Knowing Your Homeowners Insurance Policy

Check Your Coverage to be Certain Your Policy Will Cover Your Needs

Knowing Your Homeowners Insurance Policy
April 16, 2013

Homeowners Insurance: Check Your Coverage

When you buy your own home, it is likely to be the biggest purchase you will ever make. You may have saved for two or three years for your down payment — or, depending on your financial situation, even longer — and you may also have a large mortgage payment.

So, what would you do if your home were destroyed in a fire? Move into a hotel or rent an apartment until your house is rebuilt? Who would cover the cost of your temporary accommodations, and who would pay for your beloved home to be rebuilt? Would you have sufficient savings to cover the associated costs? How would you handle the mortgage?

In reality, few people have sufficient savings to cover all of the above expenses. However, that should not be a problem for you since surely you took out homeowners insurance when you initially bought your property, right?

If you did, that’s great! Next, we will examine homeowners insurance in more depth to determine the level of coverage you should really have to give you piece of mind.

Dwellings insurance versus homeowners insurance

It is essential to be aware of the main difference between these two types of policies: Dwellings insurance only provides coverage for the structure of your home. Homeowners insurance provides coverage for the structure plus the contents of your home. Therefore, if you are currently residing in your home, you will need the latter form of insurance.

What property is covered?

You need to determine what coverage you have with your homeowners insurance, as it varies among different insurance companies and states. In general, there are four major categories of homeowners insurance:

  1. Dwelling: This covers your home’s physical structure, including the walls, the floor, and the roof.
  2. Other Structures: This type covers structures that are either separate from your home or connected to your home by something like a fence (e.g., a detached garage or a tool shed).
  3. Personal Property: The contents in your home that are covered by this type of insurance are your personal properties, including clothing, appliances, and furniture. However, you should note that such coverage is not provided for all personal properties, such as firearms.
  4. Loss of Use: Should your home be so badly damaged that you and your family are unable to continue living there, this coverage will pay for you to move into another temporary accommodation such as a hotel or a furnished apartment to maintain your usual standard of living.

What disasters are covered?

If you live on the curve of a busy road, it is important for you to know whether your insurance will cover you should a car crash into the side of your home. Similarly, if you live close to a river, you need to know whether you would be covered if the river were to burst its banks and flood your home.

Typically, a homeowners insurance policy will provide coverage for disasters such as lightning and fire as well as extended coverage. Extended coverage provides coverage for such things as broken glass, theft, vandalism, smoke, malicious mischief, vehicles, aircraft, hail, wildfires, tornadoes, hurricanes, and windstorms.

The important thing here is that you must determine what coverage your policy provides, noting that it may be possible and even necessary to purchase separate flood or earthquake policies if you fall within a flood or earthquake zone.

Amount of coverage

The majority of homeowners policies cover the cost to rebuild your home. However, this does not include the value of the land your property was built on; if your property were burnt to the ground, the land would remain.

In the case of your personal properties, you can usually choose whether you prefer to have the insurance company cover the replacement costs, enabling you to buy brand new items, or to simply cover the cash value of your items at the time when the insurance claim was made.

Deductible

You can often choose the amount of the deductible you will pay in the event of making a claim. If you have substantial savings, you may be happy with a larger deductible that will reduce your premium. On the other hand, if you don’t have much savings, you may want to avoid a large deductible when processing a claim for damage to your property/possessions.

Discounts

In the current economic climate, many households are trying to find ways to save money. There are a number of available discounts for homeowners insurance, so check to see whether one or more of the following applies to you, as the more that are true for you, the lower your homeowners insurance premium should be:

  • Are your doors fitted with deadbolts?
  • Do you have a sprinkler system installed in your home?
  • Do you have smoke detectors within your home?
  • Do you have an alarm system that is monitored?

If you can answer “yes” to these questions, you should succeed in obtaining a discount for your homeowners insurance.

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