Homeowners insurance protects your home, its contents, and, indirectly, your other assets in the event of fires, theft, accidents or other disasters.
A standard homeowner’s policy will protect you from things like fires and fallen trees. Notice how we didn’t mention floods, windstorms or earthquakes—those events are specifically not covered by a standard policy and require additional coverage. Homeowners in some areas of the country may be required by their mortgage company to carry these kinds of policies.
A standard policy will also protect your possessions from said disasters as well as theft. But a standard policy is not a blank check: there’s a limit to how much you’ll be compensated. If you have specific items of value, such as jewelry or artwork, you can pay a little extra each year to insure them for their full replacement value.
Now, if someone is on your property and slips and falls and sprains his ankle, he might sue you for his medical expenses. Homeowners insurance covers your liabilities in this situation as well. And like the examples mentioned above, you can pay more for extra coverage. Homeowners insurance isn’t required by law, like auto insurance. But mortgage companies usually require you to obtain a policy before they’ll give you a loan.
Your home-insurance policy should cover enough to entirely rebuild and furnish your home were it wiped off the map. Ask a home builder to walk through your home and give you an estimate of what it would take to rebuild; that figure should be the basis for how much replacement coverage you’ll need. Be sure to point out any unique and/or expensive details that would add to the replacement cost.
Once you’ve determined the replacement cost of your home, you’ll need to know what kind of coverage you want. There are a few key terms here:
• Guaranteed Replacement Cost Coverage– This means that the insurer will pay for the rebuilding of your home no matter the cost. These policies are hard to find these days.
• Extended Replacement Coverage– Many insurers offer coverage that caps the payout at around 125% of your home’s insured value.
• Inflation Guarantee – This feature makes sure that your home’s appraised value stays current with the marketplace.
If you get a reliable appraisal, extended replacement coverage and an inflation guarantee, you should be in good shape. The appraisal provides a realistic starting figure and the inflation guarantee makes sure that your home’s price stays current. The 125% coverage means that, even if construction prices outpace inflation, they probably didn’t outpace it by 25%, so you should have enough money for whatever work you need done.
One last thing: The law requires you to have flood insurance if you live in an officially recognized high-risk area. To find out your flood risk and to find plans (which are offered by the government), go to [1] floodsmart.gov.
When it comes to protecting your possessions, you may want more coverage than your standard policy allows. If you have anything of exceptional value (a family heirloom, a piece of art, jewelry, etc.), you should insure it separately. Insurers will charge extra for this coverage (something like an extra $10 on your monthly premium per $1,000 of value insured), but it pays to be covered.
Also keep in mind that there are two different kinds of coverage when it comes to personal articles. There’s “actual cash value” and there’s “replacement cost.” You want coverage for replacement cost. Actual Cash Value Insurance is what you’d get if you sold your valuable today — a lower amount than what you initially paid. Replacement Cost Insurance pays you the amount of money you’d need to buy a brand-new item to replace your old one.-
For more information, contact us at www.contractorscapital.com or call at
763-784-3400.
