don’t take wear-and-tear into account.

Actual cash value takes the market value of an item into consideration. This method assumes the replacement cost and subtracts any depreciation.

Open-Peril Policies Versus Named-Peril Policies

A peril refers to any loss or damage that occurs to your home, and insurance policies address which perils they cover in different ways. An open-peril policy will protect you against all perils unless something is specifically excluded in the contract.

Many homeowners choose this because the coverage is much more comprehensive. But it’s also more expensive for that reason.

On the other hand, a named-peril policy will only cover explicitly named perils. Anything outside of that list will be excluded from coverage, so if you face damage due to something outside the coverage, you’ll have to pay out of pocket. However, you can add on extra endorsements to a named peril policy to fill in the coverage gaps.

The Bottom Line

Being a homeowner comes with a lot of responsibility. Homeowners insurance can give you peace of mind by protecting the value of your home from things that are outside of your control.

But make sure you do your research on these policies, and read the fine print before agreeing to anything. Nobody wants to be caught in the midst of a crisis only to learn that their policy does not cover their losses.

Even basic homeowners policies can vary greatly in what they offer. So, make sure you speak to an experienced insurance agent and understand what you’re signing up for.

By Andrew from LendEDU – a consumer education websites and financial product marketplace. Andrew has gained extensive experience in financial topics while writing over the past few years.

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