A Guide to Homeowner’s Insurance

You’ve finally bought that dream home you’ve always wanted. The possession date is set and the movers are lined up to get the family moved into your new home. Before you do, there is one very important task you have to perform beforehand. What is that, you ask? The answer is the purchasing of homeowner’s insurance. A house is an expensive investment and it is vital that you do everything possible to protect that investment against an unexpected catastrophe such as a fire or vandalism.

Not only do you want to protect the house, you’ve also spent a lot of cash on your personal things such as furniture, clothing, art work, books, tools and household goods, just to name a few. If you took stock of everything you own and figured out how much it would cost to replace all these precious items, the total will range in the tens of thousands of dollars to replace. Get them insured.

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 What does Homeowner’s Insurance Cover?

There are 3 main areas of coverage for homeowner’s coverage.

 The Home Itself

The home needs to be covered not just with the idea of covering repairs, but for its total replacement should it be completely destroyed. You must consider not only your investment or down payment, but also remember that the mortgage still has to be paid. The recommended amount of coverage you should have should be equivalent to the market or appraised value of the home. It is also vital that you re-visit the value of your home every other year at least become homes generally appreciate in value.

Don’t forget to consider house/hotel rental coverage either. If you are forced to vacate your home while it’s being replaced or repaired you will need somewhere to live.

 Your Possessions

When trying to figure what your possessions are worth, don’t be cavalier and pick a vague number out of the air. Include everything from your toothpaste to your most expensive item. Specialty items like valuable paintings, collectibles, and jewellery may need to be appraised separately and covered by additional riders. Most insurance companies strongly suggest you take pictures of all you possessions, and keep an up to date list of what you own to avoid disputes with the insurance company if you make a claim.  

Liability

All homeowner policies cover guests on your property for liability if they injure themselves such as a slip and fall on icy steps. Don’t scrimp on this portion of the policy because if the amount awarded the third party exceeds your coverage you will be responsible for the rest of it.

Coverage Options

Home owner policies generally have 3 types of coverage options. These options include:

1. Actual Cash Value – This type of coverage means the cost of replacement of the home or possessions less depreciation, and not what you paid for it. Most items depreciate at a rough rate of 10% per year. You can be out of a lot of money with this type of coverage.

2. Replacement Cost – This means you would be reimbursed for what you originally paid for the item. For example, if you bought an item 4 years and spent $300 then that’s what you would receive.

3. Guaranteed/Extended Replacement Cost – This is the most comprehensive form of coverage. It not considers the replacement cost of what you paid several years ago but the inflationary rate of what it would to replace at today’s value. However, there is usually a ceiling limit of between 20-25% on the amount of inflation coverage provided.

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