Homeowners Insurance (HOI) - The Basics
When purchasing a home, your mind is probably filled with the details of the mortgage and the move. What kind of homeowners insurance you're receiving may be the last thing on your mind, but here's why it shouldn't be. Types and amounts of coverage vary considerably from policy to policy and company to company. Imagine how desperate you would be in the case of a total loss of your home, and you can begin to understand how important this choice is. You should never lose sight of the fact that it is your decision, and an important one to protect your number one asset.
You need to know how the homeowners insurance company will determine the value of your home, what is covered including the property in the home, and the level of liability coverage for damage accidentally caused to your home or someone else's property. How much would it cost to replace your belongings contained in the home? These and other questions should take center stage when selecting a home insurance policy.
The homeowners insurance company may determine the worth of your home several ways. Be sure you know which method they will use and how it could affect the amount you would receive in case of a total loss. The worth of your home can be expressed as both replacement cost and actual cash value. Replacement cost expresses the expense to rebuild or buy a comparable home and comparable items to those that were lost. Actual cash value expresses what the home and the items themselves are worth.
This is more potentially problematic for items such as clothing, as apparel can lose nearly 100% of its value immediately after purchase.
The second consideration has to do with whether the insurer plans to value your home at the time of policy or at the time of loss. You should consider this carefully, because appreciation of homes varies greatly from region to region and year to year. You will also want to consider how long you plan to live in the home and hold the policy. If you expect your home's value to stay at about the same level or go down before you move out or change your coverage, you'll want to have your coverage based on the value at the time of the policy. If you expect the value to increase rapidly and remain high until you move out or restructure your coverage, then a valuation at the time of loss will suit you better. Your insurer may or may not offer more than one option for valuing your home, but you can shop around and find an insurer who will value using the method you desire.
Do you need extended coverage? You should know how much coverage your basic homeowners insurance includes for items in your home. If you have jewelry, expensive electronics, silver, or other things of high value, ask yourself if your coverage would replace these items as well as all your other belongings. If not, you may be wise to purchase extended coverage to cover the most valuable items.
How much should be allotted for accidental damage to your home or to someone else's property? Your insurance agent can give you some insight, but ultimately the choice is up to you. This is one of the more overlooked, but equally important, parts of your homeowners insurance policy.
You can discuss your options with your insurance agent, a financial planner, and even friends and family, but be sure in the end that you're making the decision that is best for you. It is your home, after all, and home insurance offers you the peace of mind you should demand when making such a large investment.