New Homeowner? Here’s What to Know About Homeowners Insurance

February 14, 2020 | By:Neilson Marketing Services

Homeowners’ insurance isn’t a luxury; it’s a necessity. Not just because it protects your home and possessions against damage or theft. Virtually all mortgage companies require coverage for the full value of a property and won’t make a loan or finance a residential real estate transaction without proof of it.

What’s Covered? 

Standard components include: 

Interior/Exterior Damage 

In the event of damage due to fire, hurricanes, lightning, vandalism or other covered disasters, your insurer will compensate you so your house can be repaired or even completely rebuilt.

Clothing, furniture, appliances, and most of the other contents of your home are covered. However, if you own high-priced possessions (fine art, fine jewelry), you might want to pay extra to put them on an itemized schedule, purchase a rider to cover them, or even buy a separate policy.

Personal Liability for Damage or Injuries 

Liability coverage protects you from lawsuits, which include claims involving your pets. If someone successfully sues for pain and suffering or lost wages, you’ll be covered. Off-premises liability coverage often applies as well; for instance, your dog bites someone at their place, not yours. 

Rental Costs During Repairs 

If you find yourself forced out of your home for a time, this will undoubtedly be the best coverage you ever purchased. Additional living expense coverage would reimburse you for the rent, hotel room, restaurant meals, and other incidental costs you incur while waiting for your home to become habitable again. Note that policies mandate daily and total limits. Of course, you can expand those daily limits if you’re willing to pay more in coverage. 

What Isn’t Covered? 

While homeowner’s insurance covers most scenarios where a loss could occur, some events are typically excluded from policies, such as natural disasters.

If you live in a flood or hurricane area, or an area with a history of earthquakes, you’ll want riders for these or an extra policy for earthquake insurance or flood insurance. 

Coverage Types 

The three levels of coverage: 

Actual cash value 

Covers the cost of the house plus the value of your belongings after deducting depreciation.

Replacement cost 

Cover the actual cash value of your home and possessions without the deduction for depreciation, to repair/rebuild to the original value.

Guaranteed (or extended) replacement cost/value 

The most comprehensive, this inflation-buffer policy pays for whatever it costs to repair or rebuild your home—even if it’s more than your policy limit. Certain insurers offer an extended replacement, meaning it offers more coverage than you purchased, but there is a ceiling.

With guaranteed replacement value policies, you don’t need just enough insurance to cover the value of your home, you need enough insurance to rebuild your home, preferably at current prices (which probably will have risen since you purchased or built). 

Rates 

The driving force behind rates is the likelihood a homeowner will file a claim—the insurer’s perceived “risk.” Insurers give significant consideration to past home insurance claims submitted by the homeowner as well as claims related to that property and the homeowner’s credit. The condition of your home could also dictate coverage. A home that’s not well-maintained increases the odds the insurer will pay on a claim for damage. Ways to cut down premiums: 

  • Security system 
  • Smoke alarms 
  • Raise your deductible 
  • Look for multiple policy discounts 
  • Plan ahead for renovation 
  • Pay off your mortgage 

Regular Policy reviews

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