Home Owner's Insurance Guide

Considering home owner's insurance, this guide can help. Not all home owners insurance policies are the same, and they don't cover everything.

You're about to take the plunge - you're going to buy your very first home. You know you need homeowners insurance in case of a catastrophe, large or small, but it's not that simple. There are so many different options out there. How do you know which one is the best for you?

The best advice is to talk with a trusted insurance representative who is knowledge about all the options available and can explain them in greater detail to you to ensure you are adequately protected. You'll want to find an insurance agent who doesn't just "sell" you on a policy, but asks you questions, as well. Like how much your home is worth and how much the contents of your home - your furniture, jewelry, electronics, clothing, and other personal possessions - would cost to replace in the event of a total loss, like a fire as an example. A good insurance agent is more than a salesperson. A good insurance agent is a consultant who puts your best interests first.

That being said, let's take a look at homeowners insurance. Most homeowners insurance policies provide a combination of liability and casualty insurance coverages. Liability coverage provides payment in the event that someone is injured or dies while on your property or in the event someone in your household does something for which you may be liable within the parameters of the policy. It may also cover damage to someone else's property within your control or damage caused to someone else's property as the result of your property. It provides coverage in case you are sued for one of these same reasons up to the amount of your coverage.

For example, if a salesperson comes to your home and falls on your property, breaking their ankle in the process, your liability insurance would likely pay the medical bills for this injury. Other examples where liability coverage is important might include if your dog bit the mailman when he was delivering the mail or if a neighbor child was climbing the tree in your yard and fell out, breaking her arm. Liability coverage would also pay for damages to your neighbor's garage if a tree from your yard fell on his garage roof.

With the high cost of medical care and the propensity of more and more people to sue each other over the smallest incident, whether actual negligence was involved or not, no one can afford to be without liability insurance in this day and age.

Casualty coverage provides payment in the event your property is harmed or destroyed as a result of covered acts. Most homeowners insurance policies provide coverage for losses to your home, garage, and other buildings on your property and their contents as the result of fire; most natural disasters like tornado, hail, or wind damage; theft; burglary; vandalism; and other losses.

This coverage is broad and provides protection in the event of many potential perils. However, it does not cover anything and everything that could go wrong. It is important to ask about exclusions to your policy to be sure you clearly understand the limits of the coverage you are purchasing - before you have a claim and find out something isn't covered.

For example, most homeowners insurance policies do not provide flood coverage unless it is purchased separately or included as a special rider (additional coverage) to your policy. If you live in a flood zone or have even the remotest chance of flood damage, you will want to seriously consider purchasing additional flood insurance. While the coverage is generally not very expensive, it could mean the difference between losing everything you own and the ability to replace your home and possessions in the event of a flood or rising waters in your area.

Other exclusions frequently include earthquake, war, and nuclear accident which may or may not be applicable possibilities in your area. The important thing is to check your policy, read the fine print, and know what is and is not covered.

According to Jeff Peterson, an insurance agent for the American Family Insurance Company, the two basic forms of homeowners insurance on the market today are custom value - or basically market value - and replacement value policies. Your agent or insurance company may refer to the policy options using slightly different terms, but essentially the difference relates to how you are insuring your home's actual value and what you would be paid in the event of a loss.

According to Peterson, a custom value or market value plan insures your home for a set dollar figure based on the home's approximate market value. As an example, if you paid $100,000 for your home and insured it for $100,000 under this type of policy and it later burned to the ground, you would receive a $100,000 payout that you would presumably use to purchase another home of like size, construction, age, and value. This type of policy does not provide enough coverage to necessarily replace the home with or build a new home identical to the first.

Peterson explains that the second type of policy - the replacement policy - insures your home for the amount it would cost to build another home like your current home to replace it in the event of a total loss. This type of coverage is most commonly preferred when insuring a new home or a home in excellent condition. The premise here is that if you built a new home, for example, at a cost of $150,000, you would certainly want to be able to replace it with a new home of like size and quality in the event of a fire or another kind of loss.

The rates per $1,000 of coverage are different for the two kinds of coverage, so it's important to talk with your agent about the options available to you based on the kind of home you own and your budget. More coverage under a replacement policy may not necessarily cost any more than the lesser amount of coverage under a market value policy, for example. Many factors, including the home's age, general condition, and maintenance come into play.

In addition to dollar value coverage for your home itself, your personal possessions or the contents of your home, garage, and other buildings on your property should also be insured. Most plans automatically assign a percentage of the home's insured value as the limit for the personal possessions.

Peterson said the American Family homeowners policies he works with automatically provide personal property coverage at 75% of the value of the home coverage. In other words, if the home is insured for $100,000, then its contents are insured for $75,000.

Other policies may automatically provide personal property coverage at 50% of the home's value or some other percentage, so be sure to check.

Don't necessarily assume that the automatic coverage included in the package is adequate for your needs, however. Make an inventory of the contents of your home and calculate the cost to replace all those possessions in the event of a fire. When you start to add up the cost of furniture, clothing, dishes, curtains, rugs, books, jewelry, and other personal possessions, it can often exceed the figure specified in your policy. In this case, you will want to purchase additional personal property coverage so that you actually can replace those possessions in the event of a loss.

Most homeowners policies also have a cap or limit on the coverage for certain specific items like jewelry, guns, collectibles, computer equipment, and other special items. Pay particular attention to these limits. If the value of the jewelry, guns, collectibles, or other items you actually own exceed the limit, you will want to purchase an additional rider to your policy to insure those items for their actual value so you will be adequately covered in the event of a loss.

Some specific items - such as home-based business equipment and inventory and liability risks with a home-based business - may not be covered under a typical homeowners insurance policy and also require additional riders to be sure you have all your risks covered.

Read the fine print and ask plenty of questions to be sure you select the coverage that adequately protects you and your home.

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