In many instances, people do not give much importance on homeowners insurance shopping than in home buying since they are still in a cloud 9 with their new purchased house. The result is, new homeowners end up getting an insurance policy with too little coverage or paying more than what they should have. This mistake of course is not yet realized after a fire or other loss.
Moreover, people are often mistaken with the thought that the cost of their homeowner’s insurance policy should equal to the cost of their house or the house’s current market value. Others let the broker to take care of their homeowner’s insurance policy, which in turn creates a problem since brokers can only help with the decision making on what policies you should but do not exactly know what type of policy you and your house require. Thus, it is very important to take the first hand and identify types of coverage you need in order to ensure that you protect your most important asset.
The types of insurance coverage you need may include protection against theft, fire, earthquake, hurricane, or other natural calamities and accidental damages called insured perils.
There are certain degrees of protection that a homeowner’s insurance can give to your home.
First, there is the guaranteed replacement. Although this type of coverage is rarely offered by many companies, this is the best protection you can get. Say your home is originally worth $200,000, but over the years you have made some improvements to it: a new patio; a landscaped garden; and a kitchen expansion. These increase the value of your home plus the appreciated value, say $400,000. If your home was destroyed by a fire, the guaranteed replacement assures you that you get the $400,000 condition of your home. Since, it seems to be obvious that you are a winner in this type of coverage, the guaranteed replacement costs higher than other types of coverage.
Second, is the actual cash value. This type of policy covers cost of replacement the property or the house at its depreciated value at the time of loss.
Then, there is the extended replacement cost. This type of coverage gives you the actual cash value plus an extended replacement cost. Suppose that the amount of replacement costs $150,000 with an extended replacement cost of 200%. At your claim, you will get the replacement cost plus the extended replacement cost: 100% for the RC and another 100% for the ERC totaling to $300,000.
Same with the house coverage, there is also a level of protection to your property.
The actual cash value replaces your personal property at the cost of its original amount minus depreciation.
The replacement cost coverage replaces your lost personal property at its current market value. If you opt for this type of coverage, you will have to pay for additional premium compared to the actual cash value coverage.
The guaranteed replacement demands higher premium but it does not apply any cap or maximum pay-out. Increasing your deductibles will help you lower your premiums and make this coverage affordable.
Another coverage you should look into is personal liability coverage. A typical insurance coverage includes $100,000 worth of personal liability coverage. This can be used to pay out medical cost and legal expenses if a guest or a member of your family is injured at your home. Many mortgage lenders and insurance professionals would require or advice you to get $300,000 to $500,000 worth of personal liability coverage. This can be acquired with extra amount. You may also consider purchasing a personal umbrella coverage which begins once your liability coverage is exhausted. For example, your guest sues you for $700,000 for a severe injury he had at your home. After your home policy pays out $500,000, your personal umbrella will take care of the remaining amount. Personal umbrella costs a couple of hundred dollars annually but will give you somewhere close to a million dollars worth of coverage. This small investment will definitely give you a peace of mind.
Home, personal property, and personal liability are the most important coverage you need to have for your homeowner’s insurance. Discuss with your insurance company or broker what options are offered and the cost of each coverage.
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http://ezinearticles.com/?House-Mortgage--What-Coverage-You-Need&id=628525
